UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE |
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SECURITIES EXCHANGE ACT OF
1934 |
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For the quarterly period ended September 30, 2014 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE |
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SECURITIES EXCHANGE ACT OF
1934 |
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For the transition period from ______________ to
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Commission file number: 000-51134
MMRGLOBAL, INC.
(Exact name of Registrant as Specified in Its Charter)
DELAWARE |
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33-0892797 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(I.R.S. Employer
Identification No.) |
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4401 WILSHIRE BLVD., SUITE 200
LOS ANGELES, CA |
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90010 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(310) 476-7002
(Registrant's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes x
No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files).
Yes x
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o
No x
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable
date: As of October 15, 2014, the issuer had 762,334,464 shares of common stock outstanding.
TABLE OF CONTENTS
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Page
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Part I. |
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FINANCIAL INFORMATION |
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1 |
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Item 1. |
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Condensed Consolidated Financial Statements - Unaudited |
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1 |
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Condensed Consolidated Balance Sheets at September 30, 2014 and December 31, 2013 |
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1 |
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Condensed Consolidated Statements of Operations - Three and Nine Months Ended September 30, 2014 and September 30, 2013 |
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2 |
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Condensed Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2014 and September 30, 2013 |
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3 |
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Notes to Condensed Consolidated Financial Statements - Unaudited |
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4 |
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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19 |
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Item 4. |
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Controls and Procedures |
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30 |
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Part II. |
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OTHER INFORMATION |
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31 |
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Item 1. |
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Legal Proceedings |
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31 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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31 |
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Item 6. |
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Exhibits |
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32 |
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Signatures |
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33 |
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PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements - Unaudited
MMRGLOBAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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September 30, |
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December 31, |
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2014 |
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2013 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
1,491,510 |
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$ |
10,359 |
Accounts receivable, less allowances of $345,692 in 2014 and 2013. |
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109,672 |
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146,298 |
Inventory |
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78,881 |
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65,238 |
Prepaid expenses and other current assets |
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153,714 |
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154,637 |
Total current assets |
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1,833,777 |
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376,532 |
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Long-term investments |
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Investment in equity securities, cost method |
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87,500 |
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87,500 |
Total long-term investments |
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87,500 |
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87,500 |
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Property and equipment, net |
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28,142 |
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38,393 |
Intangible assets, net |
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1,753,291 |
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1,670,033 |
Total assets |
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$ |
3,702,710 |
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$ |
2,172,458 |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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Current liabilities: |
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Line of credit, related party |
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$ |
941,093 |
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$ |
979,545 |
Related party payables |
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1,008,440 |
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1,147,697 |
Compensation payable |
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479,940 |
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402,079 |
Severance liability |
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620,613 |
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620,613 |
Accounts payable and accrued expenses |
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4,958,776 |
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5,264,527 |
Deferred revenue |
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59,741 |
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61,211 |
Convertible notes payable |
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1,043,356 |
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981,215 |
Notes payable, current portion |
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420,219 |
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375,343 |
Notes payable, related party |
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196,921 |
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196,921 |
Capital leases payable, current portion |
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13,221 |
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13,336 |
Total current liabilities |
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9,742,320 |
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10,042,487 |
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Capital leases payable, less current portion |
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- |
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3,522 |
Total liabilities |
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9,742,320 |
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10,046,009 |
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Commitments and contingencies (See Note 9) |
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Stockholders' deficit: |
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Preferred stock - $0.001 par value, 5,000,000 shares authorized, 0 issued and outstanding. |
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Common stock, $0.001 par value, 1,250,000,000 shares authorized,
762,001,130 and 684,367,465 shares issued and outstanding as of
September 30, 2014 and December 31, 2013, respectively |
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761,795 |
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684,536 |
Additional paid-in capital |
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56,131,833 |
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53,215,960 |
Accumulated deficit |
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(62,933,238) |
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(61,774,047) |
Total stockholders' deficit |
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(6,039,610) |
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(7,873,551) |
Total liabilities and stockholders' deficit |
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$ |
3,702,710 |
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$ |
2,172,458 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
1
MMRGLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenues |
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Subscriber |
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$ |
50,863 |
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$ |
32,542 |
$ |
109,581 |
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$ |
149,412 |
MMRPro |
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17,408 |
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25,716 |
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29,476 |
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263,313 |
License fees |
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1,828,000 |
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54,311 |
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2,290,538 |
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61,011 |
Other income |
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- |
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- |
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7,500 |
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61,410 |
Total revenues |
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1,896,271 |
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112,569 |
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2,437,095 |
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535,146 |
Cost of revenues |
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88,960 |
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93,825 |
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230,402 |
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198,079 |
Gross profit |
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1,807,311 |
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18,744 |
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2,206,693 |
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337,067 |
General and administrative expenses |
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1,186,972 |
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1,500,914 |
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3,530,193 |
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3,394,570 |
Sales and marketing expenses |
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261,553 |
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459,353 |
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1,087,943 |
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1,368,096 |
Technology development |
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7,254 |
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25,214 |
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57,890 |
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58,456 |
Income (loss) from operations |
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351,532 |
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(1,966,737) |
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(2,469,333) |
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(4,484,055) |
Othe income |
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1,672,820 |
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6,650 |
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1,672,820 |
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16,884 |
Interest and other finance charges, net |
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(104,031) |
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(283,229) |
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(362,678) |
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(434,918) |
Net income (loss) |
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$ |
1,920,321 |
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$ |
(2,243,316) |
$ |
(1,159,191) |
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$ |
(4,902,089) |
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Net loss available to common shareholders per share: |
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Basic and diluted |
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$ |
0.00 |
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$ |
(0.00) |
$ |
(0.00) |
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$ |
(0.01) |
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Weighted average common shares outstanding: |
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Basic |
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754,463,150 |
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622,461,551 |
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731,355,958 |
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589,935,992 |
Diluted |
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756,876,594 |
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622,461,551 |
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731,355,958 |
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589,935,992 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
2
MMRGLOBAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine Months Ended September 30, |
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2014 |
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2013 |
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Operating activities: |
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Net loss |
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$ |
(1,159,191) |
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$ |
(4,902,089) |
Adjustments to reconcile net loss to net cash |
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provided by (used in) operating activities: |
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Depreciation and amortization |
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227,488 |
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176,044 |
Accounts payable write-off |
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(1,672,820) |
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- |
Deferred rent |
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54,151 |
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- |
Warrants issued for services |
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144,232 |
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366,777 |
Stock-based compensation |
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582,485 |
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415,431 |
Common stock issued for services |
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293,422 |
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740,280 |
Accrued related party payables |
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- |
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- |
Amortization of loan discount |
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176,262 |
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265,664 |
Subtotal - Non-cash adjustments |
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(194,780) |
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1,964,196 |
Effect of changes in: |
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Accounts receivable |
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36,626 |
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(457,512) |
Inventory |
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(13,643) |
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2,865 |
Prepaid expenses and other current assets |
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923 |
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(61,053) |
Deposits |
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- |
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3,370 |
Accounts payable and accrued expenses |
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1,200,171 |
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1,164,427 |
Related party payables |
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279,885 |
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(99,955) |
Compensation payable |
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77,861 |
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177,891 |
Deferred revenue |
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(1,470) |
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33,461 |
Subtotal - net change in operating assets & liabilities |
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1,580,353 |
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763,494 |
Net cash provided by (used in) operating activities |
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226,382 |
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(2,174,399) |
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Investing activities: |
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Filing of patents |
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(246,868) |
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(370,346) |
Costs of continuing MMRPro and website development |
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(53,627) |
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(60,250) |
Net cash used in investing activities |
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(300,495) |
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(430,596) |
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Financing activities: |
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Net proceeds from convertible notes |
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200,000 |
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1,879,300 |
Proceeds from shares issued for financing activities |
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1,419,561 |
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828,952 |
Net proceeds from warrant exercises |
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42,000 |
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70,000 |
Proceeds from note payable |
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88,134 |
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54,000 |
Payments of note payable |
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(50,000) |
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(90,000) |
Payments of line of credit |
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(140,794) |
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(156,425) |
Payments of capital lease |
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(3,637) |
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(10,909) |
Net cash provided by financing activities |
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1,555,264 |
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2,574,918 |
Net increase (decrease) in cash |
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1,481,151 |
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(30,077) |
Cash, beginning of period |
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10,359 |
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36,655 |
Cash, end of period |
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$ |
1,491,510 |
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$ |
6,578 |
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Supplemental disclosures of cash flow information: |
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Cash paid for interest |
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$ |
140,794 |
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$ |
38,860 |
Cash paid for income taxes |
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$ |
1,600 |
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$ |
3,882 |
Supplemental disclosure of non-cash investing and financing activities: |
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Conversion of convertible notes into common stock |
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$ |
190,000 |
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$ |
1,582,919 |
Receipt of investment in equity securities |
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$ |
- |
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$ |
350,000 |
Cancellation of investment in equity securities |
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$ |
- |
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$ |
56,000 |
Acquisition of assets through capital lease |
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$ |
- |
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$ |
33,829 |
Shares issued for reduction of payables |
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$ |
196,812 |
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$ |
576,882 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
3
MMRGLOBAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2014
NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
MMRGlobal Inc. (referred to herein, unless otherwise indicated, as "MMR," the "Company," "we," "us," and "our") was originally incorporated as Favrille, Inc. ("Favrille") in Delaware in
2000, and since its inception and before the Merger (as defined below), operated as a biopharmaceutical company focused on the development and commercialization of targeted
immunotherapies for the treatment of cancer and other diseases of the immune system. In May 2008, Favrille's ongoing Phase 3 registration trial for the FavId™ vaccine failed to show a
statistically significant improvement in the treatment of patients with follicular B-cell Non-Hodgkin's lymphoma. On January 27, 2009, the Company, through MyMedicalRecords, Inc. ("MMR
Inc."), what is now our wholly-owned operating subsidiary, conducted a reverse merger with Favrille.
Through our wholly-owned operating subsidiary MMR Inc., the Company's primary business is to license and provide secure and easy-to-use online Personal Health Records ("PHR") and
MyEsafeDepositBox storage solutions, serving consumers, healthcare professionals, retailers, employers, insurance companies, financial institutions, and professional organizations and affinity
groups. Our PHR, marketed either directly via our website at
www.mymedicalrecords.com, through national
retailers selling the MyMedicalRecords PHR kit, or through private-label services, enables individuals and families to access their medical records and other important documents, such as birth
certificates, passports, insurance policies and wills, anytime from anywhere using an Internet-connected device.
The MyMedicalRecords PHR products and services are built on proprietary, globally patented and patent-pending technologies to allow data, documents, images and voicemail messages
including telemedicine and wellness data, to be transmitted and stored in the system using a variety of methods, including fax, phone, file upload, and discrete data transfers in HL7, XML or
other formats using APIs and without relying on any specific electronic medical record platform to populate a user's account.
We also offer the MyEsafeDepositBox service which provides secure online storage for vital financial, legal and insurance documents in addition to medical records using the same
patented technologies that drive the MyMedicalRecords PHR service. The functionality of the MyEsafeDepositBox service is also included in each MyMedicalRecords PHR account.
Our professional offering, MMRPro, is an end-to-end electronic document management and imaging system designed to give physicians' offices, community hospitals and surgery centers,
and other organizations an easy and cost-effective solution to digitizing paper-based medical records and sharing them with patients in a timely manner through an integrated patient portal,
MMRPatientView. The MMR Stimulus Program is offered with the MMRPro product offerings to help healthcare professionals recoup some or all of the cost of digital conversion of patient
charts when they upgrade patients from the free MMRPatientView portal to a full-featured MyMedicalRecords PHR. In January 2009, as a result of the Merger, we acquired biotech assets and
other intellectual property including anti-CD20 antibodies as well as data and samples from the FavId™/Specifid™ vaccine clinical trials for the treatment of B-cell Non-Hodgkin's
lymphoma. Notwithstanding the Company's focus on its primary business of licensing and selling its online Personal Health Record products services and professional document imaging and
management systems, the Company has also successfully developed a licensing program of its legacy biotech assets while continuing successful prosecution of the Company's Health
Information Technology, biotech patents and other IP.
Since 2005, MMR Inc. began filing for patent protection for its Health IT products and services. Our Health IT patent portfolio, through the recent quarter includes 13 U.S. patents (with over
300 issued claims), 17 pending U.S. patent applications (with over 300 claims), seven international patents including two in Australia with others in New Zealand, Singapore, Japan, Canada
and Mexico, and 26 other pending patent applications in foreign countries. These patents give us a unique marketplace position in Personal Health Records, being well-positioned to benefit
from the growth in Health IT globally. The full term of our Health IT patents will not expire until September 12, 2025 or after. We also own a portfolio of biotech patents which MMR acquired
from the Merger with Favrille which include, but are not limited to, data from our pre-Merger clinical vaccine trials, the FavId™/Specifid™ vaccine, and the anti-CD20 antibodies. As a
result of the issuance of these patents, our business is continuing to evolve to include both an operating entity and a licensor of intellectual property.
On March 8, 2011, we formed a subsidiary, which we named MMR Life Sciences Group, Inc., exclusively to maximize the value of our biotech assets including our patents, anti-CD 20
antibodies, and FavId vaccine technologies acquired by MyMedicalRecords, Inc. through the merger with Favrille. As of this date the assets have not been transferred to the subsidiary.
4
We (formerly Favrille) were incorporated in Delaware in 2000, MMR Inc. was incorporated in Delaware in 2005, and both are headquartered in Los Angeles, CA.
Principles of Consolidation
The consolidated financial statements include the accounts of MMRGlobal, and its wholly-owned subsidiaries MMR and MMR Life Sciences Group, Inc. All intercompany transactions
and balances are eliminated upon consolidation.
