The accompanying unaudited condensed consolidated financial statements of MedefileMedeFile International Inc., a Nevada corporation (the "Company" or "Medefile"), have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company's Form 10-K for the fiscal year ended December 31, 2010.2011. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of June 30, 2011,2012, and the results of operations and cash flows for the three and six months ended June 30, 20112012 and 2010.2011. The results of operations for the three and six months ended June 30, 20112012 are not necessarily indicative of the results that may be expected for the entire fiscal year.

MedefileMedeFile International, Inc., has developed and globally markets a proprietary, patient-centric, Internet-enabled Personal Health Record (iPHR) system for gathering, digitizing, maintaining, accessing and sharing an individual’s actual medical records. Medefile'sMedeFile's goal is to revolutionize the medical industry by bringing patient-centric digital technology to the business of medicine. MedefileMedeFile intends to accomplish its objective by providing individuals with a simple and secure way to access their lifetime of actual medical records in an efficient and cost-effective manner. Medefile'sMedeFile's products and services are designed to provide healthcare providers with the ability to reference their patient'spatients’ actual past medical records, thereby ensuring the most accurate treatment and services possible while simultaneously reducing redundant procedures.

Interoperable with most electronic medical record systems utilized by physician practices, clinics, hospitals and other care providers, the highly secure, feature-rich MedeFile iPHR solution has been designed to gather all of its members’ actual medical records on behalf of each member, and create a single, comprehensive Electronic Health Record (EHR). The member can access his/her records 24-hours a day, seven days a week – or authorize a third party user – on any web-enabled device (PC, cell phone, PDA, e-reader, et al), as well as the portable MedeFile flash drive/keychain or branded UBS-bracelet.

By subscribing to the MedeFile system, not only do members empower themselves to take control of their own health and well-being, they empower their healthcare providers to make sound and lifesaving decisions with the most accurate, up-to-date medical information available.  In addition, with MedeFile, members enjoy the peace of mind that comes from knowing that their medical records are protected from fire, natural disaster, document misplacement or the closing of a medical or dental practice.

MedeFile believes it enjoys a number of competitive advantages over other firms within the medical records marketplace, including:

The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. However, the Company has reported a net loss of $1,111,429$10,775,209 for the six months ended June 30, 20112012 and $2,492,310$1,555,867 for the year ended December 31, 20102011 and had an accumulated deficit of $17,273,985$28,493,632 as of June 30, 2011.2012.  The Company has net working capital deficit of $149,350$5,036,642 as of June 30, 2011.2012.

For purposes of these financial statements, cash and cash equivalents includes highly liquid debt instruments with maturity of less than three months.

 

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.  Currently our operating account is not above the FDIC limit.

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company incurred advertising costs for the three months ended June 30, 20112012 and 20102011 of approximately $6,500$0 and $0, respectively.  The Company incurred advertising costs for the six months ended June 30, 20112012 and 20102011 of approximately $6,500$0 and $2,568,$6,500, respectively.

 

The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.

 

The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transitiontransition.

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3three years up to 10ten years.

Trademark costs incurred in the registration and acquisition of trademarks and trademark rights are capitalized. These costs will be amortized over the legal life of the related trademark once the trademark is awarded. The Company performs an annual review of its identified intangible assets to determine if facts and circumstances exist which indicate that the useful life is shorter than originally estimated or that the carrying amount of the assets may not be recoverable.

The Company expenses all software costs associated with the conceptual formulation and evaluation of alternatives until the application development stage has been reached. Costs to improve or support the technology are expensed as these costs are incurred.

The Company's policy is to capitalize website development costs at original cost and amortize the balance over the life of the product.website.  The life of website is determined at completion of the project. The Company reviews the amounts capitalized for impairment whenever events or circumstances indicate that the carrying amounts of the assets may not be recoverable.

The Company expenses all development costs associated with the conceptual formulation and evaluation of alternatives until the application development stage has been reached. Costs to improve or support the technology are expensed as these costs are incurred.

The Company generates revenue from licensing the right to utilize its proprietary software for the storage and distribution of healthcare information to individuals and affinity groups. For revenue from product sales, the Company recognizes revenue based on four basic criteria which must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

The Company generally receives subscription fees for its services. From time to time, the Company will receive quarterly or annual subscriptions paid in advance and deferred revenue is recorded at that time. The deferred revenue is amortized into revenue on a pro- rata basis each month. Customers with quarterly or annual subscriptions may cancel their subscriptions and request a refund for future months' revenues at any time. Therefore, a liability is recorded to reflect the amounts that are potentially refundable.  As ofAt June 30, 2012 and 2011, the Company haddeferred revenue totaled $6,438 and $6,721, in deferred revenue.respectively.

