UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from Commission file number 33-25126-D
Medefile International, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 85-0368333
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Ridgedale Avenue, Suite 217
Cedar Knolls, NJ 07927
(Address of principal executive offices)
(973) 993-8001
(Issuer's telephone number)
Copies to:
Richard A. Friedman, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas
New York, New York 10018
Phone: (212) 930-9700
Fax: (212) 930-9725
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes [ ] No [X]
The number of shares of the issuer's outstanding common stock on May 16, 2006
was 178,733,910.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
EXPLANATORY NOTE
This amendment is being filed solely for the purpose of including as exhibits
amendments to three employment agreements. The amended employment agreements are
attached hereto as exhibits 10.1, 10.2 and 10.3.
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements........................................... F-1
Item 2. Management's Discussion and Analysis........................... 3
Item 3. Controls and Procedures........................................ 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 10
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 10
Item 3. Defaults Upon Senior Securities................................ 10
Item 4. Submission of Matters to a Vote of Security Holders............ 10
Item 5. Other Information.............................................. 10
Item 6. Exhibits....................................................... 10
SIGNATURES
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Description Page No.
--------
FINANCIAL INFORMATION:
Financial Statements
Consolidated Balance Sheets at March 31, 2006 (Unaudited)............... F-1
Consolidated Statement of Operations (Unaudited)........................ F-2
Consolidated Statements of Cash Flows (Unaudited) ...................... F-3
Notes to Consolidated Financial Statements (Unaudited).................. F-4
Medefile International, Inc.
Condensed Consolidated Balance Sheet
(Unaudited)
March 31,
2006
-------------
Assets
Current assets
Cash and cash equivalents 324,811
Marketable securities 1,280
Prepaid expenses (Note 2) 54,375
-------------
Total current assets 380,466
Deposits and other assets 2,785
Furniture and equipment, net of accumulated
depreciation of $89,338(Note 3) 69,303
Total assets $ 452,554
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued liabilities 18,000
Deferred revenue 5,028
-------------
Total current liabilities 23,028
Loan payable - related party (Note 4) 1,204,135
Commitments and Contingencies 0
Stockholders' Deficiency:
Common stock, $0.0001 par value; 300,000,000 shares
authorized; 178,733,910 shares issued and outstanding
as of March 31, 2006
(Note 5) 17,873
Additional paid-in capital 5,721,989
Deferred compensation (Note 6) (3,938,357)
Accumulated deficit (2,577,028)
Accumulated other comprehensive gain (loss) 914
-------------
Total stockholder's deficit (774,609)
Total liabilities and stockholders' deficit $ 452,554
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-1
Medefile International, Inc.
Condensed Statements of Operations
(Unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2006 2005
----------------- ------------------
Revenue $ 6,033 $ 50
----------------- ------------------
Operating expenses:
Selling, general and administrative expenses 802,363 61,683
Impairment of intangible assets 0 97,063
Depreciation and amortization expense 7,260 35,662
Total operating expenses 809,623 194,408
----------------- ------------------
Loss from operations (803,590) (194,358)
Other expense:
Interest and dividend expense, net (14,650) (464)
----------------- ------------------
Total other expense (14,650) (464)
----------------- ------------------
Loss before income taxes (818,240) (194,822)
Provision for income taxes - -
----------------- ------------------
Net loss $ (818,240) $ (194,822)
Other comprehensive gain : Unrealized gain on equity securities 914 -
----------------- ------------------
Comprehensive loss $ (817,326) $ (194,822)
================= ==================
Net loss per share - basic and diluted $ (0.005) $ (0.993)
================= ==================
Weighted average shares outstanding -
basic and diluted 178,733,910 196,235
================= ==================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-2
Medefile International, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2006 2005
----------- -----------
Cash flows from operating activities:
Net loss $ (818,240) $ (194,822)
Other comprehensive gain (loss) 914 0
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash compensation 562,622 0
Depreciation and amortization 7,261 35,662
Impairment of intangible assets 0 97,063
Interest expense 21,032 489
Changes in operating assets and liabilities:
Prepaid expenses (54,375) 0
Marketable securities (1,280) 0
Accounts payable and accrued expenses (10,000) 0
Deferred revenue 133 0
----------- -----------