Basis of Presentation
We have prepared the accompanying consolidated unaudited financial statements in accordance with accounting principles generally accepted in the United States of America, or
GAAP, for interim financial statements and with instructions to Form 10-Q pursuant to the rules and regulations of Securities and Exchange Act of 1934, as amended, or the Exchange Act and
Article 8-03 of Regulation S-X promulgated under the Exchange Act. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of our management, we have included all adjustments considered necessary (consisting of normal recurring adjustments) for a fair presentation. Operating
results for the nine months ended September 30, 2014 are not indicative of the results that may be expected for the fiscal year ending December 31, 2014. You should read these unaudited
condensed consolidated financial statements in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2013.
Going Concern and Management's Plan
As of September 30, 2014, our current liabilities exceeded our current assets by $7.89 million. Furthermore, during the nine months ended September 30, 2014, we incurred losses of
$1.15 million, as further explained in Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in Item 2 of Part I of this Quarterly Report on Form 10-Q.
At September 30, 2014 and December 31, 2013, we had $1,491,510 and $10,359, respectively, in cash and cash equivalents. Historically, we issued capital stock, sold convertible debt
and equity securities and received funds from The RHL Group, Inc. (a significant stockholder that is wholly-owned by our Chairman and Chief Executive Officer, Robert H. Lorsch) to operate
our business. Although we received additional funding from The RHL Group pursuant to the Ninth Amended and Restated Note effective April 29, 2014 (the "Line of Credit"), we will still be
required to obtain additional financing in order to meet installment payment obligations and the previously existing obligations under the Line of Credit, which had a balance of $1.45 million at
September 30, 2014 and a total Unpaid Balance (as defined in the Line of Credit) of $2.77 million, which includes amounts borrowed under the Line of Credit, unpaid interest fees, any amounts
guaranteed by The RHL Group, and other obligations due the RHL Group pursuant to the terms of the Ninth Amended and Restated Note and the First Amended Security Agreement dated
June 26, 2012 (the "Security Agreement"). As a result of the above, we express uncertainty about our ability to continue as a going concern. The components of the RHL Group Note payable
and the related balance sheet presentation as of September 30, 2014 are as follows: $0.94 million, which is included in the line of credit, related party; and $0.51 million related to other
obligations due to The RHL Group which are included in related party payables.
Management's plan regarding our going concern is to continue utilizing the Line of Credit. At September 30, 2014, there was approximately $1.73 million available under the Line of Credit.
Furthermore, we plan to utilize portions of our standby equity facility with Granite State Capital LLC ("Granite") as needed. Finally, we plan to sell additional convertible debt and equity
securities, settle our existing liabilities through the issuance of equity securities, explore other debt financing arrangements, increase our existing subscriber and affiliate customer base, sell our
products and services, and collect licensing fees from parties utilizing our intellectual property to obtain additional cash flow over the next twelve months. There can be no assurance that funds
from these sources will be available when needed or, if available, will be on terms favorable to us or to our stockholders. If additional funds are raised by issuing equity securities, the
percentage of ownership of our stockholders will be reduced, stockholders will experience additional dilution and/or such equity securities may provide for rights, preferences or privileges senior
to those of the holders of our common stock. If we are unable to utilize our Line of Credit, our equity facility with Granite, obtain suitable alternative debt or equity financing, or increase sales of
our products of increase licensing fees from the use of our intellectual property, our ability to execute our business plan and continue as a going concern may be adversely affected.
These matters raise substantial doubt about our ability to continue as a going concern. These financial statements were prepared under the assumption that we will continue as a going
concern and do not include any adjustments that might result from the outcome of that uncertainty.
5
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) MANAGEMENT'S USE OF ESTIMATES
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. On an ongoing basis, management evaluates its estimates, including
those related to revenue recognition, allowances for doubtful accounts, the valuation of deferred income taxes, tax contingencies, long-lived and intangible assets, valuation of derivative
liabilities and stock-based compensation. These estimates are based on historical experience and on various other factors that management believes to be reasonable under the
circumstances, although actual results could differ from those estimates.
(b) CASH AND CASH EQUIVALENTS
We consider cash equivalents to be only those investments that are highly liquid, readily convertible to cash and with maturities of 90 days or less at the purchase date. We maintain
our cash in bank deposit accounts that, at times, may exceed federally insured limits. We have not experienced any losses in such accounts and believe that we are not exposed to any
significant credit or deposit risk on our cash. We had cash and cash equivalents of $1,491,510 and $10,359 as of September 30, 2014 and December 31, 2013, respectively.
(c) TRADE AND OTHER RECEIVABLES
Receivables represent claims against third parties that will be settled in cash. The carrying value of receivables, net of an allowance for doubtful accounts, if any, represents their
estimated net realizable value. We estimate the allowance for doubtful accounts, if any, based on historical collection trends, type of customer, the age of outstanding receivables and existing
economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, we give further consideration to the collectability of those balances and
the allowance is adjusted accordingly. We write off past due receivable balances when collection efforts have been unsuccessful in collecting the amount due.
(d) COST METHOD INVESTMENT
We account for our long term investments in accordance with ASC 325-20. We hold a minority equity investment in a private company, which is recorded as Investment in equity
securities. This investment is accounted for under the cost method of accounting as we own less than 20% of the voting equity and only have the ability to exercise nominal, not significant,
influence over the investee. We monitor this investment for impairment and make appropriate reductions in carrying value if necessary.
(e) INVENTORY
Inventory is stated at the actual cost, using the first-in, first-out method. On an on-going basis, we evaluate our inventory for obsolescence. This evaluation includes analysis of sales
levels, sales projections, and purchases by item. If future demand or market conditions are different than our current estimates, an inventory adjustment may be required, and would be
reflected in cost of goods sold in the period the revision is made.
(f) FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820-10, Fair Value Measurements and Disclosures, requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair value. ASC 820-10 defines the fair value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. As of September 30, 2014 and December 31, 2013, the carrying value of accounts receivable, deposits, related party payables,
compensation payable, severance liabilities, and accounts payable and accrued expenses approximates fair value due to the short-term nature of such instruments. The carrying value of
short-term debt approximates fair value as the related interest rates approximate rates currently available to us.
We utilize ASC 820-10 for valuing financial assets and liabilities measured on a recurring basis. ASC 820-10 defines fair value, establishes a framework for measuring fair value and
generally accepted accounting principles, and expands disclosures about fair value measurements. This standard applies in situations where other accounting pronouncements either permit or
require fair value measurements. ASC 820-10 does not require any new fair value measurements.
6
Accounting guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value.
The standard describes three levels of inputs that may be used to measure fair value:
|
Level 1: |
Quoted prices in active markets for identical or similar assets and liabilities. |
|
Level 2: |
Quoted prices for identical or similar assets and liabilities in markets that are not active or observable inputs other than quoted prices in active markets for identical or
similar assets and liabilities. |
|
Level 3: |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
(g) IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLES
We account for long-lived assets, which include property and equipment and identifiable intangible assets with finite useful lives (subject to amortization), in accordance with ASC 350-30.
ASC 350-30 requires that we review long-lived assets for impairment whenever events or changes in circumstances indicate that we may not recover the carrying amount of an asset. We
measure recoverability by comparing the carrying amount of an asset to the expected future undiscounted net cash flows generated by the asset. If we determine that the asset may not be
recoverable, or if the carrying amount of an asset exceeds its estimated future undiscounted cash flows, we recognize an impairment charge to the extent of the difference between the fair
value and the asset's carrying amount. Our assessment of the undiscounted future cash flows indicated that the carrying amount of the long-lived and intangible assets are recoverable,
therefore, we had no impairment charges during the nine months ended September 30, 2014 and 2013.
(h) REVENUE RECOGNITION
We generate our revenues from services, which are comprised of providing electronic access to consumer medical records and other vital documents, and from the licensing of our
intellectual property and services. We recognize revenue only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and we are
reasonably assured of collectability of the resulting receivable.
Our subscriber revenues consist of annual and monthly recurring retail subscriptions and usage-based fees, which are primarily paid in advance by credit card, and corporate accounts that
are based on either an access-fee or actual number of users, and in each case billed in advance at the beginning of each month of service. We defer the portions of annual recurring
subscription fees collected in advance and recognize them on a straight line basis over the subscription period.
We license the rights to use portions of our intellectual property portfolio, which includes certain patent rights essential to the sale of certain PHR products. Licensees typically pay a license
fee in one or more installments and ongoing royalties based on their sales of products incorporating or using the Company's licensed intellectual property. License fees are recognized over the
estimated period of benefit to the licensee, typically five to fifteen years. The Company earns royalties on such licensed products sold by its licensees at the time that the licensees' sales occur.
The Company recognizes royalty revenues based on royalties reported by licensees during the quarter and when other revenue recognition criteria are met.
We grant exclusive and non-exclusive licenses for the sale and marketing of our services in international territories in consideration of license fees and ongoing royalties. The royalty fee is
usually a percentage of revenue earned by the licensee and there are usually certain minimum guarantees. We defer the recognition of license fee revenues received in advance from
international licensees for the grant of the license and recognize them over the period covered by the agreement. We defer the recognition of minimum guaranteed royalty payments received in
advance and recognize them over the period to which the royalty relates. We include all such revenues under "License Fees." In those cases where a license agreement contains multiple
deliverables, we account for the agreement in accordance with ASC 605-25, Revenue Recognition - Multiple-Element Arrangements.
We recognize revenue on sales of our MMRPro system in accordance with ASC 605-25, Revenue Recognition, Multiple-Element Arrangements.
7
Our multiple-deliverable arrangements consist solely of our MMRPro product. Significant deliverables within these arrangements include sophisticated scanning equipment, various licenses
to use third party software, a license to use our proprietary MMRPro application software, installation and training, dedicated telephone lines, secure online storage and warranties.
We determined all elements to be separate units of accounting as they have standalone value to the customers and/or they are sold by other vendors on a standalone basis. Delivery of the
hardware and certain software elements of these arrangements occur at the inception of the agreement. We deliver installation and training at the inception of the agreement. We provide other
software licenses, telephone lines and online secure storage over the three year term of the agreement. We include warranties in the arrangements, however the third party product
manufacturer, and not us, is obligated to fulfill such warranties. The third-party warranty contracts are paid in advance and are not refundable.
We allocate the revenue derived from these arrangements among all the deliverables. We base such allocation on the relative selling price of each deliverable. With the exception of our
proprietary MMRPro application software, we use third party evidence to set the selling prices used for this allocation. In all such cases, third parties sell the same or very similar products. For
the MMRPro application software, we estimate the selling price based on recent discussions regarding licensure of that particular application on a standalone basis. To date, we have not
licensed this software on a standalone basis.
We recognize the allocated revenue for each deliverable in accordance with SEC Staff Accounting Bulletin ("SAB") No. 104, Topic 13: Revenue Recognition. Under this guidance,
we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable and collectability is
reasonably assured. This results in us recognizing revenue for the hardware, certain software and the warranties upon delivery to the customer, for the installation and training upon completion
of these services, and ratably over the contract period for the software licenses, telephone lines and online secure storage.
Revenue from the licensing of our biotech assets may include non-refundable license and up-front fees, non- refundable milestone payments that are triggered upon achievement of a
specific event, and future royalties or lump-sum payments on sales of related products. For agreements that provide for milestone payments, such as our agreement with Celgene, we adopted
ASC 605-28-25, Revenue Recognition Milestone Method.
(i) SHARE-BASED COMPENSATION
We account for share-based compensation in accordance with ASC 718-20, Awards Classified as Equity. We apply ASC 718- 20 in accounting for stock-based awards issued
to employees under the recognition of compensation expense related to the fair value of employee share-based awards, including stock options and restricted stock. Determining the fair value
of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise, the associated volatility and the expected
dividends. Judgment is required in estimating the amount of share-based awards expected to be forfeited prior to vesting. If actual forfeitures differ significantly from these estimates,
share-based compensation expense could be materially impacted.
We account for options and warrants issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non- Employees. We treat options and warrants issued
to non-employees the same as those issued to employees with the exception of determination of the measurement date. The measurement date is the earlier of (1) the date at which a
commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete. Options and warrants granted
to consultants are valued at their respective measurement dates, and recognized as an expense based on the portion of the total consulting services provided during the applicable period. As
further consulting services are provided in future periods, we will revalue the associated options and warrants and recognize additional expense based on their then current values.
8
We estimate the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. We determine assumptions relative to volatility and anticipated forfeitures
at the time of grant. We valued grants of stock options and warrants during the nine months ended September 30, 2014 and 2013 using the following assumptions.
|
September 30, 2014 |
|
September 30, 2013 |
Expected life in years |
0 - 5 Years |
|
0 - 5 Years |
Stock price volatility |
144.64% - 171.22% |
|
120.51% - 122.72% |
Risk free interest rate |
0.10 - 1.64% |
|
0.04% - 1.38% |
Expected dividends |
None |
|
None |
Forfeiture rate |
0% |
|
0% |
We base the assumptions used in the Black-Scholes models upon the following data: (1) our use of the contractual life of the underlying non-employee warrants
as the expected life; the expected life of the employee options used in this calculation is the period of time the options are expected to be outstanding and has been determined based on
historical exercise experience; (2) in the absence of an extensive public market for our shares, the expected stock price volatility of the underlying shares over the expected term of the option or
warrant was taken at approximately the mid-point of the range for similar companies at the various grant dates; (3) we base the risk free interest rate on published U.S. Treasury Department
interest rates for the expected terms of the underlying options or warrants; (4) we base expected dividends on historical dividend data and expected future dividend activity; and (5) we base the
expected forfeiture rate on historical forfeiture activity and assumptions regarding future forfeitures based on the composition of current grantees.