Certain reclassifications have been made in prior periods financial statements to conform to classifications used in the current period.

InOn January 2010,1, 2012, the FASBCompany adopted changes issued by the Financial Accounting Standards Update (ASU) No. 2010-06: Fair Value Measurements and Disclosures (topic 820) Improving Disclosures about Fair Value Measurements..  This ASU requires additional disclosuresBoard (FASB) to conform existing guidance regarding significant transfers in and out of Levels 1 and 2 of fair value measurements, including a descriptionmeasurement and disclosure between GAAP and International Financial Reporting Standards. These changes both clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements and amend certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The clarifying changes relate to the application of the reasonshighest and best use and valuation premise concepts, measuring the fair value of an instrument classified in a reporting entity’s shareholders’ equity, and disclosure of quantitative information about unobservable inputs used for the transfers.  Further, this ASU requires additional disclosures for the activity in Level 3 fair value measurements, requiringmeasurements. The amendments relate to measuring the fair value of financial instruments that are managed within a portfolio; application of premiums and discounts in a fair value measurement; and additional disclosures concerning the valuation processes used and sensitivity of the fair value measurement to changes in unobservable inputs for those items categorized as Level 3, a reporting entity’s use of a nonfinancial asset in a way that differs from the asset’s highest and best use, and the categorization by level in the fair value hierarchy for items required to be measured at fair value for disclosure purposes only. Other than the additional disclosure requirements, the adoption of these changes had no impact on the Consolidated Financial Statements.

On January 1, 2012, the Company adopted changes issued by the FASB to the presentation of information about purchases, sales, issuances,comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and settlementsthe components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements; the reconciliationoption to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. Additionally, no changes were made to the calculation and presentation of earnings per share. Management elected to present the two-statement option. Other than the change in presentation, the adoption of these changes had no impact on the Consolidated Financial Statements.

In May 2011, FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this update to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. For public entities, the new guideline is effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The Company does not expect that the guidance effective in future periods will have a material impact on its consolidatedthe financial statements.

In May 2011, the FASB issued ASC Update No. 2011-05, Comprehensive Income (Topic 820): Presentation of Comprehensive Income. Update No. 2011-05 requires that net income, items of other comprehensive income and total comprehensive income be presented in one continuous statement or two separate consecutive statements. The amendments in this Update also require that reclassifications from other comprehensive income to net income be presented on the face of the financial statements. We are required to adopt Update No. 2011-05 for our first quarter ending March 31, 2012, with the exception of the presentation of reclassifications on the face of the financial statements, which has been deferred by the FASB under ASC Update No. 2011-12, Comprehensive Income (Topic 820): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income. The adoption of Update No. 2011-05 is not expected have a material impact the financial statements.

Basic and diluted loss per share amounts are computed based on net loss divided by the weighted average number of common shares outstanding. Outstanding optionsWarrants to purchase 5,640,000322,304,906 common shares were not included in the computation of diluted loss per share because the assumed conversion and warrantsexercise would be anti-dilutive for the year ending December 31, 2011.   Warrants to purchase 10,175,00018,010,423,000 common shares were not included in the computation of diluted loss per share because the assumed conversion and exercise would be anti-dilutive for the six months ended June 30, 2011.  

 

The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

 

The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreementagreement.

Due to the collection history of the Company, an allowance for doubtful accounts is not maintained.  Recognition of a specific uncollectible account is written directly against the invoice in accounts receivable and expensed in the current period.

Depreciation is calculated by using the straight-line method over the estimated useful life.   Depreciation expense totaled $2,513$2,352 and $4,196$2,600 for the three months ended June 30, 20112012 and 2010,2011, respectively.  Depreciation expense totaled $5,113$4,703 and $8,446$5,113 for the six months ended June 30, 20112012 and 2010,2011, respectively.

 

During the first quarter 2011, the Company entered into a securities purchase agreement forSecurities Purchase Agreement, pursuant to which the sale ofCompany sold 201,000,000 shares of Common Stockcommon stock at a purchase price of $0.003 per share.  Total proceeds from the sale of the Common Stockstock totaled $603,000.

On March 31, 2011, the Company issued 9,375,000 shares of Common Stockcommon stock for amounts due to consultant.  The shares had a market value of $37,500.

On May 6,April 29, 2011, the Company issued 7,653,061 shares of Common Stockcommon stock for amounts due to consultants.a consultant.  The shares had a market value of $32,143.