Net cash used in operating activities (291,933) (61,608)
----------- -----------
Cash flows used in investing activities:
Purchase of equipment (3,762) 0
----------- -----------
Net cash used in investing activities (3,762) 0
----------- -----------
Cash flows provided by financing activities:
Proceeds from loans by related parties 350,000 59,072
----------- -----------
Net cash provided by financing activities 350,000 59,072
----------- -----------
Net increase (decrease) in cash and cash equivalents 54,305 (2,536)
Cash and cash equivalents at beginning of period 270,506 7,571
Cash and cash equivalents at end of period $ 324,811 $ 5,035
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ -- $ --
Taxes $ -- $ --
Interest capitalized on note payable to related party $ 21,032 $ 489
Value of options issued to employees $ 4,500,979 $ 0
Amortization of deferred compensation $ 562,622 $ 0
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-3
MEDEFILE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 ("Company"), have been
prepared in accordance with the instructions to Form 10-QSB 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 condensed consolidated financial statements and related notes
should be read in conjunction with the Company's Form 10-KSB for the fiscal year
ended December 31, 2005. In the opinion of management, these 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, 2006, and the results of operations and
cash flows for the three months ended March 31, 2006 and 2005. The results of
operations for the three months ended March 31, 2006 are not necessarily
indicative of the results that may be expected for the entire fiscal year.
Certain amounts in the prior period on the Statements of Cash Flows have been
changed to conform to the current period presentation.
Nature Of Business Operations
On November 1, 2005, Bio-Solutions International, Inc. ("Bio-Solutions") entered
into an Agreement and Plan of Merger (the "Agreement") with OmniMed Acquisition
Corp., (the "Acquirer), a Nevada corporation and a wholly owned subsidiary of
Bio-Solutions, OmniMed International, Inc., a Nevada corporation ("OmniMed"),
and the shareholders of OmniMed (the "OmniMed Shareholders"). Pursuant to the
Agreement, Bio-Solutions acquired all of the outstanding equity stock of OmniMed
from the OmniMed Shareholders. As consideration for the acquisition of OmniMed,
Bio-Solutions agreed to issue 9,894,900 shares of Bio-Solutions' common stock
tothe OmniMed Shareholders. These issuances were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended
since, among other things, the transaction did not involve a public offering,
the investors were accredited investors and/or qualified institutional buyers,
the investors had access to information about the company and their investment,
the investors took the securities for investment and not resale, and the Company
took appropriate measures to restrict the transfer of the securities.
As a result of the Agreement, the OmniMed Shareholders assumed control of
Bio-Solutions. Effective November 21, 2005 Bio-Solutions changed its name to
OmniMed International, Inc. Effective January 17, 2006, OmniMed changed its name
to Medefile International, Inc. ("Medefile" or "the Company").
Medefile has developed a system for gathering, digitizing, storing and
distributing information for the healthcare field. Medefile's goal is to
revolutionize the medical industry by bringing 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 patient's actual past medical records, thereby ensuring the most
accurate treatment and services possible while simultaneously reducing redundant
procedures. Medefile's primary product is the MedeFile system, a highly secure
system for gathering and maintaining medical records. The MedeFile system is
designed to gather all of its members' medical records and create a single,
comprehensive medical record that is accessible 24 hours a day, seven days a
week.
Going Concern
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern.
However, the Company has reported a net loss of $818,240 for the three months
ended March 31, 2006 and $463,197 for the short year (six months) ended December
31, 2005, and had an accumulated deficit of $2,577,028 as of March 31, 2006.
The Company used $291,933 of cash for operating activities during the three
months ended March 31, 2006. Cash provided by financing activities for the three
months ended March 31, 2006 was $350,000, consisting of net proceeds from the
related party loans.
F-4
Our registered independent certified public accountants have stated in their
report dated April 17, 2006, that we have incurred operating losses in the past
years, and that we are dependent upon management's ability to develop profitable
operations. These factors among others may raise substantial doubt about our
ability to continue as a going concern.
We will need additional investments in order to continue operations to cash flow
break even. 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, it is
possible that we could 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.