(j) NET INCOME/LOSS PER SHARE
We apply the guidance of ASC 260-10, Earnings Per Share for calculating the basic and diluted loss per share. We calculate basic loss per share by dividing the net loss
attributable to common stockholders by the weighted average number of common shares outstanding. We compute diluted loss per share similar to basic loss per share except that the
denominator is increased to include the number of additional common shares that would have been outstanding if the potential shares had been issued and if the additional shares were
dilutive. We exclude common equivalent shares from the computation of net loss per share if their effect is anti-dilutive.
We excluded all potential anti-dilutive common shares from the computation of diluted net loss per common share for the three and nine months ended September 30, 2014 and 2013
because they were anti-dilutive due to our net loss position. Stock options, warrants and convertible notes excluded from the computation totaled 114,917,439 shares for the three and nine
months ended September 30, 2014 and 201,195,775 shares for the three and nine months ended September 30, 2013, respectively.
(k) RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, which requires an entity to
recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition
guidance in U.S. GAAP when it becomes effective. This new guidance is effective for the Company in the first quarter of 2017, with no early adoption permitted. The standard permits the use of
either the retrospective or cumulative effect transition method. At this time we have not selected a transition method. We are currently evaluating the effect that ASU 2014-09 will have on our
consolidated financial statements and related disclosures.
In August 2014, the FABS issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). ASU 2014-15 will
explicitly require management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The new standard will be effective
for all entities in the first annual period ending after December 15, 2016. Earlier adoption is permitted. We are currently evaluating the impact of the adoption of ASU 2014-15. The adoption of
this standard is not expected to have a material impact on the Company's consolidated financial statements.
9
NOTE 3 - RELATED PARTY PAYABLES, LINE OF CREDIT AND NOTE PAYABLE
On August 13, 2013, we and The RHL Group entered into an Eighth Amended and Restated Promissory Note (the "Amended Note"), effective as of August 13, 2013. The
Amended Note amends and restates that certain Seventh Amended Note entered into between the foregoing parties, effective April 29, 2013 (the "Existing Note" and together with its
predecessor notes and the Amended Note, the "Credit Facility"), by: (i) extending the maturity date to April 29, 2014; (ii) requiring a $1,000 per month minimum payment. In connection
with the Eighth Amended Note, we issued The RHL Group warrants to purchase 2,852,200 shares of our common stock at $0.04 per share. Except as set forth above, the Amended Note does
not materially alter the terms of the Existing Note.
On July 10, 2014, we and The RHL Group entered into a Ninth Amended and Restated Promissory Note (the "Amended Note"), effective as of April 29, 2014. The Amended Note
amends and restates that certain Eighth Amended Note entered into between the foregoing parties, effective April, 29, 2014 (the "Existing Note" and together with its predecessor
notes and the Amended Note, the "Credit Facility"), by: (i) extending the maturity date to April 29, 2015. In connection with the Ninth Amended Note, we issued The RHL Group
warrants to purchase 2,781,561 shares of our common stock at $0.035 per share on July 10, 2014. Except as set forth above, the Amended Note does not materially alter the terms of the
Existing Note.
Historically, the predecessor notes have, over time, increased the maximum amount of credit available under the Credit Facility from $100,000 to $1,000,000 to $3,000,000 to $4,500,000.
The maximum amount of the Amended Note is $4,500,000. The Amended Note continues to bear interest at the lesser of 10% or the highest rate then permitted by law, and is secured (similar
to the Existing Note) by a Security Agreement, which has been in effect since July 31, 2007, as renewed and amended to date (the "Security Agreement").
The Ninth Amended Note had a balance of $1.45 million at September 30, 2014. The components of the Ninth Amended Note and the related balance sheet presentation as of September
30, 2014 are as follows: $0.94 million, which is included in the line of credit, related party; and $0.51 million for other obligations due to The RHL Group, which is included in related party
payables.
Total interest expense on the Line of Credit for the three months ended September 30, 2014 and 2013 amounted to $36,952 and $32,613, respectively. Total interest expense on the Line
of Credit for the nine months ended September 30, 2014 and 2013 amounted to $98,985 and $101,613, respectively. The unpaid interest balances as of September 30, 2014 and December
31, 2013 were $0 and $24,049, respectively.
In conjunction with the Ninth Amended Note, we were required to maintain certain financial covenants, including the requirement that we have at least $200,000 of cash in our bank
accounts or such other amount as necessary to maintain operations through the subsequent thirty (30) days and timely pay any obligations due respecting payroll and all associated payroll
taxes on and after September 30, 2014. As of September 30, 2014, the Company was in compliance with these covenants.
NOTE 4 - INCOME TAXES
Under ASC 740-270, Income Taxes - Interim Reporting, we are required to adjust our effective tax rate each quarter to be consistent with the estimated annual effective tax
rate. We are also required to record the tax impact of certain discrete items, unusual or infrequently occurring, including changes in judgment about valuation allowances and effects of changes
in tax laws or rates, in the interim period in which they occur. In addition, we exclude jurisdictions with a projected loss for the year or a year-to-date loss where we cannot recognize a tax
benefit from our estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and
timing of actual earnings versus annual projections.
Pursuant to ASC 740, Income Taxes, we performed an analysis of previous tax filings and determined that there were no positions taken that it considered uncertain. Therefore,
there were no unrecognized tax benefits as of September 30, 2014.
MMR Inc., in its capacity as the operating company taking over our income tax positions in addition to its own positions after January 27, 2009 (see Note 1), has estimated its annual
effective tax rate to be zero. MMRGlobal has based this on an expectation that the combined entity will generate net operating losses in 2014, and it is not likely that those losses will be
recovered using future taxable income. Therefore, no provision for income tax has been recorded as of and for the three and nine months ended September 30, 2014.
10
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Leases
Effective September 1, 2013, we renewed our lease for office space in Los Angeles, California with a term through August 31, 2018. The lease currently requires a monthly
payment of $12,375.
Rent expense is recorded under the straight-line method over the life of the lease. In the current quarter, we
received a credit of $30,250 from the landlord as a discount on the current year's rent. Total rent expense for the three months ended September 30, 2014 and 2013
were $13,795 and $24,840, respectively. Total rent expense for the nine months ended September 30, 2014 and 2013 was $129,276 and $76,615, respectively.
Future minimum lease payments as of September 30, 2014, under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) and future minimum capital
lease payments are as follows:
Year Ending |
|
|
Operating |
|
|
Capital |
December 31, |
|
|
Leases |
|
|
Leases |
|
|
|
|
|
|
|
2014 (Remainder of) |
|
$ |
41,250 |
|
$ |
9,699 |
2015 |
|
|
170,500 |
|
|
3,522 |
2016 |
|
|
187,550 |
|
|
- |
2017 |
|
|
206,305 |
|
|
- |
2018 and there after |
|
|
146,410 |
|
|
- |
|
|
|
752,015 |
|
|
13,221 |
Less current portion |
|
|
(166,375) |
|
|
(13,221) |
Total minimum lease payments |
|
$ |
585,640 |
|
$ |
- |
Litigation Matters
From time to time, we are involved in various legal proceedings generally incidental to our business. While the result of any litigation contains an element of uncertainty, our
management presently believes that the outcome of any known, pending or threatened legal proceeding or claim, individually or combined, will not have a material adverse effect on our
financial statements.
On December 9, 2011, MyMedicalRecords, Inc. entered into a Non-Exclusive Settlement and Patent License Agreement with Surgery Center Management
LLC ("SCM"). In consideration for the rights granted under that Agreement and in consideration of a settlement and release agreement, SCM contracted to pay MyMedicalRecords,
Inc. an initial payment of $5 million payable on December 23, 2011, and additional payments of $5 million per year for five consecutive years. After unsuccessful attempts to collect the past due
amount of $5 million, on January 19, 2012, MyMedicalRecords, Inc. filed a lawsuit in the Superior Court of the State of California for the County of Los Angeles for breach of contract and seeks
damages in an amount of $30 million. On February 13, 2014, SCM filed an answer to the complaint and a cross-complaint alleging claims for breach of that contract, among other things. On
July 10, 2014, the court granted SCM's motion for summary adjudication on the claim for breach of contract in the complaint and its counterclaim for declaratory relief, which is the subject of an
appeal, and sustained in its entirety a demurrer filed by a separate party to the first amended cross-complaint. On July 30, 2014, SCM filed its second amended cross-complaint, alleging
substantially the same claims. MyMedicalRecords, Inc. will continue to pursue its claim and defenses, but the Company cannot predict the chances of either a favorable or unfavorable
outcome, nor does the Company have sufficient information regarding its ability to collect any judgment MyMedicalRecords, Inc. may obtain.
On February 11, 2013, MMR filed a complaint for patent infringement against WebMD Health Corp. and its wholly owned subsidiary WebMD Health Services Group, Inc.
(collectively, "WebMD"), titled MyMedicalRecords, Inc. v. WebMD Health Corp et al., United States District Court, Central District of California. That complaint alleged that WebMD is
infringing MMR's Personal Health Records patent U.S. Patent No. 8,301,466. MMR subsequently withdrew the complaint per an agreement allowing MMR to the right to re-file without
prejudice unless an agreement is reached within a specific period of time. On August 27, 2013, MMR terminated the agreement with WebMD. On October 2, 2013, MMR filed a new complaint
against WebMD in the United States District Court for the Central District of California, alleging infringement of U.S. Patent Nos. 8,301,466 and 8,498,883. The Court issued a claim
construction order on September 4, 2014, and granted MMR's motion to amend its infringement contentions with respect to the `466 Patent against all defendants on November 7. This
matter is currently in the discovery phase. While we maintain that MMR's patents are valid and infringed, we do not have enough facts at this time to predict the changes of either a favorable
or unfavorable outcome nor do we have any facts upon which to base any information regarding collectability.
11
On April 10, 2013, MMR filed a complaint for patent infringement against Quest Diagnostics Inc. ("Quest") in the United States District Court for the Central District of California, alleging
that Quest Diagnostics Inc. is infringing U.S. Patent No. 8,301,466. On October 11, 2013, MMR filed an unopposed motion to add a claim of infringement of U.S. Patent 8,498,883 to its
complaint against Quest, which was granted on October 29, 2013. The Court issued a claim construction order on September 4, 2014, and granted MMR's motion to amend its infringement
contentions with respect to the `466 Patent against all defendants on November 7. This matter is currently in the discovery phase. While we maintain that MMR's patents are valid and
infringed, we do not have enough facts at this time to predict the changes of either a favorable or unfavorable outcome, nor do we have any facts upon which to base any information
regarding collectability.
On May 17, 2013, MMR filed a complaint for patent infringement against Jardogs, LLC (the "Jardogs Complaint") in the United States District Court for the Central District of California,
alleging that Jardogs, LLC infringes U.S. Patent No. 8,301,466. On September 23, 2013, MMR filed a separate complaint for patent infringement against Allscripts Healthcare Solutions Inc.
("Allscripts") titled MyMedicalRecords, Inc. v. Allscripts Healthcare Solutions Inc., United States District Court, Central District of California (the "Separate Allscripts Complaint"). The Separate
Allscripts Complaint alleged that Allscripts is infringing U.S. Patent Nos. 8,301,466 and 8,498,883. On October 4, 2013, MMR filed a motion to amend the Jardogs Complaint to add Allscripts
as a party defendant and to allege that Allscripts is infringing U.S. Patent Nos. 8,301,466 and 8,498,883. The Court granted that motion on November 1, 2013. Thereafter, MMR dismissed the
Separate Allscripts Complaint. The Court issued a claim construction order on September 4, 2014, and granted MMR's motion to amend its infringement contentions with respect to the `466
Patent against all defendants on November 7. This matter is currently in the discovery phase. While we maintain that MMR's patents are valid and infringed, we do not have enough facts at
this time to predict the changes of either a favorable or unfavorable outcome, nor do we have any facts upon which to base any information regarding collectability.
MMR had received a letter from Sunil Singhal, a former employee. Mr. Sunil Singhal was employed as Executive Vice President of Technology and Product Development at MMR. He was
placed on a 30-day administrative leave on February 13, 2012 and was given a 30-day notice of termination as approved by the Board of Directors of MMRGlobal on February 29, 2012. On
March 30, 2012, Mr. Singhal was officially terminated. He filed a charge with the U.S. Equal Employment Opportunity Commission, but that body has declined to take action. In turn, he filed a
claim with the California Department of Fair Employment and Housing ("DFEH"). The DFEH had declined to bring a citation, but it has issued a "right to sue" notice. Mr. Singhal
filed suit in the Los Angeles County Superior Court in 2013. MMR answered the complaint denying liability and damages. On June 19, 2014, the matter was mediated before a private mediator
and a confidential settlement was reached in September 2014 and finalized in October 2014.
NOTE 6 - STOCKHOLDERS' DEFICIT
Preferred Stock
We have 5,000,000 shares of preferred stock authorized. As of September 30, 2014, and December 31, 2013, there were no shares of preferred stock issued and outstanding.
Common Stock
As of September 30, 2014, we are authorized to issue 1,250,000,000 shares of common stock.
On May 24, 2012, we filed a registration statement on Form S-1 related to the offer and resale of up to 100,000,000 shares of our common stock by Granite. Granite has agreed to
purchase all 100,000,000 shares offered sale under the registration statement, and an additional 1,000,000 shares were issued to Granite as partial consideration for the preparation of the
documents related to the registration statement. Subject to the terms and conditions of the agreement with Granite, we have the right to put up to $15 million in shares of our common stock to
Granite. As of September 30, 2014, the amount available under the equity line facility was $13.1 million; however, that amount could be reduced based on the market price of our stock at the
time any shares are sold.
As of September 30, 2014, the total shares of our common stock issued and outstanding amounted to 762,001,130.
NOTE 7 - EQUITY ISSUANCES
Stock Option Activity
Our 2001 Equity Incentive Plan (the "2001 Plan") expired on June 5, 2011 and no options were issued under the 2001 Plan since that date. As of September 30, 2014, 16,484,557
shares remain issued under the 2001 Plan.
