UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
S ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2012
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________.
Commission File Number: 333-138251
Medytox Solutions, Inc.
(Exact name of registrant as specified in its charter)
| Nevada | 54-2156042 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
400 S. Australian Avenue
Suite 800
West Palm Beach, Florida 33401
(Address of principal executive offices)
(Former name, former address and former fiscal year, if changed since last report)
(561) 855-1626
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, par value $0.0001 per share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ NoS
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes£ NoS
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. YesS No£
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes£ NoS
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. S
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. (Check one):
| Large accelerated filer£ | Accelerated filer£ | Non-accelerated filer£ (Do not check if a smaller reporting company) | Smaller reporting companyS |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes£ NoS
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter.
There is currently no market for any of our securities.
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:
As of March 31, 2013, there were 29,567,153 shares of common stock, par value $0.0001 per share, of the Registrant issued and outstanding.
EXPLANATORY NOTE
This Amendment No. 1 to the Annual Report on Form 10-K/A (the “Amendment”) amends the Annual Report on Form 10-K of Medytox Solutions, Inc. (the “Company”) for the year ended December 31, 2012 (the “Original Filing”), that was originally filed with the Securities and Exchange Commission on April 16, 2013, for the sole purpose of correcting a printing error on the Consolidated Statement of Operations for the year ended December 31, 2012. Net income attributable to Medytox Solutions common shareholders has been changed to its correct amount of $2,299,037.
Accordingly, Item 8 to the Original Filing (Financial Statements and Supplementary Data), including the Report of the Independent Registered Accounting Firms, have been included as part of this Amendment. As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Company’s principal executive officer and principal financial officer are providing currently dated certifications, set forth as Exhibits 31.3, 31.4, 32.3 and 32.4 to this Amendment. Thus, the Company hereby amends Item 15 of the Original Filing to add such currently dated certifications as Exhibits.
Except as described above, the Amendment does not modify or update the disclosures presented in, or exhibits to, the Original Filing in any way. Those exhibits of the Original Filing that are unaffected by the Amendment are not included herein. The Amendment continues to speak as of the date of the Original Filing. Furthermore, the Amendment does not reflect events occurring after the filing of the Original Filing. Accordingly, the Amendment should be read in conjunction with the Original Filing, as well as the Company’s other filings made with the Securities and Exchange Commission subsequent to the filing date of the Original Filing.
Item 8. Financial Statements and Supplementary Data.
MEDYTOX SOLUTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | |
| Report of Independent Registered Public Accounting Firm – DKM Certified Public Accountants | 2 |
| Report of Independent Registered Public Accounting Firm - Peter Messineo, CPA | 3 |
| Consolidated Balance Sheets as of December 31, 2012 and 2011 | 4 |
| Consolidated Statements of Operations for the Years Ended December 31, 2012 and 2011 | 5 |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2012 and 2011 | 6 |
| Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 2012 and 2011 | 8 |
| Notes to Consolidated Financial Statements | 9 |
| 1 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Medytox Solutions Inc.
West Palm Beach, Florida
We have audited the accompanying consolidated balance sheet of Medytox Solutions, Inc. (the "Company") as of December 31, 2012 and the related consolidated statement of operations, consolidated stockholders' deficit and consolidated cash flows for the year then ended. The financial statements as of December 31, 2011 and for the year then ended were audited by other auditors whose report dated April 9, 2012 included an unqualified opinion with an explanatory paragraph regarding substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2012 and the results of its consolidated operations and its consolidated cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
DKM Certified Public Accountants
Clearwater, Florida
April 16, 2013 except for the printing error correction mentioned in the Explanatory Note, as to which the date is September 3, 2013.
| PCAOB Registered |
| AICPA Member |
| 2 |
Peter Messineo Certified Public Accountant 1982 Otter Way Palm Harbor FL 34685 peter@pm-cpa.com T 727.421.6268 F 727.674.0511 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders Medytox Solutions Inc.
W Palm Beach, FL 33402
I have audited the accompanying consolidated balance sheets of Medytox Solutions, Inc. (the "Company") as of December 31, 2011 and the related consolidated statements of operations, consolidated stockholders' deficit and consolidated cash flows for the year then ended. The financial statements as of December 31, 2010 and for the year then ended were audited by other auditors whose report dated April 2, 2011 included an unqualified opinion with an explanatory paragraph regarding substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2011 and the results of its consolidated operations and its consolidated cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has an accumulated deficit and negative cash flows from operations. Additionally, there is certain litigation involving a consolidated entity which is unresolved, as discussed in Note 10. The Company is currently reliant on shareholders funding operations and is requiring traditional financing or equity funding to expand its operating plan. These conditions raise doubt about the Company's ability to continue as a going concern. Further information and management's plans in regard to this uncertainty are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Peter Messineo, CPA
Peter Messineo, CPA
Palm Harbor, Florida
April 9, 2012
| 3 |
MEDYTOX SOLUTIONS, INC.
Consolidated Balance Sheets
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 1,773,785 | $ | 97,103 | ||||
| Accounts receivable, net | 3,269,180 | 1,619,727 | ||||||
| Prepaid expenses and other current assets | 109,697 | 24,500 | ||||||
| Deferred loan costs | 77,192 | – | ||||||
| Deferred tax assets | 1,980,600 | 723,900 | ||||||
| Assets attributable to disputed activity | 1,367,796 | – | ||||||
| Total current assets | 8,578,250 | 2,465,230 | ||||||
| Property and equipment, net | 598,741 | 165,738 | ||||||
| Other assets: | ||||||||
| Intangible assets | 550,000 | – | ||||||
| Goodwill | 1,050,912 | 1,302,112 | ||||||
| Deposits | 70,368 | – | ||||||
| Total assets | $ | 10,848,271 | $ | 3,933,080 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,168,443 | $ | 379,124 | ||||
| Accrued expenses | 1,026,922 | 539,832 | ||||||
| Loans and notes payable, related parties | 242,100 | 150,010 | ||||||
| Income tax liabilities | 1,883,900 | 551,700 | ||||||
| Disputed net income - Trident | 397,918 | – | ||||||
| Current portion of notes payable | 3,154,389 | 2,141,489 | ||||||
| Liabilities attributable to disputed activity | 1,104,063 | – | ||||||
| Total current liabilities | 8,977,735 | 3,762,155 | ||||||
| Other liabilities: | ||||||||
| Repurchase agreements payable | – | 1,311,875 | ||||||
| Notes payable, net of current portion | – | 53,671 | ||||||
| Deferred tax liabilities | 36,100 | – | ||||||
| Total liabilities | 9,013,835 | 5,127,701 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, 100,000,000 shares authorized: | ||||||||
| Series B preferred stock $0.0001 par value, 5,000 shares authorized, 5,000 and nil shares issued and outstanding at December 31, 2012 and 2011, respectively | 1 | – | ||||||
| Series C preferred stock $0.001 par value, 1,000,000 shares authorized, 1,000,000 and nil shares issued and outstanding at December 31, 2012 and 2011, respectively | 100 | – | ||||||
| Common stock $.0001 par value 500,000,000 shares authorized, 29,533,753 and 30,764,800 shares issued and outstanding, at December 31, 2012 and 2011, respectively | 2,953 | 3,076 | ||||||
| Additional paid-in-capital | 616,512 | 515,761 | ||||||
| Treasury stock | – | (1,334,375 | ) | |||||
| Accumulated earnings (deficit) | 1,093,866 | (1,082,285 | ) | |||||
| Total Medytox Solutions stockholders' equity (deficit) | 1,713,432 | (1,897,823 | ) | |||||
| Noncontrolling interest | 121,004 | 703,202 | ||||||
| Total stockholders' equity (deficit) | 1,834,436 | (1,194,621 | ) | |||||
| Total liabilities and stockholders' equity (deficit) | $ | 10,848,271 | $ | 3,933,080 | ||||
See accompanying notes to consolidated financial statements.
| 4 |
MEDYTOX SOLUTIONS, INC.
Consolidated Statements of Operations
| For the Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Revenues | $ | 21,076,357 | $ | 3,992,652 | ||||
| Operating expenses: | ||||||||
| Direct costs of revenue | 2,913,169 | 481,891 | ||||||
| General and administrative | 6,437,778 | 1,161,498 | ||||||
| Sales and marketing expenses | 1,106,864 | 879,246 | ||||||
| Bad debt expense | 7,021,945 | 843,418 | ||||||
| Depreciation | 65,648 | 18,445 | ||||||
| Total operating expenses | 17,545,404 | 3,384,498 | ||||||
| Income from Operations | 3,530,953 | 608,154 | ||||||
| Other income (expense): | ||||||||
| Other income (expense) | 129 | – | ||||||
| Gain on settlement of debt | 348,315 | – | ||||||
| Gain (loss) on settlement of assets | 2,546 | (18,586 | ) | |||||
| Interest expense | (653,588 | ) | (174,973 | ) | ||||
| Total other income (expense) | (302,598 | ) | (193,559 | ) | ||||
| Income before income taxes | 3,228,355 | 414,595 | ||||||
| Provision (Benefit) for income taxes | 481,400 | (172,200 | ) | |||||
| Net Income | 2,746,955 | 586,795 | ||||||
| Net income attributable to noncontrolling interest | – | 494,094 | ||||||
| Net income from continuing operations | 2,746,955 | 92,701 | ||||||
| Net loss from disputed activity | (397,918 | ) | – | |||||
| Net income attributable to Medytox Solutions | 2,349,037 | 92,701 | ||||||
| Preferred stock dividends | 50,000 | – | ||||||
| Net income attributable to Medytox Solutions common shareholders | $ | 2,299,037 | $ | 92,701 | ||||
| Net income per share - Basic and diluted | $ | 0.07 | $ | 0.00 | ||||
| Weighted average number of shares | ||||||||
| outstanding during the period - Basic and diluted | 30,795,073 | 33,322,286 | ||||||
See accompanying notes to consolidated financial statements.
| 5 |
MEDYTOX SOLUTIONS, INC.