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 in accordance
with Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition," which
superseded SAB No. 101, "Revenue Recognition in Financial Statements." SAB
No.101 requires that four basic criteria 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)
collectibility 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 collectibility of those amounts. Provisions
for discounts and rebates to customers, estimated returns and allowances, and
other adjustments are provided for in the same period the related sales are
recorded. The Company defers any revenue for which the product has not been
delivered or is subject to refund until such time that the Company and the
customer jointly determine that the product has been delivered or no refund will
be required. SAB No. 104 incorporates Emerging Issues Task Force ("EITF") No.
00-21, "Multiple-Deliverable Revenue Arrangements." EITF No. 00-21 addresses
accounting for arrangements that may involve the delivery or performance of
multiple products, services and/or rights to use assets. The effect of
implementing EITF No. 00-21 on the Company's consolidated financial position and
results of operations was not significant. This issue addresses determination of
whether an arrangement involving more than one deliverable contains more than
one unit of accounting and how the arrangement consideration should be measured
and allocated to the separate units of accounting. EITF No. 00-21 became
effective for revenue arrangements entered into in periods beginning after June
15, 2003. For revenue arrangements occurring on or after August 1, 2003, the
Company revised its revenue recognition policy to comply with the provisions of
EITF No. 00-21.
Investments
The Company's investments in marketable securities are classified as "available
for sale" securities, and are carried on the financial statements at market
value. Realized gains and losses are included in earnings; unrealized gains and
losses are reported as a separate component of stockholders' equity and as a
component of "Other Comprehensive Income."
Stock Based Compensation
On January 1, 2006 the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004) "Share-Based Payment" ("SFAS 123 (R) which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to a Employee Stock Purchase
Plan based on the estimated fair values. SFAS 123 (R) supersedes the Company's
previous accounting under Accounting Principles Board Opinion No.25, "Accounting
for Stock Issued to Employees" ("APB 25") for the periods beginning fiscal 2006.
The Company adopted SFAS 123 (R) using the modified prospective transition
method, which required the application of the accounting standard as of January
1, 2006. Medefile's Consolidated Financial Statements as of and for three months
March 31, 2006 reflect the impact of SFAS 123(R). In accordance with the
modified prospective transition method, the Company's Consolidated Financial
Statements for the prior periods have not been restated to reflect, and do not
include the impact of SFAS 123 (R). Stock based compensation expense recognized
under SFAS 123 (R) for the three months ended March 31, 2006 was $562,622. Pro
forma stock based compensation was $0 for the three months ended March 31, 2005.
Stock-based compensation expense recognized during the period is based on the
value of the portion of share-based payment awards that is ultimately expected
to vest during the period.
F-5
A summary of option activity under the Plan as of March 31, 2006, and changes
during the period then ended are presented below:
Weighted-
Average Exercise
Options Price
Outstanding at December 31, 2005 150,000 $ 1.17
Issued 5,640,000 0.80
Exercised -- --
Forfeited or expired (150,000) (1.17)
Outstanding at March 31, 2006 5,640,000 $ 0.80
Non-vested at March 31, 2006 4,935,000 0.80
Exercisable at March 31, 2006 705,000 $ 0.80
The options outstanding as of March 31, 2006 have been segregated into three
ranges for additional disclosure as follows:
Options Outstanding Options Exercisable
----------------------------------------------- -----------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Number Exercise Contractual Number Exercise
Range of Exercise Price Outstanding Price Life Exercisable Price
-------------------------------- -------------- ------------- ----------- ------------ -------------
$0.80 5,640,000 $ 0.80 3.76 705,000 $ 0.80
Total 5,640,000 $ 0.80 3.76 705,000 $ 0.80
-------------------------------- -------------- ------------- ----------- ------------ -------------
Aggregate intrinsic value of options outstanding and options exercisable at
March 31, 2006 was $15,961,200 and $1,995,150, respectively. Aggregate intrinsic
value represents the difference between the Company's closing stock price on the
last trading day of the fiscal period, which was $3.63 as of March 31, 2006, and
the exercise price multiplied by the number of options outstanding. As of March
31, 2006, total unrecognized stock-based compensation expense related to
non-vested stock options was approximately $3,938,356, which is expected to be
recognized over a weighted average period of approximately 20 months. The total
fair value of options vested was $562,622 and $0 for the three-month periods
ended March 31, 2006 and 2005, respectively.