12
On September 1, 2011, our Board of Directors approved the adoption of a new plan to replace the 2001 Plan under the same general terms as the 2001 Plan. On June 20, 2012, our
stockholders voted and approved the 2011 Equity Incentive Plan (the " 2011 Plan") at our 2012 Annual Stockholder Meeting. As of September 30, 2014, 22.66 million shares remain issued
under the 2011 Plan, and 39.34 million shares of our common stock are reserved for future issuance under our 2011 Plan, which includes an automatic 5 million share annual increase pursuant
to the terms of the 2011 Plan and a 20 million share increase authorized during our 2013 Annual Stockholder's Meeting.
A summary of option activity for the nine months ended September 30, 2014 is presented below. Options granted by MMR Inc. prior to the date of the Merger have been retroactively
restated to reflect the conversion ratio of MMR Inc. to MMR shares.
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted- |
|
Remaining |
|
|
|
|
|
|
|
|
Average |
|
Contractual |
|
|
Aggregate |
|
|
|
|
|
Exercise |
|
Life |
|
|
Intrinsic |
|
|
Options |
|
|
Price |
|
(Years) |
|
|
Value |
Outstanding at December 31, 2013 |
|
39,891,722 |
|
$ |
0.10 |
|
5.08 |
|
$ |
- |
Granted |
|
500,000 |
|
$ |
0.06 |
|
- |
|
$ |
- |
Exercised |
|
(450,000) |
|
$ |
0.08 |
|
- |
|
$ |
- |
Cancelled |
|
(800,000) |
|
$ |
0.08 |
|
- |
|
$ |
- |
Outstanding at September 30, 2014 (Unaudited) |
|
39,141,722 |
|
$ |
0.10 |
|
4.72 |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest |
|
|
|
|
|
|
|
|
|
|
at September 30, 2014 (Unaudited) |
|
39,141,722 |
|
$ |
0.10 |
|
4.72 |
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2014 (Unaudited) |
|
37,941,722 |
|
$ |
0.10 |
|
4.65 |
|
$ |
- |
The aggregate intrinsic value in the table above is before applicable income taxes and is calculated based on the difference between the exercise price of the
options and the quoted price of the common stock as of the reporting date.
On May 20, 2014 we granted one employee options to purchase 500,000 shares of our common stock at an exercise price of $0.06 per share as an incentive. The options vest on the one
year anniversary and expire five years after the date of issuance.
Total stock option expenses recorded during the three months ended September 30, 2014 and 2013 were $9,189 and $69,728, respectively.
Total stock option expenses recorded during the nine months ended September 30, 2014 and 2013 were $151,634 and $177,931, respectively.
The following table summarizes information about stock options outstanding and exercisable at September 30, 2014.
|
|
|
Options Outstanding |
|
Options Exercisable |
|
|
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
Weighted |
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
Average |
|
|
Average |
|
Exercise |
|
Number |
|
|
Remaining |
|
|
Exercise |
|
Number |
|
|
Remaining |
|
|
Exercise |
|
Price |
|
of Shares |
|
|
Life (Years) |
|
|
Price |
|
of Shares |
|
|
Life (Years) |
|
|
Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.05 - 0.09 |
|
13,500,000 |
|
|
6.91 |
|
$ |
0.07 |
|
12,300,000 |
|
|
6.89 |
|
$ |
0.07 |
$ |
0.10 - 0.15 |
|
23,011,461 |
|
|
3.69 |
|
$ |
0.11 |
|
23,011,461 |
|
|
3.69 |
|
$ |
0.11 |
$ |
> 0.15 |
|
2,630,261 |
|
|
4.70 |
|
$ |
0.19 |
|
2,630,261 |
|
|
4.70 |
|
$ |
0.19 |
|
|
|
39,141,722 |
|
|
|
|
|
|
|
37,941,722 |
|
|
|
|
|
|
13
Warrants
On March 4, 2014, we granted an unrelated third party a warrant to purchase 500,000 shares of our common stock in consideration for services. This warrant vests immediately and
has an exercise price of $0.06 per share, and an expiration date of February 28, 2015.
On March 4, 2014, we granted an unrelated third party a warrant to purchase 500,000 shares of our common stock. This warrant vests upon three successful Hospital Sign ups of MMR
Patient View Portal and has an exercise price of $0.10 per share, and an expiration date of February 28, 2015.
On March 4, 2014, we granted an unrelated third party a warrant to purchase 250,000 shares of our common stock in consideration for services. This warrant vests in six months and has
an exercise price of $0.06 per share, and an expiration date of March 4, 2016.
On March 27, 2014, we granted an unrelated third party a warrant to purchase 250,000 shares of our common stock in consideration for services. This warrant vests in one year and has an
exercise price of $0.06 per share, and an expiration date of March 27, 2019.
On April 8, 2014, we granted and unrelated third-party a warrant to acquire 250,000 shares of common stock in consideration for services. The warrant vests equally over three years, has
an exercise price of $0.06 per share, and an expiration date of April 8, 2019.
On April 30, 2014, we granted and unrelated third-party a warrant to acquire 250,000 shares of common stock in consideration for services. The warrant vests equally over three years, has
an exercise price of $0.06 per share, and an expiration date of April 30, 2019.
On May 29, 2014, we granted an unrelated third party a warrant to purchase 500,000 shares of our common stock as part of a warrant exchange program. This warrant vests immediately
and has an exercise price of $0.024 per share, and an expiration date of May 29, 2015.
On May 29, 2014, we granted an unrelated third party a warrant to purchase 500,000 shares of our common stock in consideration for services. This warrant vests in one year and has an
exercise price of $0.06 per share, and an expiration date of May 29, 2015.
On July 10, 2014, we granted the RHL Group a warrant to purchase 2,781,561 shares of our common stock in connection with the renewal of the line of credit through the Ninth Amended
Note. This warrant has an exercise price of $0.035 per share, with an expiration date of June 4, 2019, and vests at commencement.
A summary of the activity of our warrants for the nine months ended September 30, 2014 is presented below:
|
|
|
|
Weighted Avg |
|
Shares |
|
|
Exercise Price |
Outstanding at December 31, 2013 |
88,571,841 |
|
$ |
0.07 |
Granted |
5,781,561 |
|
$ |
0.05 |
Exercised |
(2,250,000) |
|
$ |
0.04 |
Cancelled |
(18,574,992) |
|
$ |
0.11 |
Outstanding at September 30, 2014 (Unaudited) |
73,528,410 |
|
$ |
0.06 |
|
|
|
|
|
Exercisable at September 30, 2014 (Unaudited) |
67,707,577 |
|
$ |
0.06 |
Total warrant expenses recorded during the three months ended September 30, 2014 and 2013 were $81,197 and $215,222, respectively.
Total warrant expenses recorded during the nine months ended September 30, 2014 and 2013 were $144,232 and $346,777, respectively.
14
The following summarizes the total warrants outstanding and exercisable as of September 30, 2014:
|
|
Warrants Outstanding |
|
Warrants Exercisable |
|
|
Warrants |
|
Weighted Avg |
|
|
Weighted Avg |
|
Warrants |
|
Weighted Avg |
|
|
Weighted Avg |
Ranges |
|
Outstanding |
|
Remaining Life |
|
|
Exercise Price |
|
Exercisable |
|
Remaining Life |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.02 - $0.025 |
|
73,528,410 |
|
2.12 |
|
$ |
0.06 |
|
67,707,577 |
|
2.13 |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,528,410 |
|
|
|
|
|
|
67,707,577 |
|
|
|
|
|
The inputs used for the Black-Scholes option and warrant valuation model were as follows:
|
September 30, 2014 |
|
September 30, 2013 |
Expected life in years |
0 - 5 Years |
|
0 - 5 Years |
Stock price volatility |
144.64% - 171.22% |
|
120.51% - 122.72% |
Risk free interest rate |
0.10 - 1.64% |
|
0.04% - 1.38% |
Expected dividends |
None |
|
None |
Forfeiture rate |
0% |
|
0% |
Shares Issued for Services or Reduction to Liabilities
During the nine months ended September 30, 2014, we issued 14,690,354 shares of common stock with a value of $490,234 to various third parties and charged the proceeds to the
appropriate accounts for the following reasons:
|
|
Nine Months Ended September 30, 2014 |
Purpose |
|
Shares |
|
|
Value |
|
|
|
|
|
|
Reduction of payables |
|
5,744,804 |
|
$ |
196,812 |
Services provided |
|
8,945,550 |
|
$ |
293,422 |
Totals |
|
14,690,354 |
|
$ |
490,234 |
The 14,690,354 issued shares were not contractually restricted. However, as these shares have not been registered under the Securities Act of 1933, as amended (the "Act"), they are
restricted from sale until they are registered under the Act, or qualify for resale under the rules promulgated under the Act. All such shares were calculated at the trading closing price on the
date of issuance.
Stock Bonus Agreements
From time to time, we issue shares of our common stock as a bonus for services rendered. Stock bonuses may be awarded upon satisfaction of specified performance goals pursuant
to the Performance Stock Bonus Agreement.
On each grant date, we valued the stock bonus based on the share price and the expenses were amortized using the straight line method. Total stock bonus expenses recorded during the
three months ended September 30, 2014 and 2013 were $63,000 and $178,125, respectively. Total stock bonus expenses recorded during the nine months ended September 30, 2014 and
2013 were $245,375 and $237,500, respectively, and are reflected in operating expenses in the accompanying consolidated statements of operations.
As of September 30, 2014, 7,000,000 shares of restricted stock previously issued remained unvested, and unrecognized compensation cost with respect to these instruments amounted to
$63,000, which will be recognized in earnings during 2014.
15
NOTE 8 - NOTES PAYABLE
Notes payable consisted of the following:
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
Promissory notes payable due to the former officers of MMRGlobal as part of severance
packages, due in full on August 31, 2009 with no stated interest |
|
$ |
76,783 |
|
$ |
76,783 |
|
|
|
|
|
|
|
Promissory notes payable due to the former officers of MMRGlobal pursuant to the
Resignation and Post-Merger Employment Arrangement, due in full on August 31, 2009
with no stated interest |
|
|
25,444 |
|
|
25,444 |
|
|
|
|
|
|
|
Promissory notes payable due to vendors relating to settlement of certain outstanding
accounts payable, payable in 18 equal monthly installments commencing on July 27, 2009
and ending on January 27, 2011, with no stated interest |
|
|
223,116 |
|
|
223,116 |
|
|
|
|
|
|
|
Short term loan due to a third-party with no stated interest |
|
|
94,876 |
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
420,219 |
|
|
375,343 |
Less: current portion |
|
|
(420,219) |
|
|
(375,343) |
Notes payable, less current portion |
|
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
Short term loan due to a related-party, payable in full on
January 2, 2014 with 12% interest |
|
$ |
196,921 |
|
$ |
196,921 |
|
|
|
|
|
|
|
Notes payable related party, current portion |
|
|
196,921 |
|
|
196,921 |
Less: current portion |
|
|
(196,921) |
|
|
(196,921) |
Notes payable related party, less current portion |
|
$ |
- |
|
$ |
- |
NOTE 9 - CONVERTIBLE PROMISSORY NOTES
From time to time, we issue Convertible Promissory Notes. As of September 30, 2014, a total of $1,128,858 in convertible notes remained outstanding. As of September 30, 2014,
$763,858 of these Notes have matured, however, the Company and the Holders have agreed to keep the balance as a Note Payable and the note holders have elected not to convert their note
balances into shares of our common stock as of September 30, 2014.
Each Note contains the following general terms and provisions:
- The principal amount owed under each note becomes due and payable one year or less from the investment date provided that, upon ten (10) days' prior written notice to the holder, we
may, in our sole discretion, extend the maturity date for an additional six month term. The Notes can be further extended upon mutual agreement.
- These notes bear interest at a rate of 6% per annum payable in cash or shares of common stock or a combination of cash and shares of common stock at our option.
During the first quarter of 2014, we did not enter into any Convertible Promissory Notes.
During the second quarter of 2014, we entered into one Convertible Promissory Note with one unrelated third-party for a principal amount of $200,000. This note has the option to be
converted into a total of 6,779,661shares of our common stock. As of September 30, 3014, this note has not been converted.
During the third quarter of 2014, we did not enter into any Convertible Promissory Notes.
16
For the three and nine months ended September 30, 2014, we recognized the intrinsic value of the embedded beneficial conversion feature of $0 and $124,120, respectively, as additional
paid-in capital and an equivalent discount that reduced the carrying value of the convertible notes.
The related discount for the beneficial conversion outstanding was $35,155 and $46,782 for the three and nine months ended September 30, 2014.
Shares issuable upon conversion for convertible notes payable was 84,395,206 and 82,902,337 as of September 30, 2014 and 2013, respectively.
The total interest expense attributed to the Beneficial Conversion Feature of the Notes and related warrants for the three months ended September 30, 2014 and 2013 was $35,155 and
$198,380, respectively.
The total interest expense attributed to the Beneficial Conversion Feature of the Notes and related warrants for the nine months ended September, 2014 and 2013 was $121,261 and
$265,664, respectively.
NOTE 10 - RESTRUCTURING ACTIVITIES
From May 29, 2008 to November 7, 2008, Favrille, Inc. had provided notices under the Federal Worker Adjustment and Retraining Notification Act to 142 employees, including six
members of senior management, that it planned to conduct a workforce reduction at its facility in San Diego, California and that their employment was expected to end on various dates
between June 6, 2008 to November 7, 2008. Immediately prior to the date of the Merger on January 27, 2009, the total severance liability relating to former Favrille employees amounted to
$1,682,416. On January 27, 2009, immediately prior to the Merger, as part of the 9,999,992 warrants issued to creditors, we issued warrants as settlement of $985,020 of these amounts.