On May 13,11, 2011, the Company issued 10,000,000 shares of Common Stockcommon stock for amounts due to consultants.  The shares had a market value of $70,000.

During the first quarter 2011, the Company entered into a securities purchase agreementSecurities Purchase Agreement for the sale of 45,000,000 shares of Common Stockcommon stock at a purchase price of $0.003 per share.   The funds were received during the first quarter of 2011 and recorded as a stock payable in the amount of $135,000 as of June 30, 2011.  On July 8, 2011, 45,000,000 shares of Common Stockcommon stock were issued.

On June 3, 2011, the Company received $24,000 from proceeds from a securities purchase agreementSecurities Purchase Agreement for the purchase of 8,000,000 shares of Common Stock.common stock.  On March 15, 2012 the Company issued the 8,000,000 shares of common stock in accordance with the Securities Purchase Agreement and the shares of common stock were issued against the remaining balance in Stock Payable.

On August 1, 2011, the Company issued 11,029,421 shares of common stock for amounts due to consultant.  The shares had a market value of $33,088.

On November 1, 2011, the Company issued 46,875,000 shares of common stock for amounts due to consultants.  The shares had a market value of $42,187.50.

On April 12, 2012, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Lyle Hauser (the “Preferred Stock Investor”). Lyle Hauser is currently unissuedthe Company’s largest shareholder and $24,000the brother of Kevin Hauser, the Company’s chief executive officer. Pursuant to the Purchase Agreement, on April 12, 2012, the Company sold 100,000 shares of Series B Preferred Stock to the Preferred Stock Investor for an aggregate purchase price of $100,000, and the Company issued four-year warrants (see Note 5) to purchase 1,000,000,000 shares of common stock to the Preferred Stock Investor with an exercise price of $0.0001. Pursuant to the Purchase Agreement, the Preferred Stock Investor agreed to vote its shares of Series B Preferred Stock to approve an amendment to the Company’s articles of incorporation to increase the Company’s authorized shares of common stock to 75,000,000,000.   On April 19, 2012, the Company issued 1,000,000,000 share of common stock for the conversion of the outstanding preferred stock.

On May 15, 2012, the Company entered into a Securities Purchase Agreement with accredited investors  pursuant to which, on May 15, 2012, the Company sold 3,000,000,000 shares of common stock payablefor an aggregate purchase price of $300,000.

In January 2006, the Board of Directors of the Company (the "Board") approved an Incentive Stock Plan, pursuant to which they have initially reserved 10,000,000 shares of common Stock for issuance. Under the 2006 Incentive Stock, the Board has granted an aggregate of 5,640,000 options to employees pursuant to certain employment agreement that are more fully described below:  As of December 31, 2011 all options have expired.

In November 2008, theour Board of Directors adopted the 2008 Equity Incentive Plan and subsequently amended it in January 2009, June 2009 and July 2009 (the “2008 Plan”). The purpose of the 2008 Plan was to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. Under the 2008 Plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the United States Code, (the "code"), non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2008 Plan will be administered by theour Board of Directors until such time as such authority has been delegated to a committee of the Board.board of directors.

In December 2009, theour Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The purpose of the 2010 Plan was to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. Under the 2010 Plan, we are authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2010 Plan will be administered by theour Board of Directors until such time as such authority has been delegated to a committee of the Board.

A summary of option activity under all Plans as of June 30, 2010,March 31, 2012, and changes during the period then ended are presented below:

In October 2007, theThe Company awarded 175,000 Common Stock warrants, at an exercise price of $0.56 per share, to former Board members at the quoted stock price on the effective date of the awards. The warrants have an expiration date of five years from the issue date and contain provisions for a cash exercise. The estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions:

 

On June 22, 2011, the Company awarded 10,000,000 Common Stock warrants, at an exercise price of $0.01 per share, to consultants for services at the quoted stock price on the effective date of the awards. The warrants have an expiration date of four years from the issue date and contain provisions for a cash exercise. The estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions:assumptions listed below:

It should be noted that this Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain "forward-looking statements." The terms "believe," "anticipate," "intend," "goal," "expect," and similar expressions may identify forward-looking statements. These forward-looking statements represent the Company's current expectations or beliefs concerning future events. The matters covered by these statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including the Company's dependence on product introduction and customer acceptance of new products, the impact of competition and price erosion, as well as other risks and uncertainties. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation that the strategy, objectives or other plans of the Company will be achieved. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. WeExcept as may be required under applicable, securities laws, we undertake no duty to update this information. More information about potential factors that could affect our business and financial results is included in the section entitled "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 20102011 filed with the Securities and Exchange Commission on April 1, 2011.16, 2012. The following discussion should be read in conjunction with our consolidated financial statements provided in this quarterly report on Form 10-Q.