The modified transition method of SFAS 123 (R) requires the presentation of pro
forma information for periods presented prior to the adoption of SFAS 123 (R)
regarding net loss an net loss per share as if we had accounted for our stock
plans under the fair value method of SFAS 123 (R). For pro forma purposes, the
fair value of stock options was estimated using the Black-Scholes option
valuation model and amortizing on a straight-line basis. The pro forma amounts
are as follows:
Three Months Ended
March 31, 2005
-----------------
Net loss - as reported $ (194,822)
Add: Stock-based employee compensation expense
included in reported loss
-
Deduct: Total stock-based employee compensation expense
determined under fair-value based method for all rewards -
-----------------
Net loss - pro forma $ (194,822)
=================
Basic & diluted loss per share - as reported $ (0.993)
Basic & diluted loss per share - pro forma $ (0.993)
F-6
The estimated value of the employee stock options granted during the three month
period ended March 31, 2006 was determined using the Black-Scholes option
pricing model and the following assumptions: expected option life of 2 years, a
risk free interest rate of 4.50%, a dividend yield of 0% and volatility of
300.33%.
Reclassifications
Certain reclassifications have been made in prior year's financial statements to
conform to classifications used in the current year.
2. PREPAID EXPENSES
Prepaid expenses at March 31, 2006 consists of prepaid insurance.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at March 31, 2006:
Computers and office equipment $ 120,024
Furniture and fixtures 38,617
-----------
Subtotal $ 158,641
Less: Accumulated depreciation (89,338)
-----------
Total $ 69,303
===========
4. LOAN PAYABLE - RELATED PARTY
The Company has a loan payable due to a major stockholder of the Company and an
entity under this stockholder's control. During the three months ended March 31,
2006, the Company negotiated an extension of the due date of this loan to
January 1, 2008. The loan bears interest at the rate of seven percent. During
the three months ended March 31, 2006, the Company borrowed an additional
$350,000 under the demand loan. At March 31, 2006, the Company had an
outstanding loan payable totaling $1,204,135 including accrued interest of
$37,635.
5. COMMON STOCK
On January 20, 2006, the Company paid an in-kind dividend of 14 shares of common
stock for each share of common stock held by shareholders of record at the close
of business on January 16, 2006. There were 11,915,594 shares of common stock
outstanding immediately before the in-kind dividend. A total of 166,818,316
shares of common stock were issued pursuant to the in-kind dividend, and there
were 178,733,910 shares of common stock outstanding immediately after the
in-kind dividend.
6. DEFERRED COMPENSATON
During the three months ended March 31, 2006, the Company issued stock options
to employees which vest ratably over a two-year period. The Company charged the
fair value of these options of $4,500,979 to deferred compensation. The Company
charged to operations the amount of $562,622 during the three months ended March
31, 2006, representing the portion of these options that vested during the
period. The unvested portion, value at $3,938,357, remains in deferred
compensation on the Company's balance sheet at March 31, 2006, and will be
charged to operations at the rate of $562,622 per quarter for the succeeding
seven quarters.
F-7
Item 2. Management's Discussion and Analysis
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
It should be noted that this Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain "forward-looking statements."
The terms "believe," "anticipate," "intend," "goal," "expect," and similar
expressions may identify forward-looking statements. These forward-looking
statements represent the Company's current expectations or beliefs concerning
future events. The matters covered by these statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in the forward-looking statements, including the Company's
dependence on weather-related factors, introduction and customer acceptance of
new products, the impact of competition and price erosion, as well as supply and
manufacturing restraints and other risks and uncertainties. The foregoing list
should not be construed as exhaustive, and the Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statements, or to reflect the occurrence of
anticipated or unanticipated events. In light of the significant uncertainties
inherent in the forward-looking information included herein, the inclusion of
such information should not be regarded as a representation that the strategy,
objectives or other plans of the Company will be achieved. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made. We undertake no duty to update
this information. More information about potential factors that could affect our
business and financial results is included in the section entitled "Risk
Factors" of our Annual Report on Form 10-KSB for the year ended December 31,
2005 filed with the Securities and Exchange Commission on May 2, 2006. The
following discussion should be read in conjunction with our consolidated
financial statements provided in this quarterly report on Form 10-QSB.