These warrants expired unexercised as of March 31, 2014. In addition, we signed promissory notes with certain former executives totaling $76,783.
As of September 30, 2014, the total remaining severance liabilities amounted to $620,613, which is reflected as severance liability on the accompanying consolidated balance sheets. This
consists of $571,362 payable to former non- executive employees in 18 monthly installments starting on July 27, 2009, as well as $49,251 in estimated payroll tax.
During the period from January 27, 2009 through June 30, 2009, we entered into a series of settlement agreements with certain vendors of Favrille pursuant to the Creditor Plan, pursuant
to which we settled $302,982 of its outstanding accounts payable for an aggregate settlement amount of $214,402, including promissory notes of $139,355.
NOTE 11 - RELATED PARTY TRANSACTIONS
Our Chairman and Chief Executive Officer, Robert H. Lorsch, is also the Chief Executive Officer of The RHL Group, Inc. and has full voting power over all of the capital stock of The
RHL Group, Inc. Mr. Lorsch directly and indirectly through The RHL Group, Inc., beneficially owns approximately 12.8% our total outstanding voting stock. The RHL Group, Inc. has loaned us
money pursuant to the Ninth Amended Note and all predecessor notes. See Note 3 - Related Party Note Payable above.
The RHL Group is an investment holding company which provides consulting, operational and technical services to us, which we refer to as the RHL Services. As part of the RHL Services,
The RHL Group provides us with unrestricted access to its internal business and relationship contact database of more than 10,000 persons and entities, which includes clients of The RHL
Group and other individuals which may hold value to us. The RHL Group also provides infrastructure support to us, including allowing us unlimited access to its facilities, equipment, and data,
information management and server systems. In addition to allowing us the use of its office support personnel, The RHL Group has also consented to allow us to utilize the full-time services of
Mr. Lorsch as our President, Chairman and Chief Executive Officer, which requires substantial time and energy away from his required duties as The RHL Group's Chairman and Chief
Executive Officer. In addition, The RHL Group has made its President, Kira Reed, available as our spokesperson. Ms. Reed, who is Mr. Lorsch's spouse, also manages our social networking
activities.
In consideration for the above, The RHL Group, Inc. has a consulting arrangement with MMR. A copy of the consulting agreement is filed as an exhibit in our Form 8-K, as filed with the
SEC on May 4, 2009 and is hereby incorporated by reference.
17
We incurred $12,500 during the three months ended September 30, 2014 and 2013 and $37,500 during the nine months ended September 30, 2014 and 2013, toward marketing consulting
services from Bernard Stolar, a director. We included $164,509 and $109,756 in related party payables as of September 30, 2014 and December 31, 2013, respectively, in connection with
these services and board fees.
We contract with a significant vendor for the development and maintenance of the software applications necessary to run our MyMedicalRecords PHR, MyEsafeDepositBox and MMRPro
products. Our outside developer supports our software development needs through a team of software engineers, programmers, quality control personnel and testers, who work with our
internal product development team on all aspects of application development, design, integration and support of our products. This vendor is also a stockholder.
For the three months ended September 30, 2014 and 2013, the total expenses relating to this stockholder amounted to $30,000 and $30,000, respectively. For the nine months ended
September 30, 2014 and 2013, the total expenses relating to this stockholder amounted to $90,000 and $90,000, respectively. As of September 30, 2014 and December 31, 2013, the total
amounts due to the stockholder and included in related party payables amounted to $110,000 and $396,800, respectively.
On September 15, 2009, we entered into a five year agreement with E-Mail Frequency, LLC and David Loftus, managing partner of E-Mail Frequency, LLC, a significant stockholder of the
Company. We license an existing 80 million person direct marketing database (the "Database") of street addresses, cellular phone numbers, e-mail addresses and other comprehensive data
with E-Mail Frequency. The agreement allows us to market, through the use of the Database, our MyMedicalRecords PHR, MyEsafeDepositBox virtual vault, and MMRPro document
management system to physicians and their patients. Under the terms of the Agreement, we paid $250,000 to David Loftus as a one-time consulting fee in the form of 2,777,778 shares of our
common stock.
We recorded the $250,000 one-time licensee fee as a prepaid consulting fee. Amortization expense for the three months ended September 30, 2014 and 2013 was $12,500. Amortization
expense for the nine months ended September 30, 2014 and 2013 was $37,500. Effective September 1, 2011, we signed and Amendment to the Agreement dated September 15, 2009 to
provide licensor a non-exclusive right to target, market and sell into the Employee Benefits market.
We incurred a total of $0 and $0 during the three months ended September 30, 2014 and 2013 and $0 and $15,020 during the nine months ended September 30, 2014 and 2013,
respectively, toward convertible notes interest to Mr. Loftus.
We included convertible notes interest to Mr. Loftus in related party payables at September 30, 2014 and December 31, 2013 of $64,615 and $64,615, respectively.
NOTE 12 - SUBSEQUENT EVENTS
We have evaluated subsequent events of our condensed consolidated financial statements. There were no material subsequent events requiring additional disclosure in these financial statements.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related notes appearing elsewhere in
this Quarterly Report on Form 10-Q and the description of our business appearing in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the SEC on March 31,
2014 (the "Form 10-K"). This discussion contains forward-looking statements, which inherently involve risks and uncertainties. Please see "Cautionary Note Regarding Forward-Looking
Statements" below. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk
Factors" in Item 1A of the Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains certain forward-looking statements. The words "anticipate," "expect," "believe," "plan," "intend," "will" and similar expressions are
intended to identify such statements. Although the forward-looking statements in this Quarterly Report on Form 10-Q reflects the good faith judgment of our management, such statements are
subject to various risks and uncertainties, including but not limited to the following:
- Our ability to monetize our Health Information Technology patents and other IP
- Our ability to maximize our legacy biotechnology assets and otherwise protect our intellectual property assets;
- Our ability to obtain financing to fund our operations;
- Our inability to generate sufficient cash flow to service our debt obligations;
- The ability to generate subscribers for our products and services given the current competitive landscape;
- Our ability to adapt our products to conform to any technical specifications necessary to benefit from stimulus package funding;
- Our ability to raise dilutive and non-dilutive capital in order to meet our financial obligations and invest in our business to grow revenues, including risks related to our trading in the Over the
Counter market;
- Our ability to launch new products or to successfully commercialize our existing or planned products;
- Managing costs while building an effective sales and service delivery organization for our products with our small management team;
- Our ability to enter into marketing arrangements with large membership and affinity organizations for our products and maintain and grow subscribers from such arrangements, such as
those noted above, particularly after the initial introductory period; and
- The possible invalidity of the underlying assumptions and estimates related to our business and market;
- Conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors and legislative, judicial and other governmental
authorities and officials; and
- Possible changes or developments in economic, business, industry, market, legal and regulatory circumstances.
Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond our control. Any of such assumptions could be inaccurate. You should not place undue reliance on these
forward-looking statements, which are based on our current views and assumptions. In evaluating these statements, you should specifically consider various factors, including the foregoing risks and
those outlined under "Risk Factors" in Item 1A of the Form10-K. Our forward-looking statements represent estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q.
Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.
Overview
Background
We provide secure and easy-to-use online Personal Health Records ("PHRs") electronic safe deposit box storage solutions, and document management and imaging systems for
healthcare professionals. Our MyMedicalRecords PHR, which we sell to consumers, healthcare professionals, retailers, employers, insurance companies, professional organizations and affinity
groups, enables individuals and families to safely maintain and access copies of their medical records and other important documents such as birth certificates, passports, insurance policies
and wills, anytime from anywhere using the Internet. The MyMedicalRecords Personal Health Record is built on proprietary, patented technologies to allow documents, images and voicemail
messages to be transmitted and stored in the system using a variety of methods, including fax, phone, or file upload without relying on any specific electronic medical record platform to
populate a user's account.
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We also offer the MyEsafeDepositBox service which provides secure online storage for vital financial, legal and insurance documents in addition to medical records using the same
patented technologies that drive the MyMedicalRecords PHR service. Our professional offering, MMRPro, is designed to give physicians' offices an easy and cost-effective solution to digitizing
paper-based medical records and securely sharing them online with patients in a timely manner.
We now have numerous Health IT and Biotech patents issued, pending, and applied for in the United States and numerous other countries around the world. As a result, we have evolved
from an operating business selling products and services to consumers and healthcare professionals to a company whose value proposition is based on a combination of factors including:
- A Personal Health Records company specializing in storing medical records and other important documents for consumers and healthcare professionals;
- A document imaging and management company for healthcare professionals;
- A licensor of Biotech Intellectual Property based on a portfolio of biotech assets developed at a cost of more than 100 million dollars; and
- A licensor of Health Information Technology patents and other Intellectual Property in numerous counties around the world.
For a description of our patents, see Intellectual Property section below.
Source of Revenues
MMR remains focused on its primary Health IT business of selling the MyMedicalRecords PHR and MMRPro document and imaging systems for healthcare professionals. We
derive revenues from the provision of services, which are comprised of facilitating electronic access to consumer medical records and other vital documents through subscribers on a direct
subscription basis or an "access" basis through various types of organizations including direct sales, affinity and membership groups, healthcare organizations and retailers, and in both cases,
we record these revenues under "Subscriber" in our income statement. We also sell direct to consumers through paid advertising or other per enquiry marketing relationships. When sold to
corporations, affinity and membership organizations, hospitals and other business to business customers, we charge a minimum monthly fee plus user fees to the organization based on the
number of users who will have access to our services through such organization, whether or not such users actually activate there authorized account. During the three and nine months ended
September 30, 2014, we received $50,863, and $109,581 from subscriber revenues, respectively, which represents 2.7% and 4.5% of our revenues for such periods, respectively.
In addition, MMR has numerous patents issued, pending or applied for pertaining to provisioning of online medical and Personal Health Records in 12 countries of commercial interest
including the U.S. Accordingly, as of this point in time, the Company has filed five significant patent infringement complaints against the following defendants: Walgreens Co., Quest Diagnostics
Incorporated, Jardogs LLC, WebMD Health Corp./WebMD Health Services Group, Inc., and Allscripts Healthcare Solutions, Inc. in an effort to enforce its global intellectual property rights and
protect and expand its brand. The complaint against Walgreens was settled, and while the Company remains optimistic about additional settlements and licensing agreements, it cannot predict
the outcome of litigation or any licensing negotiations, and it plans on continuing to enforce its intellectual property rights where appropriate. The Company is also in negotiations with several
providers of HIT products and services regarding strategic relationships that also involve licensing its IP without the need for litigation. The Company has already demonstrated its ability to
enter into such Patent Agreements with several licensees and strategic relationships domestically and internationally including 4Medica, VisiInc PLC, AccessMyRecords, drugstore.com,
Walgreens, Whole Foods Market, XN Financial, Interbit Data, Coverdell, Fairway Physicians Insurance Company, Vida Senior Resources, Cerner Corporation, Salutopia, and Claydata.
Notwithstanding those infringement matters where complaints have been filed, the Company continues to focus on settlement of infringement matters wherever possible. Such settlements
may include the purchasing and reselling of the Company's products and services in addition to the licensing of intellectual property domestically, internationally or exclusively in selected
vertical markets in consideration of significant license fees. As a result of some of these settlements, the Company believes it will generate meaningful revenue from licensing in addition to
revenues from retail sales and direct-to-consumer business.
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We also derive our revenues from the sale of our MMRPro system, which includes an optional scanner, various licenses to use third party software, a license to use MMR's proprietary
MMRPro application software, dedicated telephone lines, secure online storage and product warranties. Installation and training are provided as part of the sales agreement. Software licenses,
telephone lines, online secure storage and warranties are provided over the three year term of the agreement. Our customers pay these contracts in advance and are not refundable. The
Company's latest offering, MMRPro Plus, does not require the use of a scanner.
MMRPro Plus, is one of the most cost-effective ways for healthcare professionals to scan and digitize medical records while providing patients timely online access to their personal health
information through MyMedicalRecords. MMRPro Plus is also an integrated, end-to-end document scanning and imaging solution that works with virtually any Windows-based or Mac OS
scanning system at one-third the cost of the original MMRPro network scanning solution. With more health care professionals adopting Electronic Medical Record systems demand is
increasing for cost-effective scanning and document management solution. Specialty practices including ambulatory surgery centers, home health care professionals, chronic care disease
managers and in particular concierge medical professionals are a few of the many areas requiring the ability to store paper based records in EMR systems. MMRPro with our integrated patient
portal, MMRPatientView, meets that need. Additionally, as the use of Teleconsulting and Telemedicine becomes more prevalent and there is the move to reimburse telecare services,
MMRPro's patient portal and MyMedicalRecords PHR are solutions that provide a proprietary platform to facilitate collaboration between doctors and other healthcare providers with patients,
such as those programs in development with Alcatel-Lucent and ng Connect. We allocate the revenue derived from MMRPro and MMRPro Plus allocated to all the deliverables based on the
relative selling price of each deliverable. With the exception of MMR's proprietary MMRPro application software, we used third party evidence to set the selling prices used for this allocation.
During the three and nine months ended September 30, 2014, we recognized $17,408, and $29,476 from MMRPro revenues, respectively, which represents 0.9% and 1.2% of our revenues for
such periods, respectively.
We also generate revenues from the licensing of our Health IT and biotech assets, which may include non-refundable license and up-front fees, non-refundable milestone payments that
are triggered upon achievement of a specific event and future royalties or lump-sum payments on sales of related products. We record these licensing revenues under "License Fees" in our
income statement. We are sometimes paid an upfront license fee and milestone payments and we recognize those fees as revenue as payments are received. In addition, the Company is also
continuing to work on licensing and otherwise exploiting a portfolio of biotech assets, including its anti-CD20 monoclonal antibodies, data from vaccine trials, tumor samples, and other
intellectual property including numerous worldwide patents in various stages. We intend to continue generating revenues from the licensing of our biotech and health IT patents. We will record
those fees as revenue when payments are received. During the three and nine months ended September 30, 2014, we received $1,828,000 and $462,538 from license fees revenues,
respectively, which represents 96.4% and 94.0% of our revenues for such periods, respectively.
