| BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS | 1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS Basis of Presentation The accompanying unaudited condensed consolidated financial statements of MedeFile International Inc., a Nevada corporation (the "Company"), have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. These unaudited condensed consolidated financial statements and related notes should be read in conjunction with the Company's Form 10-K for the fiscal year ended December 31, 2014. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of March 31, 2015, and the results of operations and cash flows for the three months ended March 31, 2015 and 2014. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the results that may be expected for the entire fiscal year. Restatement The Company entered into two 10% Secured Convertible Debentures with a significant shareholder. The debentures carry a one year term. The debentures were issued in the amount of $50,000 on November 4, 2013 and $60,000 on December 17, 2013. The company assessed the fair value of the conversion option using the Black Scholes pricing model and recorded a derivative liability for the value. The adjustment for this valuation to Derivative Liability is $33,243. An adjustment to change in fair value of derivative liability is a loss of $33,243 for the quarter ended March 31, 2015. During the first quarter 2015, the company recognized a change in derivative for the convertible debenture in amount of $33,243, the resulting derivative liability balance at March 31, 2015 is $33,243. The following table provides additional details regarding the changes to the balance sheet, statement of operations and statement of cash flows as of and for the three months ended March 31, 2015.
Original Restated
March 31, Restatement March 31,
2015 Adjustments 2015
Cash $ 512,714 - $ 512,714
Accounts receivable 4,938 - 4,938
Inventory 23,096 - 23,096
Merchant services reserve 2,939 - 2,939
Prepaid expense - - -
543,687 543,687
Website development, net of accumulated amortization 243,643 - 243,643
Furniture and equipment, net of accumulated depreciation - - -
Total assets $ 787,330 $ 787,330
Current Liabilities
Accounts payable and accrued liabilities $ 49,886 - $ 49,886
Convertible debenture 84,586 - 84,586
Deferred revenues 1,018 - 1,018
Derivative liability - convertible note - 33,243 33,243
Derivative liability - warrants - - -
Total Current Liabilities 135,490 168,733
Preferred stock, $.0001 par value: 10,000,000 authorized, no shares issued and outstanding - - -
Common stock, $.0001 par value: 500,000,000 authorized; 522,953,672 shares
issued and outstanding 52,295 - 52,295
Additional paid in capital 28,060,805 - 28,060,805
Common stock to be issued 69,920 - 69,920
Accumulated deficit (27,531,180 ) (33,243 ) (27,564,423 )
Total stockholders' equity 651,840 618,597
Total liability and stockholders' equity $ 787,330 $ 787,330
For the For the
three months three months
ended ended
March 31, March 31,
2015 2015
Revenue 13,100 - 13,100
Cost of goods sold 316 - 316
Gross profit 12,784 12,784
Operating expenses
Selling, general and administrative expenses 165,275 - 165,275
Depreciation and amortization expenses 22,149 - 22,149
Total operating expenses 187,424 187,424
Loss from operations (174,640 ) (174,640 )
Other income (expenses)
Interest expense - convertible note (2,048 ) - (2,048 )
Change in derivative liability - convertible note - (33,243 ) (33,243 )
Change of derivative liabilities – warrants 51 - 51
Total other income (expense) (1,997 ) (35,240 )
Gain (loss) before income tax (176,637 ) (209,880 )
Provision for income tax
Net income (loss) $ (176,637 ) $ (209,880 )
Net loss per share: basic $ (0.00 ) $ (0.01 )
Net loss per share: diluted $ (0.00 )
Weighted average share outstanding basic 265,897,289 40,706,899
Weighted average share outstanding diluted 266,954,614
For the For the
three months three months
ended ended
March 31, March 31,
2015 2015
Cash flows from operating activities
Net income $ (176,637 ) (33,243 ) $ (209,880 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation - - -
Amortization 22,149 - 22,149
Interest expense - discount on convertible debenture - - -
Change in derivative - convertible note - 33,243 33,243
(Gain)loss in fair value of derivative liabilities – warrants (51 ) - (51 )
Changes in operating assets and liabilities -
Accounts receivable 487 - 487
Inventory 316 - 316
Prepaid insurance 5,709 - 5,709
Accounts payable and accrued liabilities 2,189 - 2,189
Accrued Interest - convertible debenture 2,048 - 2,048
Deferred revenue 334 - 334
Net Cash used in operating activities (143,456 ) (143,456 )
Cash flows from investing activities
Net cash used in investing activities - -
Cash flow from financing activities
Proceeds from common stock subscriptions 620,000 - 620,000
Net cash provided by financing activities 620,000 620,000
Net increase (decrease) in cash and cash equivalents 476,544 476,544
Cash and cash equivalents at beginning of period 36,170 36,170
Cash and
cash equivalents at end of period $ 512,714 $ 512,714
Supplemental disclosure of cash flow information
Cash paid for interest $ - $ -
Cash paid for income taxes $ - $ -