OVERVIEW
Organizational History
On November 1, 2005, Bio-Solutions International, Inc. ("Bio-Solutions") entered
into an Agreement and Plan of Merger (the "Agreement") with OmniMed Acquisition
Corp., (the "Acquirer), a Nevada corporation and a wholly owned subsidiary of
Bio-Solutions, OmniMed International, Inc., a Nevada corporation ("OmniMed"),
and the shareholders of OmniMed (the "OmniMed Shareholders"). Pursuant to the
Agreement, Bio-Solutions acquired all of the outstanding equity stock of OmniMed
from the OmniMed Shareholders. As consideration for the acquisition of OmniMed,
Bio-Solutions agreed to issue 9,894,900 shares of Bio-Solutions' common stock to
the OmniMed Shareholders. These issuances were deemed to be exempt under rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended
since, among other things, the transaction did not involve a public offering,
the investors were accredited investors and/or qualified institutional buyers,
the investors had access to information about the company and their investment,
the investors took the securities for investment and not resale, and the Company
took appropriate measures to restrict the transfer of the securities.
As a result of the Agreement, the Omnimed Shareholders assumed control of
Bio-Solutions. Effective November 21, 2005 Bio-Solutions changed its name to
Omnimed International, Inc. Effective January 17, 2006, Omnimed changed its name
to Medefile International, Inc. ("Medefile" or "the Company").
Overview of Business
Medefile has developed a system for gathering, digitizing, storing and
distributing information for the healthcare field.
Medefile's goal is to revolutionize the medical industry by bringing 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 patient's actual past medical records,
thereby ensuring the most accurate treatment and services possible while
simultaneously reducing redundant procedures.
Medefile has created a system for gathering and digitizing medical records so
that individuals can have a comprehensive record of all of their medical visits.
Medefile's primary product is the MedeFile system, a highly secure system for
gathering and maintaining medical records. The MedeFile system is designed to
gather all of its members' medical records and create a single, comprehensive
medical record that is accessible 24 hours a day, seven days a week.
3
Industry Overview
Since the beginning of modern medicine, information about a patient's history,
testing, treatment and care have been key ingredients in the provision of
quality healthcare. Medical record information takes many forms, such as the
patient's diagnosis, treatments, surgeries, medications, allergies, x-rays, and
test results. The usage of medical record information has dramatically increased
over the past 2 decades due to factors such as the complex reimbursement
structure in the United States healthcare system, an ever more litigious
society, and increased patient awareness.
Every patient visit generates a medical record. Today this information is
typically contained in a paper-based patient medical record. A patient's medical
records are usually stored in physicians' offices as well as other healthcare
facilities the patient has visited. A record that tracks a patient's medical
treatment over time is called a "longitudinal record".
In today's healthcare environment, access to hospital-based medical records by
patients and other authorized parties (e.g., insurance companies, attorneys,
etc.) is controlled by Release of Information (ROI) policies and procedures. ROI
processes are based on the premise that patients have a right to access their
medical records and that they must specifically designate any other party to
whom their medical information can be released. ROI policies and procedures are
based on the following laws and policies: the federal Health Insurance
Portability and Accountability Act (HIPPA), various state laws, and the policies
and professional practice guidelines set forth by the American Health
Information Management Association (AHIMA).
Congress passed the Health Insurance Portability & Accountability Act (HIPAA) in
1996. The purpose of HIPAA is to prevent fraud in the health care industry and
to protect confidential patient information. HIPPA standardizes and provides
enforcement mechanisms for ROI rules and guidelines to protect personal
healthcare information. HIPAA effects entities involved with electronic health
care information--including health care providers, health plans, employers,
public health authorities, life insurers, clearinghouses, billing agencies,
information systems vendors, service organizations, universities, and even
single-physician offices. The final version of the HIPAA Privacy regulations was
issued in December 2000, and went into effect on April 14, 2001. A two-year
"grace" period was included; enforcement of the HIPAA Privacy Rules began on
April 14, 2003.
Overview of Products and Services
MedeFile
MedeFile is a Business to Business and a Business to Consumer subscription
service. MedeFile is designed to create a "cradle to grave" longitudinal record
for each of its members by retrieving and consolidating copies of their medical
records. When the records are received, the MedeFile system consolidates them
into a single medically correct format. The records are then stored in
Medefile's MedeVault, a secure repository that can be accessed by MedeFile
members 24 hours a day, 7 days a week. Because of the unique security procedures
incorporated into the MedeFile system through SecuroMed, the member is the only
person able to access or give permission to access their records.