We also have generated revenues from licensing the sale and marketing of our services internationally and, to a lesser extent, from ancillary fee payments including web and marketing
development services, amongst others. We record these licensing revenues under "License Fees" and other ancillary revenues under "Other Revenues" in our income statement. When we
enter into a licensing arrangement, we are sometimes paid an upfront license fee and typically receive ongoing royalty payments that are often based on a percentage of revenue earned by our
licensee. We recognize these fees over the license period. When we receive ancillary one-time payments, we record them when services or products are delivered.
Cost of Revenue
Our cost of revenue includes the cost of manufacturing our retail product and related packaging, maintaining our voice and fax mailboxes, long-distance call transport costs, fax
and voice call processing costs, credit card transaction processing costs, web hosting and management fees, website maintenance and support costs, costs associated with creating and
mailing enrollment packages to our subscribers and the cost of scanners. Cost of revenue also includes customer service costs. We also charge to cost of revenue our direct selling costs,
which include commissions paid to sales representatives who sell our wholesale and access based accounts.
Operating Expenses
The largest component of our operating expenses is our general and administrative expenses, which include personnel salaries and benefits, office rent and supplies, insurance
costs, fees for legal and professional services, as well as our expenses for corporate telecommunications and internet access not associated with our products. Our operating expenses also
include sales and marketing expenses (which include expenses associated with attending trade shows and travel costs, as well as a portion of personnel salaries allocated to sales and
marketing activities), as well as technology development expenses (which includes expenses related to research and development as well as a portion of personnel salaries allocated to
development activities).
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Recent Accounting Pronouncements
For a description of recent accounting pronouncements and how we apply such pronouncements to our financial statements, see the accompanying notes to our consolidated
financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Factors Affecting Future Results
Intellectual Property
Since inception, our health IT business has evolved from a development stage company, to a provider and reseller of Personal Health Records and document imaging and
scanning systems (MMR Services), to a Licensor of MMR's intellectual property. Throughout 2014, we remained focused on maximizing the value of our intellectual property portfolio,
particularly our 13 U.S. health IT patents that have been granted to date.. Our health IT patent portfolio, which we have been building since 2005, currently includes our U.S. patents (with over
300 issued claims), 17additional pending U.S. patent applications (with over 300 claims), seven foreign patents including two in Australia, one in Mexico (with an additional application allowed
and waiting issuance), New Zealand, Singapore, Japan, and Canada, and 26 other pending patent applications in foreign countries. These patents have the potential effect of enabling us to
control a dominant marketplace position in personal healthcare, being well-positioned to benefit from the explosion in Health IT globally. The full term of our Health IT patents will not expire until
September 12, 2025 or after.
Our health IT patent portfolio includes issued patents on our Health IT products and services including our MyMedicalRecords, MyEsafeDepositBox and MMRPro and MMRPro Plus
product and services, which is in addition to our portfolio of biotech patents. MMR acquired significant intellectual property assets from the Merger with Favrille and continues to seek ways to
exploit and monetize those assets, which include, but are not limited to, data from our pre-Merger clinical vaccine trials, the FavId™/Specifid™ vaccine, and the anti-CD20
antibodies.
The Company now has three patent portfolio groups comprising of over 49 issued patents and additional pending applications and continuation applications. The first group is directed at
Electronic Medical Records with a primary focus on Personal Health Records; another group
centers around the use of PHRs in connection with Clinical Trials, which MMR plans on licensing through existing relationships with Big Pharma and the biotech community. The third group
includes MMR's legacy biotech patents from the Company's FavId™ vaccine trials and clinical research related to cancer-fighting anti-CD20 monoclonal antibodies.
Health IT Patents
Through our wholly owned subsidiary, MyMedicalRecords, Inc., we currently have 13 issued U.S. patents. During the third quarter, we received our twelfth patent on July 1st,
U.S. Patent No. 8,768,725 entitled "Method and System for Providing Online Records," which has 15 claims including claims directed to the sharing of records with a second
healthcare provider to better manage and facilitate second opinions. Our thirteenth patent, U.S. Patent No. 8,775,212, "Electronic Health Records in Clinical Trials," was issued on
July 8th and includes 18 claims directed to methods and systems which provide for self-reporting in clinical trials. This is a whole new patent, not a continuation patent, and the
Company believes it opens the door to completely new revenue generating opportunities through sales and licensing of MMR's
Personal
Health Record products and services and other patented intellectual property to Contract Research Organizations and pharmaceutical companies conducting
clinical trials. Because clinical trials are extremely time-consuming and expensive, we believe the `212 patent and additional continuation patents coming from this patent will be of significant
value to the Company.
Our most recent two patents in the third quarter were preceded earlier this year by the issuance on May 13, 2014 of our eleventh U.S. patent, 8,725,537, entitled "Method and System
for Providing Online Records," which expands MMR's Health IT patents with claims directed toward storing, managing and sharing legal records. This patent has the effect of broadening
MMR's intellectual property beyond PHRs and other forms of Electronic Medical Records into the legal field, which is particularly relevant to the management of wills and powers of attorney and
advanced directives which can be included as part of an individual's
Personal Health Record account. Our
tenth U.S. patent, 8,645,161, entitled "Method and System for Providing Online Records," was issued on February 4, 2014. The `161 patent covers 30 claims directed toward methods for
accessing and collecting health records by providing a user interface that further includes a number of additional features which collect and display prescriptions, help submit prescriptions to
pharmacies, collect and display health insurance information, send outgoing faxes, allow users to annotate health records, and set up appointment reminders for visits with providers as wells as
recurring medication reminders through a calendaring function.
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Also in 2014, a ninth patent entitled "Method for Providing a User with a Web-Based Service for Accessing and Collecting Health Records." was issued on January 7, 2014, U.S.
Patent No. 8,626,532. The patent includes 27 claims, a portion of which are directed toward enabling users to access and collect their medical records in a secure and private manner using
wireless devices such as smartphones, tablets or telemedicine platforms, amongst other systems, and represented a significant addition to MMR's U.S. patent portfolio. In 2013, we were
issued U.S. Patent Nos. 8,352,287 and 8,352,288 on January 8, 2013, and U.S. Patent No. 8,498,883 on July 30, 2013.
Internationally, we have Health IT patents issued, pending and applied for in 11 other countries or regional authorities of commercial interest. Seven of the issued patents, each entitled
"Method and System for Providing Online Medical Records," are in Australia, New Zealand, Singapore, Mexico, Japan and Canada. With the Canadian patent issued in September 2013, our
Health IT intellectual property includes all of North America. On September 24, 2014, we received a Notice of Allowance from the Mexican Institute of Industrial Property (IMPI) for Mexican
Patent Application No. MX/a/2012/001633. The allowed patent application is directed toward computer systems for managing Personal Health Records and communicating with healthcare
providers. Of particular significance is an emergency access feature that allows emergency responders or healthcare providers to have access to important health information in a user's
Personal Health Record account in the event of an emergency. MMR has additional patent applications pending relating to the emergency access feature in the U.S. and elsewhere throughout
the world. MMR also has 26 other pending patent applications in foreign countries or regional authorities further including, Hong Kong, Israel, South Korea, Japan, Mexico, Europe, and China.
There is also a pending Patent Cooperation Treaty ("PCT") application.
Additionally, MMR has hundreds of patent claims in pending U.S. applications including 17 U.S. utility patent applications related to health information technology. These include
applications directed toward a Mobile Platform for Personal Health Records, a Method and System for Managing Personal Health Records with Telemedicine and Personal Health Monitoring
Device Features, Prepaid Card Services related to Personal Health Records, a Universal Patient Record Conversion Tool, Data Exchange with Personal Health Record Service, Delivery of
Electronic Medical Records or Electronic Health Records into a Personal Health Records Management System, a Health Record with Inbound and Outbound Fax Functionality, a Method and
System for Providing Online Medical Records with Emergency Password, Identifying Individual Associated with a Personal Health Record with Health Record Destination Address, Method for
Providing a User with a Service for Accessing and Collecting Records, Identifying a Personal Health Record Using a Phone Number, and Personal Health Record with Genomics, We believe
that many of the pending claims will ultimately be allowed including both health IT and non-health IT/medical applications which are pending in our entire patent portfolio.
With MMR's patent issuances, we believe we hold significant foundational patents under a "Method and System for Providing Online Medical Records," and "Method and System for
Providing Online Records" and that the patents are relevant to any provider who transmits Electronic Health Records in that they limit their ability to communicate without infringement. As
a result, the process of enforcement and licensing of our patent portfolio through the law firms of Liner LLP (aka Liner Grode Stein Yankelevitz Sunshine Regenstreif& Taylor
LLP) and The Fuisz-Kundu Group LLP, with the support of other law firms on a case by case basis, continues to build in 2014.
The Liner law firm is also representing us in the collection of $30 million dollars under our Settlement and Patent License Agreement with SCM as further described in our Litigation Matters
section.
Exploiting MMRGlobal Biotech Assets and Patents
Although our primary business is the web-based storage and management of personal and professional health and vital records, we acquired intellectual property rights to certain
biotech assets through the 2009 Merger with Favrille, Inc. which currently include five U.S. patents, four U.S. pending patent applications, 24 patents in foreign countries and 18 pending patent
applications in foreign countries. Following the acquisition of the initial biotech assets, we have perfected the patent condition of numerous assets, including the revival of Favrille's original U.S.
Patent directed to treating B-cell pathologies, along with ongoing additional filings to enhance the international value associated therewith. As a result, we now have biotech patents and patent
applications pending in 23 foreign countries of commercial interest that provide competitive advantages for this biotechnology. The foreign countries include major European, Asian, North
American, and South American markets, including for example, in the United States, Mexico, Australia, Brazil, Canada, China, Hong Kong, Singapore, Europe (including United Kingdom,
France, Germany, Switzerland, Spain, Italy, the Netherlands, Denmark, Sweden, Finland, Ireland and Belgium), India, Japan, and South Korea. The biotech assets include technologies relating
to anti-CD20 monoclonal antibodies and B-Cell vaccine patents.
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The anti-CD20 monoclonal antibody assets continue to result in issued patents in the U.S. and foreign countries. Notices of Allowance and thereafter patents for our anti-CD20 monoclonal
antibody assets have been issued for patents titled "Antibodies and Methods for Making and Using Them." Most recently, the U.S. Patent and Trademark Office issued an additional Notice of
Allowance on October 5, 2014 which will result in the second U.S. patent (upon issuance in early 2015) for the anti-CD20 monoclonal antibody assets. The Mexican patent office was the first to
grant a patent for this technology as Patent No. 302058. Thereafter, as announced on April 15, 2013, we received a Notice of Allowance from the United States Patent and Trademark Office,
resulting in U.S. Patent No. 8,465,741 (issued in June 2013), for our first U.S. patent for the anti-CD20 monoclonal antibody IP. Shortly thereafter, on April 22, 2013, we announced that the
Australian Patent Office had issued a Notice of Allowance for our anti-CD20 monoclonal antibody assets, Application No. 2007338607 (issued in July 2013), followed by the issuance of the
patent in Korea (10-2009-7015196), both under the same title. These various U.S. and foreign patents reinforce the value of the antibody assets, and continue to be used to seek expedited
allowance in other countries operating under international patent treaties (referred to as the Patent Prosecution Highway). Use of the Patent Prosecution Highway allows both expedited
examination and often allowance by demonstrating willingness to amend patent claims to the same scope of allowed patent claims granted in another jurisdiction (such as the issued U.S.
patent claims in U.S. Patent No. 8,465,741). In countries that do not participate in such treaties (or do not allow the same type of claims as those issued in the U.S.), additional antibody patent
applications are being filed or the examining offices are being notified with a request for expedited examination to further enhance the review and issuance of patents. These patents for our
anti-CD20 monoclonal antibodies have particular utility in fighting cancers and are considered important assets based on benefits and commercial value demonstrated by Rituxan®, an
anti-CD20 monoclonal antibody with reported sales of USD $7.5 billion in 2013, which is due to go off patent in 2015.
MMRGlobal's biotech assets also include the B-Cell vaccine patents and patent applications entitled "Method and Composition for Altering a B Cell Mediated Pathology" and "Altering a B
Cell Pathology Using Self-Derived Antigens in Conjunction with Specific-Binding Cytoreductive Agent" which relate to methods of manufacturing compositions for B-cell vaccines used in the
fight against lymphoma and potentially other forms of cancer, including U.S. Patent Nos. 8,637,638; 8,114,404; 8,133,486 and 6,911,204. Most recently in January 2014, the fourth U.S. patent
for B-Cell vaccine technology was issued (Patent No. 8 therewith in the U.S. to pursue still further protection for this technology to be used in the fight against lymphoma and potentially other
forms of cancer. Issued foreign patents have also been granted for this technology in Europe, Hong Kong, Singapore, Japan and Mexico. Additional manufacturing patent applications are filed
as such countries award new patents to further enhance the protection of the manufacturing patents already issued. For example, in 2013 additional patents were filed in the U.S., Mexico and
Japan to introduce additional patent claims protecting additional methods and compositions for altering B-cell pathologies using self-derived antigens in conjunction with specific-binding
cytoreductive agents. The validation of the European Union Patent No. 01979228.2 in late 2013 for methods of manufacturing the B-cell vaccines provides enforceable patents in countries of
commercial interest including: the United Kingdom, France, Germany, Switzerland, Spain, Italy, the Netherlands, Denmark, Sweden, Finland, Ireland and Belgium.