Stock issued for conversion of debt $ 40,000 $ 40,000 Nature of Business Operations Medefile International, Inc. has developed and globally markets a proprietary, patient-centric, Internet-enabled Personal Health Record (iPHR) system for gathering, digitizing, maintaining, accessing and sharing an individual’s actual medical records. Medefile's goal is to revolutionize the medical industry by bringing patient-centric digital technology to the business of medicine. Medefile intends to accomplish its objective by providing individuals with a simple and secure way to access their lifetime of actual medical records in an efficient and cost-effective manner. Medefile's products and services are designed to provide healthcare providers with the ability to reference their patients’ actual past medical records, thereby ensuring the most accurate treatment and services possible while simultaneously reducing redundant procedures. Interoperable with most electronic medical record systems utilized by physician practices, clinics, hospitals and other care providers, the highly secure, feature-rich MedeFileiPHR solution has been designed to gather all of its members’ actual medical records on behalf of each member, and create a single, comprehensive Electronic Health Record (EHR). The member can access his/her records 24-hours a day, seven days a week – or authorize a third party user – on any web-enabled device (PC, cell phone, PDA, e-reader, et al), as well as the portable MedeFile flash drive/keychain or branded UBS-bracelet. By subscribing to the MedeFile system, members empower themselves to take control of their own health and well-being, and empower their healthcare providers to make sound and lifesaving decisions with the most accurate, up-to-date medical information available. In addition, with MedeFile, members enjoy the peace of mind that comes from knowing that their
medical records are protected from fire, natural disaster, document misplacement or the closing of a medical or dental practice. MedeFile believes it enjoys a number of competitive advantages over other firms within the medical records marketplace, including:
● MedeFile has developed products and services geared to the patient, which also have the depth and breadth of information required by treating physicians and medical personnel.
● MedeFile does all the work of collecting and updating medical information on an ongoing basis; our products’ dependence on the patient taking action is minimal – particularly when compared to patient action required to support competing solutions.
● MedeFile provides a complete medical record. Other companies claim complete longitudinal records, but in reality only provide histories (usually completed by the member/patient), which are by no means complete or necessarily accurate records.
● MedeFile provides a coherent mix of services and products that are intended to improve the quality of healthcare by enabling the patient to manage and access the information normally retained by doctors and other care providers. Going Concern The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. However, the Company has reported an operating loss of $174,640 and a net loss of $209,880 for the three months ended March 31, 2015. During the comparable three month period of 2014, the Company had an operating loss of $158,066 and net income (as a result of the change in the valuation of the Company’s warrant derivative) of $760,930. The Company had an accumulated deficit of $27,564,423 as of March 31, 2015. The Company has working capital of $374,954 as of March 31, 2015. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The operating losses raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to obtain additional financing depends on the success of its growth strategy and its future performance, each of which is subject to general economic, financial, competitive, legislative, regulatory, and other factors beyond the Company's control. We will need additional investments in order to continue operations. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, we may incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations. Cash and Cash Equivalents For purposes of these financial statements, cash and cash equivalents includes highly liquid debt instruments with maturity of less than three months. Concentrations of Credit Risk Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. Currently our operating account is not above the FDIC limit. Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes. The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including
resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Property and Equipment Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3 years up to 10 years. Trademark Costs Trademark costs incurred in the registration and acquisition of trademarks and trademark rights are capitalized. These costs will be amortized over the legal life of the related trademark once the trademark is awarded. The Company performs an annual review of its identified intangible assets to determine if facts and circumstances exist which indicate that the useful life is shorter than originally estimated or that the carrying amount of the assets may not be recoverable. The Company expenses all software costs associated with the conceptual formulation and evaluation of alternatives until the application development stage has been reached. Costs to improve or support the technology are expensed as these costs are incurred. Website Development The Company's policy is to capitalize website development costs at original cost and amortize the