Consolidated Statements of Cash Flows
| For the Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Cash flows from (used in) operating activities: | ||||||||
| Net income | $ | 2,349,037 | $ | 92,701 | ||||
| Adjustments to reconcile net income net cash provided by (used in) operations: | ||||||||
| Noncontrolling interests | – | 494,094 | ||||||
| Depreciation and amortization | 65,648 | 18,445 | ||||||
| Stock issued in lieu of cash compensation | 235,001 | – | ||||||
| Stock issued for services | 225 | 13,000 | ||||||
| Stock issued for interest on loan | – | 15,000 | ||||||
| Bad debt expense | 7,021,945 | 843,418 | ||||||
| Accretion of loan costs as interest | 244,758 | – | ||||||
| (Gain) loss on disposal of equipment | (2,546 | ) | 18,549 | |||||
| Gain on settlement of debt | (348,315 | ) | – | |||||
| Disputed net income | 397,918 | – | ||||||
| Assets attributable to disputed activity | 753,830 | – | ||||||
| Liabilities attributable to disputed activity | (108,463 | ) | – | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (10,107,742 | ) | (2,328,118 | ) | ||||
| Prepaid expenses and other current assets | (108,697 | ) | 96 | |||||
| Deferred tax assets | (1,256,700 | ) | (723,900 | ) | ||||
| Security deposits | (67,225 | ) | – | |||||
| Accounts payable | 726,831 | 142,273 | ||||||
| Accrued expenses | 840,242 | – | ||||||
| Income tax liabilities | 1,332,200 | 551,700 | ||||||
| Deferred tax liabilities | 36,100 | – | ||||||
| Net cash provided by (used in) operating activities | 2,004,047 | (862,742 | ) | |||||
| Cash flows used in investing activities: | ||||||||
| Purchase of property and equipment | (491,545 | ) | (17,588 | ) | ||||
| Cash received in sale of property and equipment | 25,373 | – | ||||||
| Cash paid for acquisitions | (101,000 | ) | (100,000 | ) | ||||
| Cash received in acquisitions | 21,203 | 80,921 | ||||||
| Net cash used in investing activities | (545,969 | ) | (36,667 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Deferred loan costs | (121,950 | ) | – | |||||
| Dividends on Series B preferred stock | (50,000 | ) | – | |||||
| Payments made on repurchase agreements | (385,200 | ) | (172,600 | ) | ||||
| Proceeds from issuance of notes payable | 1,755,200 | 1,226,000 | ||||||
| Payments on notes payable | (971,536 | ) | (310,418 | ) | ||||
| Net proceeds from line of credit | – | (3,980 | ) | |||||
| Proceeds from issuance of related party loans | 413,093 | 39,072 | ||||||
| Payments on related party loans | (321,003 | ) | – | |||||
| Common stock repurchased from lender | (100,000 | ) | – | |||||
| Contributions to subsidiary | – | 209,108 | ||||||
| Net cash provided by financing activities | 218,604 | 987,182 | ||||||
| Net increase in cash | 1,676,682 | 87,773 | ||||||
| Cash at beginning of year | 97,103 | 9,330 | ||||||
| Cash at end of year | $ | 1,773,785 | $ | 97,103 | ||||
See accompanying notes to consolidated financial statements.
Continued
| 6 |
MEDYTOX SOLUTIONS, INC.
Consolidated Statements of Cash Flows (continued)
| For the Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | 336,039 | $ | 9,037 | ||||
| Cash paid for taxes | $ | – | $ | – | ||||
| Non-cash investing and financing activities: | ||||||||
| Net assets acquired in acquisitions, net of cash paid | $ | (437,329 | ) | $ | (146,420 | ) | ||
| Goodwill | $ | (248,800 | ) | $ | (1,312,688 | ) | ||
| Notes payable issued | $ | 565,125 | $ | 1,250,000 | ||||
| Noncontrolling interest | $ | 121,004 | $ | 209,108 | ||||
| Property and equipment acquired with issuance of notes payable | $ | (101,032 | ) | $ | – | |||
| Notes payable issued | $ | 101,032 | $ | – | ||||
| Conversion of note payable to common stock | ||||||||
| Notes payable | $ | (50,317 | ) | $ | – | |||
| Common stock | $ | 2 | $ | – | ||||
| Additional paid in capital | $ | 50,315 | $ | – | ||||
| Common stock issued as inducement for loan: | ||||||||
| Deferred loan costs | $ | (200,000 | ) | $ | – | |||
| Common stock | $ | 8 | $ | – | ||||
| Additional paid in capital | $ | 199,992 | $ | – | ||||
| Exchange of repurchase agreements and common stock to Series C preferred stock: | ||||||||
| Common stock cancelled | $ | (1,658 | ) | $ | – | |||
| Series C preferred stock | $ | 100 | $ | – | ||||
| Additional paid in capital | $ | 1,558 | $ | – | ||||
| Repurchase agreements payable | $ | (926,675 | ) | $ | – | |||
| Treasury stock | $ | 926,675 | $ | – | ||||
| Treasury stock retired and cancelled | ||||||||
| Common stock cancelled | $ | (823 | ) | $ | (451 | ) | ||
| Additional paid in capital | $ | (406,877 | ) | $ | (149,649 | ) | ||
| Treasury stock | $ | 407,700 | $ | 150,100 | ||||
| Repurchase agreements payable | $ | – | $ | 1,484,475 | ||||
| Treasury stock | $ | – | $ | (1,484,475 | ) | |||
| Cancellation of 20,000,000 shares of preferred stock: | ||||||||
| Preferred stock | $ | – | $ | (2,000 | ) | |||
| Additional paid in capital | $ | – | $ | 2,000 | ||||
See accompanying notes to consolidated financial statements
| 7 |
MEDYTOX SOLUTIONS, INC.
Consolidated Statement of Stockholders' Equity (Deficit)
For the years ended December 31, 2012 and 2011
Preferred stock | Additional | Accumulated | Total stockholders’ | ||||||||||||||||||||||||||||||||||||
| Non-designated | Series B | Series C | Common stock | paid-in | Treasury | Noncontrolling | deficit / | equity | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | stock | interests | earnings | (deficit) | |||||||||||||||||||||||||||
| Balance, December 31, 2010 | – | $ | – | – | $ | – | – | $ | – | 32,465,300 | $ | 3,247 | $ | 740,576 | $ | – | $ | – | $ | (1,174,986 | ) | $ | (431,163 | ) | |||||||||||||||
| Preferred stock issued per agreement | 20,000,000 | 2,000 | – | – | – | – | – | – | 18,000 | – | – | – | 20,000 | ||||||||||||||||||||||||||
| Repurchase agreements for purchase of treasury stock | – | – | – | – | – | – | – | – | – | (1,484,475 | ) | – | – | (1,484,475 | ) | ||||||||||||||||||||||||
| Common stock issued for services | – | – | – | – | – | – | 1,300,000 | 130 | 12,870 | – | – | – | 13,000 | ||||||||||||||||||||||||||
| Common stock issued as inducement for loan | – | – | – | – | – | – | 1,500,000 | 150 | 14,850 | – | – | – | 15,000 | ||||||||||||||||||||||||||
| Acquisition of subsidiaries | – | – | – | – | – | – | – | – | (122,886 | ) | – | 209,108 | – | 86,222 | |||||||||||||||||||||||||
| Common stock repurchased | – | – | – | – | – | – | (2,300,500 | ) | (231 | ) | (149,869 | ) | 150,100 | – | – | – | |||||||||||||||||||||||
| Common stock cancelled | – | – | – | – | – | – | (2,200,000 | ) | (220 | ) | 220 | – | – | – | – | ||||||||||||||||||||||||
| Preferred stock cancelled | (20,000,000 | ) | (2,000 | ) | – | – | – | – | – | – | 2,000 | – | – | – | – | ||||||||||||||||||||||||
| Net income for the year ended December 31, 2011 | – | – | – | – | – | – | – | – | – | – | 494,094 | 92,701 | 586,795 | ||||||||||||||||||||||||||
| Balance, December 31, 2011 | – | – | – | – | – | – | 30,764,800 | 3,076 | 515,761 | (1,334,375 | ) | 703,202 | (1,082,285 | ) | (1,194,621 | ) | |||||||||||||||||||||||
| Common stock issued as inducement for loan | – | – | – | – | – | – | 80,000 | 8 | 199,992 | – | – | – | 200,000 | ||||||||||||||||||||||||||
| Common stock repurchased from lender and cancelled | – | – | – | – | – | – | (40,000 | ) | (4 | ) | (99,996 | ) | – | – | – | (100,000 | ) | ||||||||||||||||||||||
| Common stock repurchased under repurchase agreements cancelled | – | – | – | – | – | – | (8,233,100 | ) | (823 | ) | (406,877 | ) | 407,700 | – | – | – | |||||||||||||||||||||||
| Repurchase agreements exchanged for Series C preferred stock and common stock cancelled | – | – | – | – | 1,000,000 | 100 | (16,580,575 | ) | (1,658 | ) | 1,558 | 926,675 | – | – | 926,675 | ||||||||||||||||||||||||
| Common stock issued in exchange for notes payable | – | – | – | – | – | – | 20,128 | 2 | 50,315 | – | – | – | 50,317 | ||||||||||||||||||||||||||
| Common stock issued for services | – | – | – | – | – | – | 22,500 | 2 | 223 | – | – | – | 225 | ||||||||||||||||||||||||||
| Common stock issued to executives as compensation | – | – | – | – | – | – | 23,500,000 | 2,350 | 232,650 | – | – | – | 235,000 | ||||||||||||||||||||||||||
| Series B preferred stock issued to executives as compensation | – | – | 5,000 | 1 | – | – | – | – | – | – | – | – | 1 | ||||||||||||||||||||||||||
| Acquisition of subsidiaries | – | – | – | – | – | – | – | – | – | – | 121,004 | – | 121,004 | ||||||||||||||||||||||||||
| Disputed activity | – | – | – | – | – | – | – | – | 122,886 | – | (703,202 | ) | (122,886 | ) | (703,202 | ) | |||||||||||||||||||||||
| Net income for the year ended December 31, 2012 | – | – | – | – | – | – | – | – | – | – | – | 2,299,037 | 2,299,037 | ||||||||||||||||||||||||||
| Balance, December 31, 2012 | – | $ | – | 5,000 | $ | 1 | 1,000,000 | $ | 100 | 29,533,753 | $ | 2,953 | $ | 616,512 | $ | – | $ | 121,004 | $ | 1,093,866 | $ | 1,834,436 | |||||||||||||||||
See accompanying notes to consolidated financial statements.