Currently, our biotech patent portfolio includes U.S. and foreign patents with expiration dates of August 2021 or later, relating to the manufacture of the B-cell vaccines. The issued antibody
patents (and other patents which may issue relating to this technology) have substantially later expiration dates of September 2027 or later. Additional patent applications once granted may
obtain additional term of biotech patent protection.
Our biotech assets are comprised of patents and pending patent applications, patient samples and data from the FavId™/Specifid™ idiotype vaccine trials and our proprietary
anti-CD20 antibody panels to treat B-cell lymphoma and additional B-Cell mediated conditions such as rheumatoid arthritis. Subsequent to the Merger, we have recovered additional intellectual
property, including certain physical assets used by Favrille, Inc. in the form of over 1,800 patient tissue samples, samples of the B-Cell vaccine, a collection of insect cells used in the
manufacture of the vaccine (as protected by various U.S. and foreign patents) and other materials collected during the pre-Merger FavId/Specifid vaccine trials.
On December 22, 2010, we entered into a non-exclusive agreement with Celgene to license the use of our clinical and scientific data (originated by Favrille) related to targeted
immunotherapies for cancer and other disease treatments to stimulate a patient's immune response and certain other confidential information. In consideration for the rights granted under the
Agreement, Celgene agreed to pay us certain upfront fees and development milestones.
We continue to work with scientists and experienced venture capitalists to assist us in generating revenue through licensing agreements as would be usual and customary in that industry.
Moreover, we plan to continue pursuing license agreements with companies like Celgene that have expertise in the area of biotechnology and specifically in treating lymphomas and other
cancers, and which can benefit from the use of our clinical and scientific data.
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Other Intellectual Property and Trademarks
We own federal registrations for the trademarks MMRGlobal, MMRPRO, and MY MEDICAL RECORDS. In addition, we own the URL and domain name for the web
address
www.MyMedicalRecords.com. We also own the domain names www.MyMedicalRecordsMD.com, www.MMRPro.com and www.MMRPatientView.com for use with MyMedicalRecords Pro and own the domain
name www.MyEsafeDepositBox.com for use with our MyEsafeDepositBox product as well as
numerous other domains for marketing and new product development purposes. We also own the source code for our products.
As we continue to develop our products, we continue to register our trade names and logos as trademarks and service marks and will seek to protect the copyrights in the initial and any
other proprietary content that we develop to support our MyMedicalRecords PHR, MyEsafe and MMRPro products. We also own the source code for a handheld software program, developed
to operate on the Palm operating system, which allows Palm users to create a personal medical history on a personal data assistant, or PDA, so that they can have access to this information
while traveling and in the event an Internet connection is not available. We are in the process of developing applications to use MyMedicalRecords and MMRPro products on other handheld
devices.
Competition
MyMedicalRecords PHR
Although we believe that no other product in the marketplace compares to what we provide in our comprehensive PHR and other offerings, there are other PHR providers in the
consumer health information management marketplace today that compete for our services. These include NoMoreClipboard.com, Dossia, WebMD Health Manager, ZweenaHealth, MiVia, and
numerous others including patient-portals offered by EMR Vendors, health exchanges, and insurance companies, hospitals and HMOs for their policyholders and patients. Each of our
competitors offers varying PHR products and services for online storage and access to medical records at varying price points (at the basic "free" level, with minimal recordkeeping capability
that usually includes advertising).
MyEsafeDepositBox
Our MyEsafeDepositBox product competes with a number of online backup and electronic data storage services. The increasing use of external hard drives and flash drives to backup
data also has the potential to compete with online data storage services such as our MyEsafeDepositBox product
.
MMRPro
MMRPro competes with scanning services that market their services to doctors seeking to convert their historical paper records into electronic files, as well as EMR systems.
MMRPro also competes with EMR systems that offer doctors the opportunity to make their entire office paperless.
Marketing and Sales
Marketing Update
Demand for both our consumer and professional medical records products is driven primarily by the U.S. healthcare market and the need for health information technology
products and services worldwide. The growth of health IT in the U.S. is being driven by billions of dollars in Health IT spending and consumer awareness campaigns highlighting the importance
of managing personal health information on line through a secure Personal Health Record. Additionally, the Affordable Care Act's insurance mandate requires population health tools such as
Personal Health Records to coordinate care among the newly insured, expected to reach 32 million Americans.
MMR is bringing health information technology products to consumers online and through major retailers. Through the introduction of its Personal Health Record Kit, MMR offers and sells
its MyMedicalRecords PHR through retailers that have more than 40 million purchasers of online products and services visiting their sites per month.
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We are also seeing a drive to reduce healthcare spending through government initiatives, financial incentives and changing demographics. More consumers than ever before recognize the
importance of managing their personal health based on the media attention given to the Affordable Care Act (aka Obamacare) and Healthcare.gov as well as the aging population of baby
boomers, rising incidences of chronic illnesses and employer worksite wellness initiatives.
The key government driver for PHR adoption is the Health Information Technology for Economic and Clinical Health Act (HITECH), which was part of the 2009 American Recovery and
Reinvestment Act, and its mandates calling for the Meaningful Use of Electronic Health Records. Starting in August 2012 when the Centers for Medicare and Medicaid Services (CMS) released
its final rule for Meaningful Use Stage 2 under HITECH, Personal Health Records came to occupy a dominant position in the healthcare IT landscape. Moreover, January 1, 2014 was the target
year when eligible healthcare providers had to begin offering at least 50% of their patients timely online access to their personal health information such as through a Personal Health Record or
patient portal to continue receiving full incentives under CMS's EHR Incentive Program. Beyond HITECH and its specific patient engagement requirements, we believe that the Affordable Care
Act is a factor in driving PHR adoption. Though ACA does not directly crossover into the federal incentive programs for EMR/EHR adoption, it supports Health IT by incorporating the electronic
transmission and exchange of health information, which is needed to coordinate care in Accountable Care Organizations. Moreover, with a total anticipated influx of some 32 million Americans
becoming insured, it is expected that the newly insured need Health IT solutions such as those provided by MMR to better manage their health and out-of-pocket costs. This also intersects
with employers, worksite wellness programs and retail health clinics that are supported by initiatives to incentivize employees to take greater control of their health and healthcare
expenditures.
The growth in demand for PHRs is reflected in our strategic relationships with licensees and other partners such as 4medica, Claydata, VisiInc PLC, AccessMyRecords, Walgreens, Whole
Foods Market, XN Financial, Interbit Data, Coverdale, Fairway Physicians Insurance Company, Salutopia, Vida Senior Resources, as well as Cerner Corporation. In the third quarter, tours.com
and sightseeing.com announced they were offering MyMedicalRecords to travel agents through a travel agent affiliate partner program. In the case of Interbit Data the Company also offers our
MMRPatientView portal to users of the MEDITECH EMR system. We continue to work with 4medica in integrating our PHR with laboratory reporting services which are used by more than100
institutional customers including more than 30,000 doctors nationwide. We also are working with 4medica to create a "fax portal" for their more than 30,000 doctors to facilitate better handling
of the still large number of lab results that are paper-based in their network. That portal, which creates a new revenue stream for us, was made available by 4medica to its client doctors late in
2012. We also have completed our initial implementation with the 4medica Electronic Medical Records system. Now, when consumers enroll in a MyMedicalRecords Personal Health Record
account, their data can be sent into 4medica in HL7 format so that a Medical Record Number (MRN) can be established in 4medica.In February 2014, the federal regulatory environment
became more favorable to these efforts with the passage of a final rule that amended the Clinical Laboratory Improvement Amendments of 1988. This has opened the door to meaningful
licensing and settlement communication with laboratory providers and others. The rule removed the legal barriers which had prevented patients from receiving laboratory results direct from the
labs without prior authorization from their doctor in all 50 states plus the District of Columbia. So with 4medica, laboratory information can now be made available directly into MMR accounts,
without limitation of which state subscribers reside in, whereas prior to the rule having gone into effect on April 7, only seven states required direct access for the patient.
Having entered into the second term of a Non-Exclusive License Agreement with Whole Foods Market, Medical and Wellness Centers Inc. ("WFM") in the second quarter of 2013, MMR is
providing a customized version of the MyMedicalRecords Personal Health Record that connects directly to the EMR system(s) utilized by WFM. Users can fill out patient registration and
authorization forms from within the PHR and selected data in the forms are sent as HL7 into a 4medica EMR so that patient demographics are fully populated in the EMR. Because we are
sending data in standard HL7 and PDF formats, this can also work with any EMR system.
Additionally, we plan on continuing to expand our consumer market through strategic partnerships with major national and local pharmacies, nurse advocates and home healthcare
specialists, all of whom have significant one-on-one relationships with patients who can benefit immediately from the use of our PHR. Likewise, starting in 2012, we created a retail consumer
model through the use of Prepaid Personal Health Record cards which has evolved into a Personal Health Record Kit. Offered in packages of both 6 Months and 12 Months (the latter
including Concierge Service), the Personal Health Record Kit is being sold through retailer and etailer outlets including pharmacies. We are also expanding our presence into the wellness and
prevention market.
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While the U.S. holds the largest share of the global healthcare IT market, slated to grow domestically at a CAGR of nearly 20% during 2014-2018, health IT is also a growth industry
internationally, expected to continue increasing so that by 2017 the global market will expand at a compound annual growth rate of 7.0 percent. Countries sharing a common goal to control
healthcare costs are looking to EMR and PHR solutions to achieve this. Moreover, in a global economy, companies are increasingly sending employees overseas, a practice which is expected
to increase demand for our MyMedicalRecords PHR among ex-pats, particularly in Europe and the Middle East. Also, medical tourism is on the rise with estimates of a $100 billion market, and
this fuels the need for medical records that are truly universal and can be accessed anytime from anywhere. It should be noted here that the growth of Health IT at home and abroad is further
impetus for ensuring the protection and enforcement of our patent portfolio worldwide. In light of the continued occurrence of emergencies and natural disasters, demand for both our
MyMedicalRecords and MyEsafeDepositBox products are driven by relief and educational organizations, as well as by consumers and small businesses, with international focus based on tools
that help in disaster preparedness and personal protection.
During the second week of October, we announced the launch of a nationally syndicated television advertising campaign through Associated Television International for our
MyMedicalRecords Personal Health Record Kit with retailer tags to national retailers including Walgreens and drugstore.com. The campaign focuses on the features and benefits of having a
Personal Health Record both for a family's healthcare and as part of their disaster preparedness plan. Additionally, we are continuing to use online advertising to take advantage of
awareness in online health management following the hundreds of millions of dollars in advertising spent on Healthcare.gov. We continue to deploy key word advertising, per enquiry affiliated
advertising and marketing programs, smartphone advertising and other online interactive media campaigns where our products and services are offered through marketing partners which
include online publishers and other health-related websites whereby we can bring Personal Health Records to customers on a "Per Acquisition" basis. This means MMR only pays them if we
receive a paid subscription. This program gives MMR the ability to put its marketing message in front of millions of new viewers, in a targeted manner, without having to pay costs of advertising
upfront. The Company is also utilizing social media (YouTube, Facebook, Twitter, Instagram) to build greater awareness for our products and services, to enhance brand loyalty for our
MyMedicalRecords PHR, and to connect with a greater number of potential users. .
Results of Operations for the three and nine months ended September 30, 2014 as compared to the three and nine months ended September 30, 2013
Revenues
Revenues for the three months ended September 30, 2014 and 2013 were $1,896,271 and $112,569, respectively, an increase of $1,783,702 or 1,584,5%. The increase for the
quarter was primarily due to increased biotech licensing fees. Revenues for the nine months ended September 30, 2014 and 2013 were $2,437,095 and $535,146, respectively, an increase of
$1,901,949 or 355.4%. The increase for the nine months ended September 30, 2014 was primarily due to increased biotech licensing fees.
Cost of revenue
Cost of revenue for the three months ended September 30, 2014 and 2013 was $88,960 and $93,825, respectively, a decrease of $4,865 or 5.2%. Cost of revenues for the nine
months ended September 30, 2014 and 2013 were $230,402 and $198,079, respectively, an increase of $32,323 or16.3%. The increase for the nine months ended September 30, 2014 was
primarily due to higher website development maintenance and support fees.
Gross profit for the three months ended September 30, 2014 and 2013 was $1,807,311 and $18,744, respectively, an increase of $1,788,567 or 9,542.1%. The increase for the quarter was
primarily due to increased biotech licensing fees which did not occur in the same period in 2013. Gross profit for the nine months ended September 30, 2014 and 2013 was $2,206,693 and
$337,067, respectively, an increase of $1,869,626 or 554.7%. The increase for the nine months ended September 30, 2014 was primarily due to increased biotech licensing fees.
Operating expenses
Total operating expenses for the three months ended September 30, 2014 and 2013 were $1,455,779 and $1,985,481, respectively, a decrease of $529,702 or26.7%. The
decrease for the quarter was primarily due to a reduction in investor relations expenses, salaries, and marketing consulting fees as the Company works towards streamlining expenses. Total
operating expenses for the nine months ended September 30, 2014 and 2013 were $4,676,026 and $4,821,122, respectively, a decrease of $145,096 or 3.0%. The decrease for the nine
months ended September 30, 2014 was primarily due to a reduction in investor relations expenses, salaries, marketing consulting fees as the Company works towards streamlining expenses.
27
General and administrative expenses for the three months ended September 30, 2014 and 2013 were $1,186,972 and $1,500,914, respectively, a decrease of $313,942 or 20.9%. The
decrease was primarily due to a reduction in investor relations expenses, salaries, and consulting fees. General and administrative expenses for the nine months ended September 30, 2014
and 2013 were $3,530,193 and $3,394,570, respectively, an increase of $148,123 or 4.4%. The increase for the nine months ended September 30, 2014 was primarily due to higher non-cash
stock base compensation expenses, director fees, insurance, and amortization of patents.