On November 1, 2005, Bio-Solutions International, Inc. ("Bio-Solutions") entered into an Agreement and Plan of Merger (the "Agreement") with OmniMed Acquisition Corp., (the "Aquirer")"Acquirer), a Nevada corporation and a wholly owned subsidiary of Bio-Solutions, OmniMed International, Inc., a Nevada corporation ("OmniMed"), and the shareholders of OmniMed (the "OmniMed Shareholders"). Pursuant to the Agreement, Bio-Solutions acquired all of the outstanding equity stock of OmniMed from the OmniMed Shareholders. As consideration for the acquisition of OmniMed, Bio-Solutions agreed to issueissued 9,894,900 shares of Bio-Solutions' common stock to the OmniMed Shareholders. These issuances were deemed to be exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended since, among other things, the transaction did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about the company and their investment, the investors took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

MedefileMedeFile International, Inc., through its Medefile,MedeFile, Inc. subsidiary, has developed and globally markets a proprietary, patient-centric, Internet-enabled Personal Health Record (iPHR) system for gathering, digitizing, maintaining, accessing and sharing an individual’s actual medical records. Our goal is to revolutionize the medical industry by bringing patient-centric digital technology to the business of medicine. We intend to accomplish itsthis objective by providing individuals with a simple and secure way to access their lifetime of actual medical records in an efficient and cost-effective manner. Our products and services are designed to provide healthcare providers with the ability to reference their patient's actual past medical records, thereby ensuring the most accurate treatment and services possible while simultaneously reducing redundant procedures.

Interoperable with most electronic medical record systems utilized by physician practices, clinics, hospitals and other care providers, the highly secure, feature-rich MedeFile iPHR solution has been designed to gather all of its members’ actual medical records on behalf of each member, and create a single, comprehensive Electronic Health Record (EHR).  The member can access his/her records 24-hours a day, seven days a week – or authorize a third party user – on any web-enabled device (personal computer ("PC"),(PC, cell phone, PDA, e-reader, et al), as well as the portable MedeFile flash drive/keychain or branded UBS-bracelet.

 

By subscribing to the MedeFile system, not only do members empower themselves to take control of their own health and well-being, they empower their healthcare providers to make sound and lifesaving decisions with the most accurate, up-to-date medical information available.  In addition, with MedeFile, members enjoy the peace of mind that comes from knowing that their medical records are protected from fire, natural disaster, document misplacement or the closing of a medical or dental practice.

Revenues for the quarterthree months ended June 30, 20112012 totaled $187,740$7,160 compared to revenues of $4,242$187,740 during the quarterthree months ended June 30, 2010.2011.   The increasedecrease in membership revenue is primarily related to an increasea decrease in the amount of members and medical record reimbursement revenue received from members. Medical record reimbursement revenue is a dollar for dollar reimbursement for charges from members'member’s doctors for sending updated medical records to MedeFile. The off-setting expense is charged to selling general and administrative expense.  The Company has increaseddecreased its marketing and advertising efforts and asthrough a previously used telemarketing campaign.  As a result, there has been a substantial increasedecrease in memberships over the previous period.  Revenues received from memberships are recognized through the period of the membership, and, therefore, revenue recognized represents a fraction of the membership in the quarter being reported.   

 

Selling, general and administrative expenses for the quarterthree months ended June 30, 20112012 totaled $442,085, an increase of $340,950 or approximately 337%$10,123,993, compared to selling, general and administrative expenses of $101,135$442,085 for the quarterthree months ended June 30, 2010. The overall increase2011. Overall there was a decrease in the total selling, general and administrative which is primarily due to increaseddecreased costs associated with attracting new members, salesa previously used telemarketing campaign and business development expenses.  However, on April 10, 2012 there was an expense totaling $9,792,000 for the issuance of 8,160,000,000 shares, at a closing price of $0.0012 per share to the CEO in relation to an anti-dilution agreement.   The shares issued to the CEO are treated as compensation under GAAP accounting.

 

Marketing expense for the quarterthree months ended June 30, 20112012 totaled $310,867,$0, compared to $0$310,867 for the quarterthree months ending June 30, 2010.2012.  The increaseddecrease marketing expense was due to aggressivediscontinued use of lead generation for new members.telemarketing efforts.  The Company reliesrelied on one source for generation of leads through the Company’s telemarketing efforts as our only source of generating leads to increase revenues.efforts.