| 8 |
MEDYTOX SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012
Note 1 – Organization, Nature of Business and Presentation
Organization
Medytox Solutions, Inc. (the “Company” or “Medytox”) was organized on July 20, 2005 under the laws of the State of Nevada as Casino Players, Inc. The Company had a wholly-owned subsidiary, Casino Rated Players, Inc. (“CRP”), a Nevada corporation that was a casino representative company offering complimentary rooms to rated players. CRP’s revenues were a percentage of the amount of income the casino earned from the rated players. The casino tracked the play of the rated player to determine its gross income, and CRP was then paid its contractual percentage based on that income, realized at the time of play.
During 2010 and 2011 the casino representative business was minimal. In the first half of 2011, Company management decided to reorganize the operations of the Company as a holding company to acquire and manage a number of companies in the medical services sector.
On June 22, 2011, the Company organized Medytox Medical Management Solutions Corp. ("MMMS"), a Florida corporation, as a wholly-owned subsidiary. MMMS is a marketing company selling laboratory testing services medical clinics, hospitals and physicians’ offices. MMMS operates from the corporate offices in West Palm Beach, Florida.
On July 26, 2011, the Company organized Medytox Institute of Laboratory Medicine, Inc. ("MILM"), a Florida corporation, as a wholly-owned subsidiary. MILM was organized to acquire and manage medical testing laboratories. MILM operates from the corporate offices in West Palm Beach, Florida.
On August 22, 2011, MILM entered into a purchase agreement to acquire 81% of Trident Laboratories, Inc. ("Trident"), a privately-owned Florida corporation. Trident operates a medical testing laboratory specializing in urine testing from a facility in Hollywood, Florida. MILM received 49% ownership in Trident upon signing of the agreement and had the right to acquire an additional 32% for $500,000 to be paid in full by August 22, 2012. The sellers had an option to sell the remaining 19% ownership in Trident for a certain period. The sellers requested the Purchase Agreement be rescinded on January 16, 2012. MILM filed an action seeking to enforce the purchase agreement against Trident and its shareholders, Michelle Streegstra, Christopher Hawley, Donnette Hawley, Michael Falestra and Skylar Lukas (collectively, the “Trident Defendants”) for (i) civil conspiracy, (ii) specific performance, (iii) anticipatory breach of contract, (iv) constructive trust, (v) accounting, and (vi) interpleader. In addition, the Trident Defendants filed a counterclaim and third-party complaint stating causes for action for (i) fraudulent inducement, (ii) civil conspiracy, (iii) tortious interference with business relationships, and (iv) defamation. The claims and counterclaims of Medytox and Trident Defendants are set for trial beginning June 2013. The Company believes these claims of the Trident Defendants are devoid of legal and factual merit. The litigation is ongoing and could have a negative effect on the consolidated balance sheet. The Company has established a disputed net income reserve of $397,918 as of December 31, 2012, representing all of Trident's net income recognized by the Company since August 22, 2011, the date of acquisition.
Also, on August 22, 2011, the Company acquired 100% of Medical Billing Choices, Inc. ("MBC"), a privately-owned North Carolina corporation, through a stock purchase agreement for cash and an installment note. MBC operates a medical billing service for a variety of medical providers throughout the southeastern United States from offices in Charlotte, North Carolina. Since the acquisition, MBC is the main billing company for the Company's laboratories.
On September 16, 2011, the Board of Directors agreed to change the name of the Company to Medytox Solutions, Inc. and file for a new trading symbol. On October 27, 2011, FINRA approved the name change and the new symbol, “MMMS”.
On February 6, 2012, the Company formed Medytox Diagnostics Inc. (“MDI”), a Florida corporation, as a wholly-owned subsidiary to acquire and build clinical laboratories.
On February 16, 2012, MDI acquired majority interest in Collectaway LLC, now known as PB Laboratories, LLC ("PB Labs"), a Florida limited liability company. PB Labs has been the Company's main testing facility. The Company ordered and installed new equipment that has enabled PB Labs to process the increased volume of urine toxicology and blood testing that the Company anticipates. On October 31, 2012, MDI acquired the remaining noncontrolling interest in PB Labs. As of October 31, 2012, PB Labs is a wholly-owned subsidiary of MDI. The financial results of PB Labs have been included in the Company's consolidated financial statements since the date of the acquisition.
| 9 |
Note 1 – Organization, Nature of Business and Presentation (Continued)
Organization (Continued)
On March 9, 2012, the Company formed Medytox Medical Marketing & Sales, Inc., a Florida corporation, as a wholly-owned subsidiary that provides marketing for clinical laboratories that are owned by the Company.
On December 7, 2012, MDI acquired majority interest in Biohealth Medical Laboratory, Inc. (“Biohealth”), a Florida corporation. The Company ordered and installed new equipment that will enable Biohealth to process the increased volume of urine toxicology and blood testing that the Company anticipates. The financial results of Biohealth have been included in the Company's consolidated financial statements since the date of the acquisition of the majority interest.
Nature of Operations
As of December 31, 2012, the Company operates in the medical services segment.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission (“SEC”).
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant areas of estimate include the impairment of assets and rates for amortization, accrued liabilities, future income tax obligations and the inputs used in calculating stock-based compensation and transactions. Actual results could differ from those estimates and would impact future results of operations and cash flows.
Principles of Consolidation
The consolidated financial statements include the accounts of Medytox Solutions, Inc. and its wholly-owned subsidiaries, Medytox Medical Management Solutions Corp., Medytox Institute of Laboratory Medicine, Inc., Medical Billing Choices, Inc., Medytox Diagnostics, Inc., PB Laboratories, LLC, and Medytox Medical Marketing & Sales, Inc., and its majority-owned subsidiary, Biohealth medical Laboratory, Inc. Due to the dispute with Trident and its selling shareholders, the accounts of Trident Laboratories, Inc. have been excluded from consolidation. In addition, a disputed net income reserve of $397,918 has been established as of December 31, 2012 representing all of Trident’s net income recognized by the Company since August 22, 2011, the date of acquisition. All significant inter-company balances and transactions have been eliminated in consolidation.
Reclassifications
Certain items on the 2011 consolidated balance sheet, statement of operations and statement of cash flows have been reclassified to conform to the current period presentation.
| 10 |
Note 2 – Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 2012 and 2011, respectively, the Company had no cash equivalents.
Accounts Receivable
Accounts receivable consists of amounts due primarily from insurance companies on behalf of customers for laboratory services performed and are shown net of an allowance for doubtful accounts. Receivables are determined to be past due based on the payment terms of the original contracts or invoices. The Company uses the allowance method for recognizing bad debts. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable. The Company does not typically charge interest on past due receivables.
As of December 31, 2012 and 2011, management recorded allowances for uncollectible accounts in the amount of $5,263,939 and $872,045, respectively. Such increase was due to the growth in receivables.
Long-Lived Assets and Intangible Property
The Company accounts for the impairment or disposal of long-lived assets according to the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 360 “Property, Plant and Equipment”. ASC 360 clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including the disposal of business segments and major lines of business. Long-lived assets are reviewed when facts and circumstances indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to estimated fair value based on the best information available. Estimated fair value is generally based on either appraised value or measured by discounting estimated future cash flows. Considerable management judgment is necessary to estimate discounted future cash flows. Accordingly, actual results could vary significantly from such estimates. The Company did not recognize any impairment losses for the years ended December 31, 2012 and 2011.
Fair Value of Financial Instruments
The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
ASC 820 “Fair Value Measurements and Disclosures” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) a reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
| 11 |
Note 2 – Summary of Significant Accounting Policies (Continued)
Fair Value of Financial Instruments (Continued)
| Level 1 - | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; |
| Level 2 - | Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means; and |
| Level 3 - | Inputs that are both significant to the fair value measurement and unobservable. |
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2012 and 2011. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
The Company applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. The adoption of ASC 820 for non-financial assets and liabilities did not have a significant impact on the Company’s financial statements.
As of December 31, 2012 and 2011 the fair values of the Company’s financial instruments approximate their historical carrying amount.