balance over the life of the product. The life of website is determined at completion of the project. The Company reviews the amounts capitalized for impairment whenever events or circumstances indicate that the carrying amounts of the assets may not be recoverable. The Company expenses all development costs associated with the conceptual formulation and evaluation of alternatives until the application development stage has been reached. Costs to improve or support the technology are expensed as these costs are incurred. Revenue Recognition The Company generates revenue from licensing the right to utilize its proprietary software for the storage and distribution of healthcare information to individuals and affinity groups. For revenue from product sales, the Company recognizes revenue on four basic criteria which must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. Deferred Revenue The Company generally receives subscription fees for its services. From time to time, the Company will receive quarterly or annual subscriptions paid in advance and deferred revenue is recorded at that time. The deferred revenue is amortized into revenue on a pro- rata basis each month. Customers with quarterly or annual subscriptions may cancel their subscriptions and request a refund for future months' revenues at any time. Therefore, a liability is recorded to reflect the amounts that are potentially refundable. At March 31, 2015 and December 31, 2014, deferred revenue totaled $1,018 and $684, respectively. Recent Accounting Pronouncements In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company beginning November 1, 2017 and, at that time the Company may adopt the new standard under the full retrospective approach or the modified retrospective approach. Early adoption is not permitted. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Company’s condensed consolidated financial statements and disclosures. In January 2014, the FASB issued ASU 2014-04, an update to ASC 310, "Receivables." The ASU clarifies that an in substance repossession or foreclosure occurs upon either the creditor obtaining legal title to the residential real estate property or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The amendments are effective for annual periods, and interim reporting periods within those annual periods, beginning after December 15, 2014. The amendments may be adopted using either a modified retrospective transition method or a prospective transition method. Early adoption of the guidance is permitted. The impact of this guidance is currently being evaluated by the Company, but is not expected to have a significant impact on the Company's financial position, results of operations or disclosures. Fair Value of Financial Instruments Cash and Equivalents, Deposits In-Transit, Receivables, Prepaid and Other Current Assets, Accounts Payable, Accrued Salaries and Wages and Other Current Liabilities The carrying amounts of these items approximated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, Financial Accounting Standards Board (“FASB”) ASC Topic 820-10-35 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). Level 1 Level 2 Level 3 The application of the three levels of the fair value hierarchy under Topic 820-10-35 to our assets and liabilities are described below:
Fair Value Measurements
Level 1 Level 2 Level 3 Total
Assets
Website development $ - $ - $ 243,643 $ 243,643
Total $ - $ - $ 243,643 $ 243,643
Liabilities
Derivative Liability – Convertible Note $ $ $33,243 $ 33,243
Deferred Revenues 1,018 - - 1,018
Total $ 1,018 $ - $ 33,243 $ 34,261 Impairment of Long Lived Assets In accordance with Accounting Standards Codification (“ASC”) 360-10, Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. ASC 360-10 relates to assets that can be amortized and the life can be determinable. The Company reviews property and equipment and other long-lived assets for impairment annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the asset’s carrying amount to future undiscounted net cash flows the assets are expected to generate. Cash flow forecasts are based on trends of historical performance and management's estimate of future performance, giving consideration to existing and anticipated competitive and economic conditions. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the assets or their fair values, whichever is more determinable. Inventory Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out basis and market being determined as the lower of replacement cost or net realizable value. The Company records inventory write-downs for estimated obsolescence of unmarketable inventory based upon assumptions about future demand and market conditions. For the year ended December 31, 2014 the Company had an inventory write down in the amount of $30,000. There was no write down of inventory in the three months ended March 31, 2015. Net Loss per Share Basic loss per share is computed using the weighted average number of common shares outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if potentially dilutive securities were exercised or converted to common stock. The dilutive effect of options and warrants and their equivalent is computed by application of the treasury stock method and the effect of convertible securities by the “if converted” method. Management Estimates The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Stock Based Compensation The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement. |