Sales and marketing expenses for the three months ended September 30, 2014 and 2013 were $261,553 and $459,353, respectively, a decrease of $197,800 or 43.1%. The decrease for
the three months ended September 30, 2014 was primarily due to lower business development fees and marketing consulting fees. Sales and marketing expenses for the nine months ended
September 30, 2014 and 2013 were $1,087,943 and $1,368,096, respectively, a decrease of $280,153 or 20.5%. The decrease for the nine months ended September 30, 2014 was primarily
due to lower business development fees and marketing consulting fees.
Technology development expenses for the three months ended September 30, 2014 and 2013 were $7,254 and $25,214, respectively, an increase of $17,960 or 71.2%. Technology
development expenses for the nine months ended September 30, 2014 and 2013 were $57,890 and $58,456, respectively which remained relatively flat.
Other Income
Other income for the three months ended September 30, 2014 and 2013 was $1,672,820 and $6,650, respectively. Other income for the nine months ended September 30, 2014
and 2013 was $1,672,820 and $16,884, respectively. The Company has a policy, based on the statute of limitations, as prescribed by law, to write-off accounts payable that are more than four
years old with no current activity. The increase to other income is mainly due to the application of such policy and the Company's ability to leverage its cash position to settle outstanding
payable balances with discounted amounts which are favorable to the Company. The.
Interest and Other Finance Charges, Net
Interest and other finance charges for the three months ended September 30, 2014 and 2013 were $104,031 and $283,229, respectively, an increase of $179,198 or 63.3%. The
decrease for the quarter was primarily due to increased interest expense related to convertible notes. Interest and other finance charges for the nine months ended September 30, 2014 and
2013 were $362,678 and $434,918, respectively, a decrease of $72,240 or 16.6%. The decrease for the nine months ended September 30, 2014 and 2013 was primarily due to increased
interest expense related to convertible notes.
Net loss
As a result of the foregoing, net income for the three months ended September 30, 2014 was $1,920,321 and net loss for the three months ended September 30, 2013 was
$2,243,316, an increase of $4,163,637 or 185.6%. Net loss for the nine months ended September 30, 2014 and 2013 was $1,159,191 and $4,902,089, respectively, a decrease of $3,742,898 or 76.4%.
Going Concern
As more fully described in Note 1 to the consolidated financial statements appearing above in this Quarterly Report on Form 10- Q, our independent registered public accounting
firm included an explanatory paragraph in their report on our 2013 financial statements for the year ended December 31, 2013 related to the uncertainty of our ability to continue as a going
concern. As of September 30, 2014, our current liabilities of $9.8 million exceeded our current assets of $1.9 million by $7.9 million.
For a description of our management's plan regarding our ability to continue as a going concern, please see Note 1 to the financial statements included above.
Liquidity and Capital Resources
As of September 30, 2014, our current liabilities exceeded our current assets by $7.9 million. We have incurred net income of $1,920,321 and net loss of $2,243,316 for the three
months ended September 30, 2014 and 2013, respectively, and net losses of $1,159,191 and $4,902,089 for the nine months ended September 30, 2014 and 2013, respectively. At the current
level of borrowing, we require cash of $275,000 per year to service our debt. Furthermore, not including debt service, in order to continue operating our business, we use an average of
$278,000 in cash per month, or $3.3 million per year. At this rate of cash burn, our existing current assets combined with future anticipated financing activities and proceeds from sales will
sustain our business for less than one year.
28
In addition to the above cash burn from operations, we will be required to obtain additional financing in order to meet the obligations for installment payments of $621,000 under the Creditor
Plan and our obligations under the secured indebtedness to The RHL Group under the Ninth Amended Note (which had a balance of $1.45 million at September 30, 2014), amongst other debt
obligations. Such obligations are currently due and payable pursuant to the terms of the notes. The components of the RHL Group Note payable and the related balance sheet presentation as
of September 30, 2014 are as follows: $0.94 million, which is included in the line of credit, related party; and $0.51 million for other obligations due to The RHL Group, which is included in
related party payables.
Traditionally, we have relied on the sale of stock and convertible debt as well as draws from the RHL Group line of credit to finance our activities. As of September 30, 2014, we had a line
of credit with The RHL Group in the amount of $4.5 million. As of September 30, 2014, availability under this line of credit was $1.73 million. Furthermore, we may utilize portions of our standby
equity facility with Granite as needed. Additionally, we raised $200,000 and $1,879,300 in convertible debt during 2014 and 2013, respectively and $1,068,420 and $65,500 in direct sales of
common stock during 2014 and 2013, respectively. We expect to continue offering a limited amount of convertible debt and common stock in 2014. We also expect sales from MMRPro, our
prepaid Personal Health Record kits, and fees from patent licensing and settlement agreements to generate revenue and reduce annual cash burn from operations.
Cash Flows for the nine months ended September 30, 2014 compared to nine months ended September 30, 2013
Net cash provided by operating activities for the nine months ended September 30, 2014 was $226,382, compared to net cash used of $2,174,399 in the similar period in 2013. In
2014, we had a net loss of $1,159,191, plus non-cash adjustments (depreciation, amortization, common stock and warrants issued for services and interest, accounts payable write-off, and
stock compensation expense) of $194,780, less changes in operating assets and liabilities of $1,580,353. In 2013, net cash used in operating activities of $2,174,399 was comprised of a net
loss of $4,902,089, less similar non-cash adjustments of $1,964,196, less changes in operating assets and liabilities of $763,494. Compared to 2013, the operating cash flow activities in 2014
were higher primarily due to a the Company's application of its accounts Payable write-off policy and the Company's ability
to leverage its cash position to settle outstanding payable balances with discounted amounts which are favorable to the Company .
Net cash used in investing activities in the nine months ended September 30, 2014 and 2013 totaled $300,495 and $430,596, respectively. Compared to 2013, investing activities in 2014
were lower mainly due to a decrease in costs of patents.
Net cash provided by financing activities in the nine months ended September 30, 2014 and 2013 totaled $1,555,264 and $2,574,918, respectively. Financing activities primarily included
proceeds generated from the issuance of convertible notes and common shares. Compared to 2013, financing activities in 2014 were lower primarily due to a decrease in convertible notes and
line of credit activities.
As of September 30, 2014, we had cash and cash equivalents of $1,491,510, compared to $6,578 as of September 30, 2013.
Description of Indebtedness
The RHL Group
For a description of our indebtedness to The RHL Group, please See Note 3 - Related Party Note Payable, included above in this Quarterly Report on Form 10-Q.
Convertible Notes
For information relating to our Convertible Notes, please see Note 9 to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Commitments and Contingencies
For information relating to our commitments and contingent liabilities, please see Note 5 to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
29
Off-Balance Sheet Arrangements
On January 4, 2010, we entered into a Cooperation Agreement with UNIS, which we refer to as the "Cooperation Agreement". Under the Cooperation Agreement, we agreed to form
the JV for the purpose of deploying our PHR services and document imaging and management solutions in China. We will own 40% of the JV and UNIS will own 60% and each party will have
the right to designate two members of the JV's board of directors, with the fifth member being a Chinese citizen mutually designated by us and UNIS. Under the Cooperation Agreement, board
actions will require the approval of more than three of the five members of the JV's board of directors and no material actions may be taken unless all board members are present and voting at
the meeting.
Under the Cooperation Agreement, we will contribute an aggregate of 50 million RMB to the joint venture, based on each party's respective ownership, in the form of intellectual property
rights, equipment, brand value, cash and such other consideration as may be agreed upon by the parties. Each party's obligation to contribute to the joint venture is subject to a number of
conditions, including obtaining all necessary approvals of and licenses from the Chinese government, as well as the joint venture meeting its budget, goals and objectives at the time
contributions are due. Under the Cooperation Agreement, each party's contributions will be made over a period of sixty months.
For a more complete description of the terms of the Cooperation Agreement, please see Exhibit 10.26 in our annual Report on Form 10-K for the year ended December 31, 2009, as filed
with the SEC on March 31, 2010.
On August 10, 2010, we entered into a Supplementary Agreement for the purpose of clarifying certain non-material terms of the original Cooperation Agreement mentioned above.
On July 2, 2012, we received our official business license from the Chinese government to operate the JV. The JV is officially licensed with the Chinese government and is approved to
operate and generate revenue. The license enables the JV to develop medical information management software, medical information technology software, health records management
systems, and provision of related services, including our PHR systems. The JV will offer its products and services to the Chinese government, hospitals, healthcare facilities, and to the public
and is valid through 2042.
Our entry into the Cooperation Agreement described above constitutes the creation of a direct financial obligation as described above. As of September 30, 2014, we have not incurred
obligations to fund the joint venture nor has there been any activity to date.
Item 4. Controls and Procedures
Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide
only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
As required by Rule 13a-15(b) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.
Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures
were effective and were operating at a reasonable assurance level.
Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting or in other factors identified in connection with the evaluation required by paragraph (d) of Exchange
Act Rules 13a-15 or 15d-15 that occurred during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
30
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information in response to this item is incorporated herein by reference to Note 5 - Commitments and Contingencies under the "Litigation Matters" section of the Consolidated
Condensed Financial Statements of this Quarterly Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following is a summary of transactions by us since our previous disclosure on Form 10-Q, filed with the SEC on August 14, 2014, involving sales of our securities that were not
registered under the Securities Act. Each offer and sale was exempt from registration under either Section 4(2) of the Securities Act or Rule 506 under Regulation D of the Securities Act
because (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii) each investor was given the
opportunity to ask questions and receive answers concerning the terms of and conditions of the offering and to obtain additional information; (iv) the investors represented that they were
acquiring the securities for their own account and for investment; and (v) all the securities listed below were issued with restrictive legends:
On various dates between July 31, 2014 and September 18, 2014, we entered into five different Stock Sales Agreements with five different unrelated third-parties to sell 6,000,000 shares
of our common stock for a total of $126,500.
On August 8, 2014, we granted an unrelated third-party 250,000 shares of common stock at $0.06 per share in consideration for services of $15,000.
On August 11, 2014, we granted an unrelated third-party 350,000 shares of common stock at $0.0429 per share in consideration for services of $15,000.
On September 4, 2014, we granted an unrelated third-party 1,500,000 shares of common stock at $0.05 per share in consideration for services of $75,000.
On September 10, 2014, we granted an unrelated third-party 100,000 shares of common stock at $0.05 per share in consideration for services of $5,000.
On September 11, 2014, we granted an unrelated third-party 333,334 shares of common stock at $0.03 per share in consideration for services of $10,000.
On September 12, 2014, we granted an unrelated third-party 100,000 shares of common stock at $0.05 per share in consideration for services of $5,000.
On October 15, 2014, we granted an unrelated third-party 333,334 shares of common stock at $0.03 per share in consideration for services of $10,000.
On October 28, 2014, we granted an unrelated third-party 500,000 shares of common stock at $0.04 per share in consideration for services of $20,000.
On October 29, 2014, we granted an unrelated third-party 750,000 shares of common stock at $0.03 per share in consideration for services of $22,500.
We generally used the proceeds of the foregoing sales of securities for repayment of indebtedness, working capital and other general corporate purposes.
31
Item 6. Exhibits
Exhibit
Number |
|
Exhibit Description |
|
|
|
31.1 |
|
* Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. |
|
|
|
31.2 |
|
* Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934. |
|
|
|
32.1 |
|
* Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. |
|
|
|
32.2 |
|
* Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. |
|
|
|
101.INS |
|
XBRL Instance Document
|
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: November 13, 2014
MMRGlobal, Inc.
By: /s/ Robert H.
Lorsch
Robert H. Lorsch
Chairman, Chief Executive Officer and
President
By: /s/ Ingrid G. Safranek
Ingrid G. Safranek
Chief Financial Officer
33
EXHIBIT INDEX
34
Exhibit 31.1
Certification
I, Robert H. Lorsch, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MMRGlobal, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 13, 2014
|
/s/ Robert H. Lorsch
Name: Robert H. Lorsch
Title: Chief Executive Officer |
Exhibit 31.2
Certification
I, Ingrid G. Safranek, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MMRGlobal, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: November 13, 2014
|
/s/ Ingrid G. Safranek
Name: Ingrid G. Safranek
Title: Chief Financial Officer |
Exhibit 32.1
Certification
I, Robert H. Lorsch, certify, pursuant to Rule 13(a)-14(b) or Rule 15(d)-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C.
Section 1350, that (i) the Quarterly Report on Form 10-Q of MMRGlobal, Inc. for the quarterly period ended September 30, 2014 fully
complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of1934, and (ii) the information contained in such
Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations
of MMRGlobal, Inc.
/s/ Robert H. Lorsch
|
Name: |
|
Robert H. Lorsch |
Title: |
|
Chief Executive Officer |
Date: |
|
November 13, 2014 |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, and is not being "filed" as part of the Form 10-Q or as a separate disclosure document for purposes
of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability under that section.
This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the
Exchange Act except to the extent that this Exhibit 32.1 is expressly and specifically incorporated by reference in any such filing.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification
I, Ingrid G. Safranek, certify, pursuant to Rule 13(a)-14(b) or Rule 15(d)-14(b) of the Securities Exchange Act of 1934 and 18
U.S.C. Section 1350, that (i) the Quarterly Report on Form 10-Q of MMRGlobal, Inc. for the quarterly period ended September 30, 2014
fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained
in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations
of MMRGlobal, Inc.
|
/s/ Ingrid G. Safranek
|
Name: |
|
Ingrid G. Safranek |
Title: |
|
Chief Financial Officer |
Date: |
|
November 13, 2014 |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, and is not being "filed" as part of the Form 10-Q or as a separate disclosure document
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to liability
under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of
1933, as amended, or the Exchange Act except to the extent that this Exhibit 32.2 is expressly and specifically incorporated by
reference in any such filing.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the
Company and furnished to the Securities and Exchange Commission or its staff upon request.