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
| · | persuasive evidence of an arrangement exists, |
| · | the product has been shipped or the services have been rendered to the customer, |
| · | the sales price is fixed or determinable, and |
| · | collectability is reasonably assured. |
The Company follows the guidance of the Securities and Exchange Commission's Staff Accounting Bulletin 104 for revenue recognition. In general, the Company records revenue when a urine or blood specimen is tested and the services are billed to an insurance company, an individual, Medicare or Medicaid. We record the invoice as accounts receivable and reserve for bad debt, insurance discounts (self- pay write off 100%) and estimate net revenues to equal 60% of billed revenues.
Advertising
The costs of advertising are expensed as incurred. Advertising expense was $111,691 and $58,598 for the years ended December 31, 2012 and 2011, respectively. Advertising expenses are included in the Company’s operating expenses.
| 12 |
Note 2 – Summary of Significant Accounting Policies (Continued)
Research and Development
The Company expenses research and development costs when incurred. Research and development costs include engineering, programmer costs and testing of product and outputs. Indirect costs related to research and development are allocated based on percentage usage to the research and development. We did not record any research and development costs for the years ended December 31, 2012 and 2011.
Stock Based Compensation
The Company accounts for Stock-Based Compensation under ASC 718 “Compensation – Stock Compensation”, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.
The Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. Under ASC 505-50, the Company determines the fair value of the options, warrants or stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Any stock options or warrants issued to non-employees are recorded in expense and additional paid-in capital in shareholders' equity/(deficit) over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options or warrants at the end of each period.
The Company issues stock to consultants for various services. The costs for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete. The Company recognized consulting expense and a corresponding increase to additional paid-in-capital related to stock issued for services.
Income Taxes
Income taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, future tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in the financial statement carrying amounts of assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset is realized or the liability settled. The effect of a change in income tax rates on future income tax liabilities and assets is recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are considered more likely than not to be realized.
The FASB has issued ASC 740 “Income Taxes”. ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by ASC 740 and concluded that the tax position of the Company has not met the more-likely-than-not threshold as of December 31, 2012.
| 13 |
Note 2 – Summary of Significant Accounting Policies (Continued)
Basic and Diluted Income Per Share
The Company computes income per share in accordance with ASC 260, "Earnings per Share", which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the statement of operations. Basic EPS is computed by dividing income available to common shareholders by the weighted average number of shares outstanding during the period. Diluted EPS gives effect to all dilutive potential shares of common stock outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As of December 31, 2012, there were a total of 21,320,000 stock options to purchase shares of common stock outstanding, $500,000 convertible debenture convertible into 200,000 shares of the Company’s common stock, and 1,000,000 shares of convertible Series C preferred stock outstanding. However, these potentially dilutive shares are considered to be anti-dilutive and are therefore not included in the calculation of loss per share.
Accounting Standards Codification
The FASB’s Accounting Standards Codification (“ASC”) became effective on September 15, 2009. At that date, the ASC became the FASB’s officially recognized source of authoritative generally accepted accounting principles (“GAAP”) applicable to all public and non-public non-governmental entities, superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”) and related literature. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.
Segment Information
In accordance with the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”, the Company is required to report financial and descriptive information about its reportable operating segments. The Company does not consider itself to have any operating segments as of December 31, 2012 and 2011.
Note 3 – Recent Accounting Pronouncements
In October 2012, the FASB issued Accounting Standards Update (“ASU”) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
| 14 |
Note 3 – Recent Accounting Pronouncements (Continued)
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill .. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income” in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.
On September 15, 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other, which simplifies how an entity is required to test goodwill for impairment. This ASU will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to consider in conducting the qualitative assessment. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted.
In June, 2011, the FASB issued ASU No. 2011-05, which amends ASC Topic 220, Comprehensive Income. Under the amendment, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this ASU should be applied retrospectively. Additionally, the FASB issued a second amendment to ASC Topic 220 in December 2011, ASU No. 2011-12, which allows companies the ability to defer certain aspects of ASU 2011-05. For public entities, these amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The amendments do not require any transition disclosures.
| 15 |
Note 3 – Recent Accounting Pronouncements (Continued)
Management does not believe any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the Company’s present or future consolidated financial statements.
Note 4 – Disputed Subsidiary
The Company and MILM are in litigation with Trident Laboratories, Inc. ("Trident") and the results of the litigation may have a negative effect on the balance sheet of the Company.
On January 16, 2012 Trident requested in writing to rescind the stock purchase agreement and is currently in a dispute with the Company’s wholly-owned subsidiary MILM arising out of a stock purchase agreement granting MILM the right to acquire an additional 32% interest in Trident. MILM filed an action seeking to enforce the purchase agreement against Trident and its shareholders, Michelle Streegstra, Christopher Hawley, Donnette Hawley, Michael Falestra and Skylar Lukas (collectively, the “Trident Defendants”) for (i) civil conspiracy, (ii) specific performance, (iii) anticipatory breach of contract, (iv) constructive trust, (v) accounting, and (vi) interpleader. In addition, the Trident Defendants filed a counterclaim and third-party complaint stating causes for action for (i) fraudulent inducement, (ii) civil conspiracy, (iii) tortious interference with business relationships, and (iv) defamation. The claims and counterclaims of Medytox and Trident Defendants are set for trial beginning June 2013. The Company believes these claims of the Trident Defendants are devoid of legal and factual merit. The litigation is ongoing and could have a negative effect on the consolidated balance sheet.
As of the date of these consolidated financial statements, the suit has not yet been resolved and MILM may not recover any of its sales proceeds from Trident.
The Company has not received any financial data on the operations of Trident for the period September 1 through December 31, 2012. These financial statements were prepared without the missing activity. Management believes that the missing activity is immaterial to the financial statements as a whole. The Company has established a disputed net income reserve of $397,918 as of December 31, 2012, representing all of Trident's net income recognized by the Company since August 22, 2011, the date of acquisition. The assets and liabilities of Trident have been condensed and presented as assets, or liabilities, attributable to disputed activity in the December 31, 2012 balance sheet. A separate $389,135 of commissions payable on Trident sales is included in liabilities attributable to disputed activity as of December 31, 2012. The assets, liabilities and operating results of Trident are included in the consolidated balance sheet, statement of operations and statement of cash flows as of and for the year ended December 31, 2011.
Assets and liabilities of the disputed subsidiary as of December 31, 2012 are as follows:
| Total assets | $ | 1,367,796 | ||
| Total liabilities | $ | 1,104,063 |
| 16 |
Note 5 – Long-Lived Assets
Property and equipment at December 31, 2012 and 2011 consisted of the following:
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| Medical equipment | $ | 269,931 | $ | – | ||||
| Equipment | 37,140 | 38,208 | ||||||
| Furniture | 66,606 | 64,330 | ||||||
| Leasehold improvements | 47,197 | – | ||||||
| Vehicles | 70,828 | 124,086 | ||||||
| Computer equipment | 85,478 | 33,339 | ||||||
| Software | 196,711 | – | ||||||
| 773,891 | 259,963 | |||||||
| Less accumulated depreciation | (175,150 | ) | (94,225 | ) | ||||
| Property and equipment, net | $ | 598,741 | $ | 165,738 | ||||
Depreciation of property and equipment was $65,648 and $18,445 for the years ended December 31, 2012 and 2011, respectively.
The Company has recorded medical licenses acquired from acquisitions in the amount of $550,000 as intangible property. The medical licenses include licenses for Medicare and Medicade, COLA Laboratory Accreditation, Clinical Laboratory Improvement Amendments (CLIA), and State of Florida (AHCA) Clinical Laboratory License and have indefinite lives. As such, there was no amortization of intangible assets for the years ended December 31, 2012 and 2011.
Management periodically reviews the valuation of long-lived assets for potential impairments. Management has not recognized an impairment of these assets to date, and does not anticipate any negative impact from known current business developments.