 

Depreciation expense totaled $2,512$2,352 for the quarterthree months ended June 30, 2011,2012, compared to depreciation expense of $4,196$2,513 during the quarterthree months ended June 30, 2010.2011. The decrease in depreciation was due to some assets being fully depreciated.    

Amortization expense for the quarterthree months ended June 30, 20112012 totaled $5,245, compared to $5,245 for the quarterthree months ended June 30, 2010.2011.  Amortization expense is the expensing of the website development through May 2013.  Amortization began in the second quarter of 2010 and is expensed at $5,245 per quarter over a three-year period.

For the reasons stated above our net loss for the quarterthree months ended June 30, 20112012 was $663,237,$10,499,094, or $0$0.00 per share, a decreasean increase of $663,421,$9,835,857, compared to a net loss of $1,326,658,$663,237, or $0$0.00 per share, during the quarterthree months ended June 30, 2010.2011.

Revenues for the six-monthssix months ended June 30, 20112012 totaled $319,842,$20,874 compared to revenues of $6,602$319,842 during the six-monthssix months ended June 30, 2010.2011.   The increasedecrease in membership revenue is primarily related to an increasea decrease in the amount of members and medical record reimbursement revenue received from members. Medical record reimbursement revenue is a dollar for dollar reimbursement for charges from members'member’s doctors for sending updated medical records to Medefile.MedeFile. The off-setting expense is charged to selling general and administrative expense.  The Company has increaseddecreased its marketing and advertising efforts and asthrough a previously used telemarketing campaign.  As a result, there has been a substantial increasedecrease in memberships over the previous period.  Revenues received from memberships are expensedrecognized through the period of the membership, and, therefore, revenue recognized represents a fraction of the membership in the quarter being reported.

 

 

Marketing expense for the six-monthssix months ended June 30, 20112012 totaled $440,721,$0, compared to $0$440,721 for the six-monthssix months ending June 30, 2010.2012.  The increaseddecrease marketing expense was due to aggressivediscontinued  use of lead generation for new members.telemarketing efforts.  The Company reliesrelied on one source for generation of leads through the Company’s telemarketing efforts as our only source of generating leads to increase revenues.efforts.

 

Depreciation expense totaled $5,114$4,704 for the six-monthssix months ended June 30, 2011,2012, compared to depreciation and amortization expense of $8,446$5,114 during the six-monthssix months ended June 30, 2010.2012. The decrease in depreciation was due to some assets being fully depreciated.

Amortization expense for the six-monthssix months ended June 30, 20112012 totaled $10,490, compared to $5,245$10,490 for the six-monthssix months ended June 30, 2010. ��2011.  Amortization expense is the expensing of the website development through May 2013.  Amortization began in the second quarter of 2010 and is expensed at $5,245 per quarter over a three-year period.

For the reasons stated above, our net loss for the six-monthssix months ended June 30, 20112012 was $1,111,429,$10,775,209, or $0.00 per share, a decreasean increase of $305,769,$9,663,780 compared to a net loss of $1,417,198,$1,111,429, or $0.00 per share, during the six-monthssix months  ended June 30, 2010.2011.

As of June 30, 2011,2012, we had cash and cash equivalents of $311,975,$622,547, inventory of $27,904,$53,859, merchant services reserve of $53,267,$64,320, and accounts receivable of $2,810 and prepaid insurance of $4,494.$272.  Net cash used in operating activities for the six months ended June 30, 20112012 was approximately $947,877.$527,626. Current liabilities of $251,100$5,780,633 consisted of $244,379$167,492 for accounts payable and accrued liabilities, and deferred revenues of $6,721.$6,438 and warrant liability of $5,606,703. We have a net working capital deficit of $149,350.$4,862,712.

The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. The Company has reported a net loss of $1,111,429$10,775,209 for the six months ended June 30, 20112012 and $2,492,310$1,555,867 for the year ended December 31, 20102011 and had an accumulated deficit of $17,273,985$28,493,632 as of June 30, 2011.2012.  The Company has a net working capital deficit of $149,350$4,862,712 as of June 30, 2011.2012.

 

As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item 3.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Quarterly Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (Principal Executive and Financial Officer); of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer (Principal Executive and Financial Officer) concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and which also are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (Principal Executive and Financial Officer), to allow timely decisions regarding required disclosure.

 

During the most recent quarter ended June 30, 2011,2012, there has been no change in our internal control over financial  reporting  (as defined in Rule  13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected,  or is reasonably likely to materially affect, our internal control over financial reporting.

From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. We are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.

As a Smaller Reporting Company as defined Rule 12b-2 of the Exchange Act and in item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item .