| 17 |
Note 6 – Notes Payable
The Company and its subsidiaries are party to a number of loans with affiliates and unrelated parties. At December 31, 2012 and 2011, notes payable consisted of the following:
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| Convertible debenture for working capital, dated September 15, 2011, in the amount of $500,000 and bearing interest at 20%. Interest only payments are payable monthly. The note is convertible at $2.50 per share until October 31, 2013 when the note is due. This note is subordinated to the loan from TCA and is secured by the assets of the Company, MMMS and Trident. | $ | 500,000 | $ | 500,000 | ||||
| Loan for working capital, dated September 15, 2011, in the amount of $500,000 and bearing interest at 20%. Interest and principal are payable in 10 equal payments ending August 31, 2013. This note is subordinated to the loan from TCA and is secured by the assets of the Company, MMMS and Trident. | 150,000 | 500,000 | ||||||
| Acquisition note to former shareholders of Medical Billing Choices, in the amount of $750,000, payable from percentage of collections, with interest at 6%, payable by August 22, 2013. | 449,512 | 724,989 | ||||||
| Loan from TCA Global Credit Master Fund, L.P. Principal of $1,725,000, payable by September 4, 2013. Secured by all assets of the Company and its subsidiaries (other than trident and MBC). | 1,725,000 | – | ||||||
| Acquisition note to former member of PB Laboratories, LLC for 50.5% ownership, in the amount of $200,000 at 6% interest, with payments of $50,000 quarterly starting May 17, 2012 | 50,000 | – | ||||||
| Acquisition note to former member of PB Laboratories, LLC for 49.5% ownership, in the amount of $200,000 at 0% interest, with payments of $50,000 quarterly starting January 31, 2013 | 150,000 | – | ||||||
| Acquisition note to former shareholder of Biohealth Medical Laboratory, Inc. for 50.5% ownership, in the amount of $165,125 at 0% interest, with payments of $75,000 due quarterly starting February 7, 2013 and a final payment of $15,125 due on August 7, 2013. | 99,677 | – | ||||||
| 18 |
Note 6 – Notes Payable (Continued)
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| Short-term notes from various affiliates, bearing interest at 12% to 20%. Interest and principal are due on demand. | 30,200 | 10,295 | ||||||
| Acquisition note to former shareholders of Trident Laboratories, Inc., original amount $500,000, payable from collections on new work, interest at 6%, payable by August 22, 2012. | – | 290,893 | ||||||
| Short-term working capital note, noninterest bearing, payable on demand. | – | 95,000 | ||||||
| Commercial loan with a finance company, dated November 30, 2011, in the original amount of $29,996 and bearing interest at 6.5%. Principal and interest payments in the amount of $854.41 are payable for 60 months ending on October 31, 2016. This note is secured by a lien on a vehicle with a carrying value of $30,000 at December 31, 2011. | – | 29,896 | ||||||
| Commercial loan with a finance company, dated December 10, 2010, in the original amount of $63,700 and bearing interest at 8%. Principal and interest payments in the amount of $2,000 are payable for 36 months ending on December 10, 2013. This note is secured by a lien on a vehicle with a carrying value of $48,898 at December 31, 2011. | – | 44,087 | ||||||
| 3,154,389 | 2,195,160 | |||||||
| Less current portion | (3,154,389 | ) | (2,141,489 | ) | ||||
| Notes payable, net of current portion | $ | – | $ | 53,671 | ||||
Principal maturities of notes payable for the next five years and thereafter are as follows:
| Year ended December 31, | ||||
| 2013 | $ | 3,154,389 | ||
| 2014 | – | |||
| 2015 | – | |||
| 2016 | – | |||
| 2017 and thereafter | – | |||
| $ | 3,154,389 |
| 19 |
Note 6 – Notes Payable (Continued)
TCA Global
On May 14, 2012, the Company borrowed $550,000 from TCA Global Credit Master Fund, LP (the "Lender") pursuant to the terms of the Senior Secured Revolving Credit Facility Agreement, dated as of April 30, 2012 (the "Credit Agreement"), among Medytox, MMMS, MDI, PB Labs and the Lender. The funds are being used for general corporate purposes. Under the Credit Agreement, Medytox may borrow up to an amount equal to the lesser of 80% of its Eligible Accounts (as defined in the Credit Agreement) and the revolving loan commitment, which initially was $550,000.
Medytox may request that the revolving loan commitment be raised by various specified amounts at specified times, up to a maximum of $4,000,000. In each case, whether to agree to any such increase in the revolving loan commitment is in the Lender's sole discretion.
On August 9, 2012, the Company borrowed an additional $525,000 in a second round of funding. These additional funds may also be used for general corporate purposes. In this second round of funding, certain changes were made to the terms of the Credit Agreement:
| · | the revolving loan commitment was increased from $550,000 to $1,100,000 and is subject to further increase, up to a maximum of $4,000,000, in the Lender's sole discretion; |
| · | the maturity date of the loan was extended to February 8, 2013 from the original maturity date of November 30, 2012 (subject to the Lender's continuing ability to call the loan upon 60 days written notice); and |
| · | a prepayment penalty was added of 5% if substantially all of the loan is prepaid between 91 and 180 days prior to February 8, 2013, or 2.50% if substantially all of the loan is prepaid within 90 days of February 8, 2013. |
On December 4, 2012, the Company borrowed an additional $650,000 in a third round of funding. These additional funds may also be used for general corporate purposes. In this third round of funding, certain changes were made to the terms of the Credit Agreement:
| · | the revolving loan commitment was increased from $1,100,000 to $1,725,000 and is subject to further increase, up to a maximum of $15,000,000, in the Lender's sole discretion; |
| · | the maturity date of the loan was extended to September 3, 2013 from the previous maturity date of February 8, 2013, (subject to the Lender's continuing ability to call the loan upon 60 days written notice); and |
| · | a covenant was added to require that any subsidiary that is formed, acquired or otherwise becomes a subsidiary must guarantee the loan and pledge substantially all of its assets as security for the loan. |
| 20 |
Note 6 – Notes Payable (Continued)
Deferred Loan Costs
The Company has incurred certain loan costs as inducement for loans and had recorded them as deferred loan costs. The loan costs are amortized as interest expense on a straight-line basis over the life of the loan. Deferred loan costs at December 31, 2012 and 2011 consisted of the following:
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| Deferred loan costs | $ | 321,950 | $ | – | ||||
| Less accumulated accretion as interest | (244,758 | ) | – | |||||
| Deferred loan costs, net | $ | 77,192 | $ | – | ||||
Note 7 – Related Party Transactions
William Forhan, the Chief Executive Officer, director and shareholder of the Company, has advanced loans to the Company for the payment of certain operating expenses. The loans are non-interest bearing and are due on demand. The amount outstanding to Mr. Forhan was $57,100 and $50,010 at December 31, 2012 and 2011, respectively.
Alcimede, LLC, of which a shareholder of the Company is the managing member, has advanced loans to the Company for the payment of certain operating expenses. The loans are non-interest bearing and are due on demand. The amount outstanding to Alcimede was $85,000 and $0 at December 31, 2012 and 2011, respectively.
A selling shareholder of MBC has advanced loans to the Company for the payment of certain operating expenses. The loans are non-interest bearing and are due on demand. The amount outstanding to the selling shareholder was $100,000 at December 31, 2012 and 2011, respectively.
At December 31, 2012, senior management had deferred compensation of $291,766. During the year ended December 31, 2012, $15,000 was paid and the remaining $276,766 was released by senior management. The $276,766 is included in gain on settlement of debt (see Note 9).
Note 8 – Stockholders’ Equity
Authorized Capital
The Company has 500,000,000 authorized shares of Common Stock at $0.0001 par value and 100,000,000 authorized shares of Preferred Stock at a par value of $0.0001.
On October 1, 2012, the Company filed a certificate of designation with the Secretary of State of Nevada to designate 5,000 shares of Series B Non-convertible Preferred Stock, at $0.0001 par value. The Series B shares do not include any voting rights and allow for monthly dividends as an amount equal to the sum of 1) ten percent (10%) of the amount of gross sales in excess of $1 million collected in the ordinary course of business, not to exceed $150,000, and 2) fifteen percent (15%) of the amount of gross sales in excess of $2.5 million collected in the ordinary course of business.
| 21 |
Note 8 – Stockholders’ Equity (Continued)
Authorized Capital (Continued)
On October 7, 2012, the Company filed a certificate of designation with the Secretary of State of Nevada to designate 1,000,000 shares of Series C Convertible Preferred Stock, at $0.0001 par value. The Series C shares are convertible to Common Shares by the quotient of 1 divided by the product of 0.80 multiplied by the market price of the Company’s Common Stock at the date of conversion. The Series C shares also include voting rights of twenty-five (25) votes for every share of Series C Preferred Stock and shall be entitled to dividends at the same time any dividend is paid or declared on any shares of the Company’s Common Stock.
Preferred Stock
During the year ended December 31, 2011, the Company issued 20,000,000 shares of preferred stock to an investor group for a software program and support valued at par value of the stock or $20,000. The preferred shares were later cancelled when the investor group could not produce working software or licenses. The Company recorded an impairment expense against the software tendered in the amount of $20,000 at December 31, 2011. The impairment charge has been charged as a loss on settlement of assets.
During the year ended December 31, 2012, the Company issued 5,000 shares of Series B Preferred Stock to executives as compensation. The shares were valued at par totaling $1 and charged to operations.
During the year ended December 31, 2012, the Company issued 1,000,000 shares of Series C Preferred Stock in exchange for $926,675 of repurchase agreements and cancelled 16,580,575 shares of treasury stock.
During the year ended December 31, 2012, the Series B Preferred shareholders agreed to limit their dividend for 2012 to a total of $50,000. The dividend was paid on December 6, 2012. If the dividend had not been limited, the Series B shareholders would have received $281,430.
Common Stock
On June 20, 2011 the Company issued 1,300,000 shares of its restricted Common Stock for consulting fees totaling $13,000.
On October 1, 2011 the Company issued 1,500,000 shares of its restricted Common Stock valued at $15,000 as inducement to accept a $500,000 Debenture.
During the year ended December 31, 2011, the Company offered promissory notes in the total amount of $1,484,475 to a number of shareholders in exchange for retiring a total of 27,114,175 shares of common shares. Some of these shares have been returned and are listed as treasury stock at December 31, 2011. The promissory notes are recorded as other liabilities on the balance sheet. As the notes are paid off, the associated treasury stock is cancelled.
During the year ended December 31, 2011, the Company paid a total of $172,600 on the promissory notes and cancelled 2,300,500 shares of the treasury stock at a value of $150,100.
During the year ended December 31, 2011, the Company also cancelled 2,200,000 shares of common stock, issued for services never performed.
| 22 |
Note 8 – Stockholders’ Equity (Continued)
Common Stock (Continued)
During the year ended December 31, 2012, the Company paid a total of $385,200 on the promissory notes and cancelled 8,233,100 shares of the treasury stock at a value of $407,700. Also during the year ended December 31, 2012, The Company exchanged the remaining $926,675 of the promissory notes for 1,000,000 shares of Series C Preferred Stock and cancelled 16,580,575 shares of the treasury stock at a value of $926,675.
During the year ended December 31, 2012, the Company issued 80,000 shares of its restricted Common Stock for corporate advisory and investment banking services in connection with an additional funding at a value of the services received of $200,000. Also during the same period, the Company repurchased and cancelled 40,000 shares of the restricted Common Stock from the lender for a total of $100,000.
During the year ended December 31, 2012, the Company issued 20,128 shares of its restricted Common Stock in conversion of a note payable of $50,317.
During the year ended December 31, 2012, the Company issued 22,500 shares of its restricted Common Stock for consulting services at a value of $225.
During the year ended December 31, 2012, the Company issued 23,500,000 shares of its restricted Common Stock for compensation to executives at a value of $235,000.
Stock Options
During the year ended December 31, 2012, the Company’s Board of Directors granted stock options to purchase 21,320,000 shares of the Company’s restricted Common Stock to employees and non-employees. The Company does not have a stock option plan approved by shareholders.
The following summarizes option activity for the year ended December 31, 2012 and 2011:
| Weighted | ||||||||||||||||
| Common Stock Options Outstanding | average | |||||||||||||||
| Employee | Non-employee | Total | exercise price | |||||||||||||
| Outstanding at December 31, 2010 | – | – | – | – | ||||||||||||
| Options granted | – | 400,000 | 400,000 | $ | 4.50 | |||||||||||
| Options exercised | – | – | – | – | ||||||||||||
| Options cancelled or expired | – | – | – | – | ||||||||||||
| Outstanding at December 31, 2011 | – | 400,000 | 400,000 | 4.50 | ||||||||||||
| Options granted | 19,300,000 | 3,020,000 | 22,320,000 | 5.66 | ||||||||||||
| Options exercised | – | – | – | – | ||||||||||||
| Options cancelled or expired | (1,000,000 | ) | (400,000 | ) | (1,400,000 | ) | 3.43 | |||||||||
| Balance at December 31, 2012 | 18,300,000 | 3,020,000 | 21,320,000 | $ | 5.81 | |||||||||||
| 23 |
Note 8 – Stockholders’ Equity (Continued)
Stock Options (Continued)
The following table summarizes information with respect to stock options outstanding and exercisable by employees at December 31, 2012:
| Options outstanding | Options vested and exercisable | |||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||
| average | Weighted | Weighted | ||||||||||||||||||||||||
| remaining | average | Aggregate | average | Aggregate | ||||||||||||||||||||||
| Exercise | Number | contractual | exercise | intrinsic | Number | exercise | intrinsic | |||||||||||||||||||
| price | outstanding | life (years) | price | value | vested | price | value | |||||||||||||||||||
| $2.50 | 6,250,000 | 4.85 | $ | 2.50 | $ | – | 6,250,000 | $2.50 | $ | – | ||||||||||||||||
| $5.00 | 6,050,000 | 4.98 | $ | 5.00 | 6,050,000 | $5.00 | ||||||||||||||||||||
| $10.00 | 6,000,000 | 10.00 | $ | 10.00 | 6,000,000 | $10.00 | ||||||||||||||||||||
| 18,300,000 | $ | 5.79 | $ | – | 18,300,000 | $5.79 | $ | – | ||||||||||||||||||
During the year ended December 31, 2012, the Company issued 19,300,000 options to employees with a grant date fair value of $0.00 as there is no market value for the stock. 1,000,000 options were cancelled during the year ended December 31, 2012. All of the options granted were fully vested upon their grant. Stock option expense for employees was $0 and $0 for the years ended December 31, 2012 and 2011.
The Company estimated the fair value of employee stock options using the Black-Scholes Option Pricing Model. The fair value of employee stock options is expensed upon vesting of the awards. The fair value of employee stock options was estimated using the following assumptions:
| Stock Price | $0.00 |
| Expected term | 1 to 5 years |
| Expected volatility | 29 to 30% |
| Risk-free interest rate | 0.25 to 0.72% |
| Dividend yield | 0 |
| 24 |
Note 8 – Stockholders’ Equity (Continued)
The following table summarizes information with respect to stock options outstanding and exercisable by non-employees at December 31, 2012:
| Options outstanding | Options vested and exercisable | |||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||
| average | Weighted | Weighted | ||||||||||||||||||||||||
| remaining | average | Aggregate | average | Aggregate | ||||||||||||||||||||||
| Exercise | Number | contractual | exercise | intrinsic | Number | exercise | intrinsic | |||||||||||||||||||
| price | outstanding | life (years) | price | value | vested | price | value | |||||||||||||||||||
| $2.50 | 1,020,000 | 4.94 | $ | 2.50 | – | 1,020,000 | $2.50 | – | ||||||||||||||||||
| $5.00 | 1,000,000 | 5.00 | $ | 5.00 | 1,000,000 | $5.00 | ||||||||||||||||||||
| $10.00 | 1,000,000 | 10.00 | $ | 10.00 | 1,000,000 | $10.00 | ||||||||||||||||||||
| 3,020,000 | $ | 5.81 | $ | – | 3,020,000 | $5.81 | $ | – | ||||||||||||||||||
During the years ended December 31, 2012 and 2011, the Company issued 3,020,000 and 400,000 options to non-employees with a grant date fair value of $0.00 as there is no market value for the stock. 400,000 options were cancelled during the year ended December 31, 2012. All of the options granted were fully vested upon their grant. Stock option expense for non-employees was $0 and $0 for the years ended December 31, 2012 and 2011.
The Company estimated the fair value of non-employee stock options using the Black-Scholes Option Pricing Model. The fair value of employee stock options is expensed upon vesting of the awards. The fair value of employee stock options was estimated using the following assumptions:
| Stock Price | $0.00 |
| Expected term | 2 to 10 years |
| Expected volatility | 29 - 30% |
| Risk-free interest rate | 0.25 – 1.78%% |
| Dividend yield | 0 |
Note 9 – Settlement of Debt
During the year ended December 31, 2012, two parties, our Chief Executive Officer and a former officer and director of the Company, released the Company of remaining contractual deferred compensation amounts due to them totaling $276,766 which were recorded in accrued liabilities at December 31, 2011.
During the year ended December 31, 2012, three parties, former vendors of Casino Players, Inc., released the Company of remaining contractual amounts due to them totaling $59,000 which were recorded in accounts payable at December 31, 2011.
During the year ended December 31, 2012, three parties, former employees of MMMS, released the Company of remaining contractual amounts due to them totaling $12,549 which were recorded in accounts payable at December 31, 2011.
| 25 |
Note 10 – Income Taxes
Significant components of the income tax provision (benefit) are summarized as follows:
| Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Current provision | $ | 1,883,900 | $ | 156,000 | ||||
| Deferred provision | (1,402,500 | ) | (328,200 | ) | ||||
| $ | 481,400 | $ | (172,200 | ) | ||||
A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate on income before taxes for the years ended December 31, 2012 and 2011 is as follows:
| Year Ended December 31, | ||||||||
| 2012 | 2011 | |||||||
| Expected federal income tax at 34% statutory rate | 34.0% | 34.0% | ||||||
| State income taxes | 3.6% | 3.6% | ||||||
| Permanent differences | 3.4% | 0.0% | ||||||
| Change in valuation allowance | -26.0% | -79.6% | ||||||
| Actual tax expense (benefit) | 15.1% | -42.0% | ||||||
The Company provides for income taxes using the liability method in accordance with FASB ASC Topic 740 “Income Taxes”. Deferred income taxes arise from the difference in the recognition of income and expenses for tax purposes. Deferred tax assets and liabilities are comprised of the following at December 31, 2012 and 2011:
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| Deferred income tax asset (liability), current: | ||||||||
| Allowance for doubtful accounts | $ | 1,980,600 | $ | 328,200 | ||||
| Accrued officer salaries | – | 109,800 | ||||||
| 1,980,600 | 438,000 | |||||||
| Deferred income tax asset (liability), non-current: | ||||||||
| Net operating loss | – | 825,300 | ||||||
| Intangible amortization | (36,100 | ) | 10,900 | |||||
| Valuation allowance | – | (825,300 | ) | |||||
| (36,100 | ) | 10,900 | ||||||
| Net deferred income tax assets | $ | 1,944,500 | $ | 448,900 | ||||
| 26 |
Note 10 – Income Taxes (continued)
Management has reviewed the provisions regarding assessment of their valuation allowance on deferred tax assets and based on that criteria determined that it will have sufficient taxable income to realize those assets. Therefore, management has assessed the realization of the deferred tax assets and has determined that it is more likely than not that they will be realized. The change in the valuation allowance was $825,300 and $448,900 for the years ended December 31, 2012 and 2011, respectively.
The Company recognizes the consolidated financial statement impact of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than–not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
The Company is subject to income taxes in the U.S. federal jurisdiction and the states of Florida and North Carolina. The tax regulations within each jurisdiction are subject to interpretation of related tax laws and regulations and require significant judgment to apply. As of December 31, 2012, tax years 2011, 2010, 2009, 2008, 2007, 2006 and 2005 remain open for IRS audit. The Company has received no notice of audit from the IRS for any of the open tax years.
Note 11 – Acquisitions
The Company completed two acquisitions each during the years ended December 31, 2012 and 2011. The Company accounted for the assets, liabilities and ownership interests in accordance with the provisions of FASB ASC Topic 805 “Business Combinations“. As such, the recorded assets and liabilities acquired have been recorded at fair value and any difference in the net asset values and the consideration given has been recorded as a gain on acquisition or as goodwill.
Goodwill was attributable to the following subsidiaries as of December 31, 2012 and 2011:
| December 31, | ||||||||
| 2012 | 2011 | |||||||
| Trident | $ | – | $ | 500,000 | ||||
| MBC | 802,112 | 802,112 | ||||||
| PB Labs | 107,124 | – | ||||||
| Biohealth | 141,676 | – | ||||||
| $ | 1,050,912 | $ | 1,302,112 | |||||
The Trident goodwill of $500,000 is included in the assets attributable to disputed activity at December 31, 2012.
Biohelath Laboratory, Inc.
On December 7, 2012, the Company, through its subsidiary, MDI, agreed to purchase 50.5% of Biohealth Medical Laboratory, Inc. ("Biohealth") from two unrelated parties for cash of $100,000 and an installment note in a total amount of $165,125. The note is being paid in $75,000 payments due on February 7 and May 7, 2013 and a final installment of $15,125 on August 7, 2013. The Company made an early payment of $65,448 during the year ended December 31, 2012 and the note has a balance due of $99,677.
| 27 |
Note 11 – Acquisitions (Continued)
Biohelath Laboratory, Inc. (Continued)
The following table summarizes the consideration given for Biohealth and the fair values of the assets acquired and liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date of the noncontrolling - interest in Biohealth.
| Consideration Given: | ||||
| Cash | $ | 100,000 | ||
| Acquisition Note | 165,125 | |||
| Total Consideration | $ | 265,125 | ||
| Fair value of identifiable assets acquired and liabilities assumed: | ||||
| Cash | $ | 19,327 | ||
| Accounts receivable | 64,206 | |||
| Property and equipment, net | 9,477 | |||
| Deposits | 3,143 | |||
| Accounts payable | (120,590 | ) | ||
| Accrued expenses | (6,110 | ) | ||
| Identifiable intangible assets | 275,000 | |||
| Total identifiable net assets | 244,453 | |||
| Noncontrolling interest in Biohealth | (121,004 | ) | ||
| Goodwill | 141,676 | |||
| $ | 265,125 | |||
Intangible assets consisting of certain medical licenses were valued by management based on the fair value of obtaining such licenses. As the licenses have indefinite lives, the intangible assets are non-amortizable (See Note 5 – Long-Lived Assets).
PB Laboratories, LLC
On February 16, 2012, the Company, through its subsidiary, MDI, agreed to purchase 50.5% of PB Laboratories, LLC ("PB Labs") from an unrelated party for cash of $1,000 and an installment note in a total amount of $200,000. The note is being paid in $50,000 quarterly payments over 12 months. The Company made payments of $150,000 during the year ended December 31, 2012 and the note has a balance due of $50,000.
On October 31, 2012, MDI agreed to purchase the remaining 49.5% of PB Labs from the noncontrolling member for an installment note in a total amount of $200,000. The note is being paid in $50,000 quarterly payments over 12 months. The Company made payments of $50,000 during the year ended December 31, 2012 and the note has a balance due of $150,000.
PB Labs was organized in October 2005. The Company was not required to file audited consolidated financial statements for the years ended December 31, 2011 and 2010 on a Form 8-K in connection with the acquisition.
| 28 |
Note 11 – Acquisitions (Continued)
PB Laboratories, LLC (Continued)
The following table summarizes the consideration given for PB Labs and the fair values of the assets acquired and liabilities assumed recognized at the acquisition date of PB Labs.
| Consideration Given: | ||||
| Cash | $ | 1,000 | ||
| Acquisition Note | 400,000 | |||
| Total Consideration | $ | 401,000 | ||
| Fair value of identifiable assets acquired and liabilities assumed: | ||||
| Cash | $ | 1,876 | ||
| Property and equipment, net | 17,000 | |||
| Identifiable intangible assets | 275,000 | |||
| Total identifiable net assets | 293,876 | |||
| Goodwill | 107,124 | |||
| $ | 401,000 | |||
Intangible assets consisting of certain medical licenses were valued by management based on the fair value of obtaining such licenses. As the licenses have indefinite lives, the intangible assets are non-amortizable (See Note 5 – Long-Lived Assets).
Trident Laboratories, Inc.
On August 22, 2011 the Company, through its subsidiary, MILM, entered into a purchase agreement to acquire 81% of Trident Laboratories, Inc. ("Trident"), a privately-owned Florida corporation. Trident operates a medical testing laboratory specializing in urine testing from a facility in Hollywood, Florida. MILM received 49% ownership in Trident upon signing of the agreement and had the right to acquire an additional 32% for $500,000 to be paid in full by August 22, 2012. The sellers had an option to sell the remaining 19% ownership in Trident for a certain period.
The sellers requested the Purchase Agreement be rescinded on January 16, 2012. MILM filed an action seeking to enforce the purchase agreement against Trident and its shareholders, Michelle Streegstra, Christopher Hawley, Donnette Hawley, Michael Falestra and Skylar Lukas (collectively, the “Trident Defendants”) for (i) civil conspiracy, (ii) specific performance, (iii) anticipatory breach of contract, (iv) constructive trust, (v) accounting, and (vi) interpleader. In addition, the Trident Defendants filed a counterclaim and third-party complaint stating causes for action for (i) fraudulent inducement, (ii) civil conspiracy, (iii) tortious interference with business relationships, and (iv) defamation. The claims and counterclaims of Medytox and Trident Defendants are set for trial beginning June 2013.
| 29 |
Note 11 – Acquisitions (Continued)
Trident Laboratories, Inc. (Continued)
The following table summarizes the consideration given for Trident and the fair values of the assets acquired and liabilities assumed recognized at the acquisition date, as well as the fair value at the acquisition date of the noncontrolling - interest in Trident.
| Consideration Given: | ||||
| Acquisition Note | $ | 500,000 | ||
| Fair value of identifiable assets acquired and liabilities assumed: | ||||
| Cash | $ | 848 | ||
| Accounts receivable | 119,477 | |||
| Other current assets | 24,596 | |||
| Property and equipment, net | 131,714 | |||
| Accounts payable | (44,861 | ) | ||
| Accrued liabilities | (11,287 | ) | ||
| Related party loans | (72,091 | ) | ||
| Long-term liabilities | (50,799 | ) | ||
| Total identifiable net assets | 97,597 | |||
| Noncontrolling interests in Trident | (97,597 | ) | ||
| Goodwill | 500,000 | |||
| $ | 500,000 |
Medical Billing Choices, Inc.
On August 22, 2011 the Company agreed to purchase 100% of Medical Billing Choices, Inc. (“MBC”) from unrelated parties for cash and a note for a total amount of $850,000. Medytox paid $100,000 down in cash and will pay the $750,000 note in monthly payments from the collections in MBC on Medytox billings. The note balance must be paid off within 24 months or the shareholders of MBC have the right to rescind the agreement.
As of the signing of the agreement, MBC assigned 49% of the stock to escrow for the benefit of Medytox and assumed the duties of billing the medical services provided by any subsidiary of Medytox. Upon payment of the $750,000 note, The Company will receive the 49% of the stock in escrow and the remaining 51% from the shareholders of MBC, at which time, Medytox will own 100% of the MBC. Until the note is paid in full the former shareholders of MBC will be allowed to keep 100% of the profits of their existing and future non-Medytox billings.
| 30 |
Note 11 – Acquisitions (Continued)
Medical Billing Choices, Inc. (Continued)
The following table summarizes the consideration given for MBC and the fair values of the assets acquired and liabilities assumed recognized at the acquisition date of MBC.
| Consideration Given: | ||||
| Cash | $ | 100,000 | ||
| Acquisition Note | 750,000 | |||
| Total Consideration | $ | 850,000 | ||
| Fair value of identifiable assets acquired and liabilities assumed: | ||||
| Cash | $ | 80,073 | ||
| Accounts receivable | 15,550 | |||
| Property and equipment, net | 51,897 | |||
| Accrued liabilities | (47,584 | ) | ||
| Long-term liabilities | (52,048 | ) | ||
| Total identifiable net assets | 47,888 | |||
| Goodwill | 802,112 | |||
| $ | 850,000 |
Note 12 – Commitments and Contingencies
Operating Lease Commitments
The Company leases office space and business equipment for its corporate office and subsidiaries under multiple year non-cancelable operating leases that expire through 2016. The office lease agreements have certain escalation clauses and renewal options. Additionally, the Company has lease agreements for computer equipment, office copiers and fax machines.
The office space lease agreements include escalating rents over the lease term. The Company expenses rent on a straight-line basis over the lease term which commences on the date the Company has the right to control the property. The cumulative expense recognized on a straight-line basis in excess of the cumulative payments is included in Accrued Expenses in the accompanying Consolidated Balance Sheets.
| 31 |
Note 12 – Commitments and Contingencies (Continued)
Operating Lease Commitments (Continued)
At December 31, 2012, future minimum lease payments under these leases are as follows:
| Year ending December 31, | ||||
| 2013 | $ | 170,467 | ||
| 2014 | 150,671 | |||
| 2015 | 128,505 | |||
| 2016 | 22,457 | |||
| Total minimum future lease payments | $ | 472,100 | ||
Rent expense for the years ended December 31, 2012 and 2011 was $134,733 and $57,623, respectively.
Legal Matters
During the course of business, litigation commonly occurs. From time to time the Company may be a party to litigation matters involving claims against the Company. The Company operates in a highly regulated industry and employs personnel which may inherently lend itself to legal matters. Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company’s financial position or results of operations. Management, in consultation with legal counsel, has addressed known assertions and predicted unasserted claims below.
Legal Matters – Trident Labs
As described in Note 4, Disputed Subsidiary, one subsidiary, Trident Laboratories, Inc. ("Trident") is currently in a contract dispute with the Company. The selling shareholders requested the Purchase Agreement be rescinded on January 16, 2012. MILM filed an action seeking to enforce the purchase agreement against Trident and its shareholders, Michelle Streegstra, Christopher Hawley, Donnette Hawley, Michael Falestra and Skylar Lukas (collectively, the “Trident Defendants”) for (i) civil conspiracy, (ii) specific performance, (iii) anticipatory breach of contract, (iv) constructive trust, (v) accounting, and (vi) interpleader. In addition, the Trident Defendants filed a counterclaim and third-party complaint stating causes for action for (i) fraudulent inducement, (ii) civil conspiracy, (iii) tortious interference with business relationships, and (iv) defamation. The claims and counterclaims of Medytox and Trident Defendants are set for trial beginning June 2013. The Company believes these claims of the Trident Defendants are devoid of legal and factual merit. The litigation is ongoing and could have a negative effect on the consolidated balance sheet. The Company has established a disputed net income reserve of $397,918 as of December 31, 2012, representing all of Trident's net income recognized by the Company since August 22, 2011, the date of acquisition.
| 32 |
Note 12 – Commitments and Contingencies (Continued)
Legal Matters (Continued)
Legal Matters – Bradley T. Ray
On July 26, 2011, the Company organized Medytox Institute of Laboratory Medicine, Inc. ("MILM"), a Florida corporation, as a wholly-owned subsidiary. MILM was organized to acquire and manage medical testing laboratories. MILM operates from the corporate offices in West Palm Beach, Florida.
In February 2012, Bradley Ray filed a claim asserting that he owned the shares of MILM. On January 29, 2013, the parties reached an agreement resolving and settling their dispute. As a result of the settlement, all cases in which Mr. Ray alleged an ownership interest in MILM were dismissed with prejudice.
Legal Matters – Richard McCullough
The Company fileda two count complaint against Richard McCullough in Broward County, Florida on June 1, 2012, bringing claims against him for defamation and tortious interference with business relationships. The Company intends to vigorously pursue this action and protect its reputation and business relationships.
| 33 |
Note 13 – Pro Forma Financial Information
The following unaudited pro forma data summarizes the results of operations for the year ended December 31, 2012 as if the acquisitions of PB Labs and Biohealth had been completed January 1, 2012. The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place on January 1, 2012.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2012 (UNAUDITED)
| Biohealth | ||||||||||||||||||||||||
| PB | Medical | |||||||||||||||||||||||
| Medytox | Laboratories, | Laboratory, | ||||||||||||||||||||||
| Solutions, Inc. | LLC | Inc. | Pro Forma | |||||||||||||||||||||
| Historical | Historical | Historical | Adjustments | Ref | Combined | |||||||||||||||||||
| (1) | (2) | |||||||||||||||||||||||
| Revenues | $ | 21,076,357 | $ | – | $ | 1,149,455 | $ | – | $ | 22,225,812 | ||||||||||||||
| Operating expenses | 17,545,404 | – | 1,012,670 | – | 18,558,074 | |||||||||||||||||||
| Income income from operations | 3,530,953 | – | 136,785 | – | 3,667,738 | |||||||||||||||||||
| Other income (expense) | (302,598 | ) | – | (1,197 | ) | – | (303,795 | ) | ||||||||||||||||
| Income before income taxes | 3,228,355 | – | 135,588 | – | 3,363,943 | |||||||||||||||||||
| Provision for income taxes | 481,400 | – | – | 51,000 | (3) | 532,400 | ||||||||||||||||||
| Income (loss) before noncontrolling interest | 2,746,955 | – | 135,588 | (51,000 | ) | 2,831,543 | ||||||||||||||||||
| Income attributable to noncontrolling interest | – | – | – | – | – | |||||||||||||||||||
| Net income (loss) | 2,746,955 | – | 135,588 | (51,000 | ) | 2,831,543 | ||||||||||||||||||
| Net loss from disputed activity | (397,918 | ) | (397,918 | ) | ||||||||||||||||||||
| Preferred stock dividends | (50,000 | ) | – | – | – | (50,000 | ) | |||||||||||||||||
| Net income (loss) available for common shareholders | $ | 2,299,037 | $ | – | $ | 135,588 | $ | (51,000 | ) | $ | 2,383,625 | |||||||||||||
| Net income per share; | ||||||||||||||||||||||||
| Basic and diluted | $ | 0.07 | $ | 0.08 | ||||||||||||||||||||
| Weighted average number of shares, basic and diluted: | ||||||||||||||||||||||||
| Basic and diluted | 30,795,073 | 30,795,073 | ||||||||||||||||||||||
| (1) | Represents unaudited results of operations of PB Laboratories, LLC from January 1, 2011 to February 16, 2012. PB Laboratories' results of operations from February 17, 2012 to December 31, 2012 are consolidated with Medytox Solutions, Inc. Financial data prior to February 17, 2012 is unavailable and is deemed minor. |
| (2) | Represents unaudited results of operations of Biohealth Medical Laboratory, Inc. from January 1, 2012 to December 7, 2012. Biohealth's results of operations from December 8, 2012 to December 31, 2012 are consolidated with Medytox Solutions, Inc. |
| (3) | Additional income tax expense on the income related to Biohealth Medical Laboratory for the period January 1 to December 7, 2012. |
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Note 14 – Subsequent Events
On January 1, 2013, the Company, through its subsidiary, Medytox Diagnostics, Inc., (“MDI”) purchased 100% of Alethea Laboratories, Inc. (“Alethea”) from unrelated parties for $700,000. $100,000 was paid at closing and the remaining $600,000 is payable under two promissory notes over 6 quarterly installments. Alethea is located in Las Cruces, New Mexico. In addition, the Company and MDI guaranteed a note payable totaling $344,650.
On January 7, 2013, the Company issued 33,400 shares of its Common Stock to eight unrelated parties for $83,500 in cash.
Effective January 22, 2013, Biohealth Medical Laboratory, Inc., a recently acquired majority-owned subsidiary of Medytox ("Biohealth"), entered into a Guaranty Agreement to guaranty the TCA loan and a Security Agreement to pledge substantially all its assets to secure its guaranty.
On January 25, 2013 MDI entered into a ten year, automatically renewable, License Agreement with Dry Spot Diagnostics AG (Dry Spot”), a German based Laboratory for the right to use a proprietary specialty in-vitro diagnostic test system for plasma, urine and other biological fluids in its US based laboratories. Medytox will pay to Dry Spot a Royalty equal to 10% of the collected revenue generated from providing the Licensed Laboratory diagnostic tests to Medytox customers. The Licensor must receive a minimum of $100,000 in 2014 and $200,000 each year thereafter for the license to remain intact.
In February 2012 Bradley Ray filed an action claiming the ownership of Medytox Institute of Laboratory Medicine, Inc., a subsidiary of Medytox ("MILM"). On January 29, 2013, the parties reached an agreement resolving and settling all their disputes. As a result of the settlement, all cases in which Mr. Ray alleged an ownership interest in MILM have been dismissed with prejudice.
On March 4, 2013, Medytox borrowed an additional $800,000 from TCA pursuant to the terms of Amendment No, 3 to Senior Secured Revolving Credit Facility Agreement, dated as of February 28, 2013 ("Amendment No. 3"). These additional funds shall be used in accordance with management's discretion. In connection with Amendment No. 3, Advantage Reference Labs, Inc., a newly-formed wholly-owned subsidiary of Medytox ("Advantage"), entered into a Guaranty Agreement to guaranty the TCA loan and a Security Agreement to pledge substantially all its assets to secure its guaranty.
In connection with Amendment No. 3, Medytox executed an Amended and Restated Revolving Promissory Note, due September 4, 2013, in the amount of $2,525,000. Except as provided in Amendment No. 3, the terms of the Credit Agreement remain in full force and effect.
On March 27, 2013, the Company formed a new subsidiary, Advantage Reference Labs, Inc. (“Advantage”). The Company entered into a long term lease in a 12,000 square foot facility located in Riviera Beach, Florida, where Advantage’s laboratory activities will be performed.
On March 27, 2013, the Company paid in full its related party obligation to Alcemede, LLC totaling $85,000.
On March 27, 2013, the Company paid $10,000 to William Forhan and received a full waiver of its obligation of $57,100.
On April 4, 2013, the Company, through its subsidiary, MDI, purchased 100% of International Technologies, Inc. (“Intech”) from unrelated parties for $627,000. $127,000 was paid at closing and the remaining $500,000 is payable under two $250,000 convertible debentures that may be converted to Medytox common stock at a 10% discount. Intech is located in North Bergen County, New Jersey.
The Company has evaluated subsequent events through the date the financial statements were issued and filed with SEC. The Company has determined that there are no other events that warrant disclosure or recognition in the financial statements.
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PART IV
Item 15. Exhibits and Financial Statement Schedules
| Exhibit No. | Description |
| 31.3 | Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002* |
| 31.4 | Rule 13a-14(a) Certification in accordance with Section 302 of the Sarbanes-Oxley Act of 2002* |
| 32.3 | Certification pursuant to 18. U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
| 32.4 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* |
| * | Filed herewith |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Medytox Solutions, Inc. | ||
| By: | /s/ William G. Forhan | |
| William G. Forhan Chief Executive Officer, and Chairman (Principal Executive Officer) | ||
| By: | /s/ Jace Simmons | |
| Jace Simmons Chief Financial Officer (Principal Financial and Accounting Officer) | ||
Date: September 3, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ William G. Forhan | Director | September 3, 2013 | ||
| William G. Forhan | ||||
| /s/ Christopher E. Diamantis | Director | September 3, 2013 | ||
| Christopher E. Diamantis | ||||
| /s/ Benjamin Frank | Director | September 3, 2013 | ||
| Benjamin Frank |
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