A complete MedeFile file is comprised of copies of the member's actual medical
records as well as a Digital Health Profile (DHP), which is an overview of the
patient's and his family's medical history. In addition, every MedeFile member
receives a MedeDrive, an external USB drive which stores all of a patient's
Emergency Medical Information as well as a copy of the member's MedeFile.
MedeFile's Emergency Medical Information (EMI) Card
Upon becoming a MedeFile member each individual will receive a Membership /
Emergency Medical Information (EMI) Card which contains instructions on how to
contact MedeFile in order to retrieve the member's medical records.
4
The Digital Health Profile (DHP)
A part of a member's MedeFile is their Digital Health Profile (DHP). This form
is completed by the patient in order to provide a summary of the patient's
healthcare history which assists healthcare providers in understanding the
patient's course of medical treatment. This document, along with Advanced
Directives and medical record copies, complete the documents contained in the
patient's MedeFile.
MedeDrive
The MedeDrive is an external USB drive which stores all of a patient's Emergency
Medical Information and their MedeFile which can be viewed on a personal
computer. MedeDrive self loads its own viewer, so no special program or software
is required. The MedeDrive easily plugs into any PC USB port on most
Windows-based computers built in the last four years. (Macintosh version is
currently unavailable). The MedeDrive USB key can be updated easily and as
frequently as the member desires at no additional cost.
MedeVault
The MedeVault is designed to serve as an electronic data and document repository
that incorporates state-of-the-art security features in order to prevent
unauthorized access to a patient's records. Access to the MedeVault is provided
through an encrypted connection to a web service run by Medefile. This
connection is provided by Secure Sockets Layer (SSL) technology.
Medefile Clinical Information Systems (CIS)
Medefile CIS is a Business-to-Business professional consulting service that is
designed to generate revenue from two primary sources: consulting engagements
and product commissions.
Medefile CIS intends to offer a full range of HIPPA assessment and compliance
services. Medefile CIS' goal is to facilitate the transition to HIPAA
compliance. In addition, Medefile CIS intends to offer services that will enable
medical facilities to transition from paper-based medical records to electronic
medical records. Medefile CIS plans to digitize medical facility offices and
offer software to keep the records up-to-date, index the records, and make them
queryable based on each facility's specific needs.
Medefile consulting engagements are generally fixed-price and fixed scope
projects that also generate occasional time-and-materials income from ongoing
support and training activities related to its services. In addition, Medefile
CIS intends to resell technology from various vendors as needed and may incur
commission revenue and revenue from the markup of these products.
Medefile CIS will offer several services, including the evaluation of the record
keeping, security, and back office practices. After evaluation is complete,
Medefile CIS staff will move forward to implement their own remediation plans
for the client. One aspect of these plans may include OmniScan, a component of
CIS, which would produce additional revenue by scanning existing paper-based
medical records and converting them to a secure, more efficient digital format.
Furthermore, other revenue streams may be created based on the licensing of the
OmniViewer for the digitized records as well as the scanning software for those
facilities wishing to implement a "go-forward" scanning system. Finally, the
clients may be charged a contractual support fee for ongoing technical support
and updates, which may be assessed on an annual basis.
OmniScan
Medefile's OmniScan service is designed to enable medical facilities to convert
their paper based medical records into a digital format. Medefile CIS intends to
license the software which allows for electronic records to be viewed at various
facility locations. In addition, the OmniScan service is designed to provide the
following advantages: high quality images, high-speed conversion, record keeping
in a single location, simultaneous use of files, and simplified release of
information.
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SecurMed
SecurMed is designed to serve as an authentication process that protects against
any information being viewed by unauthorized persons.
Members
As of March 31, 2006, MedeFile had over 100 members.
Sales and Marketing
Medefile intends to employ the following marketing strategies in order to
generate awareness of Medefile's products and services: direct sales, direct
mail, a public relations campaign, including radio and television infomercials,
speaking engagements by Medefile's executive officers, participation in trade
shows, and alliances and partnerships with third parties.
Medefile's marketing strategy will target the following types of organizations
and market segments: Health Maintenance Organizations, Preferred Provider
Organizations, managed care organizations, insurance companies, unions, large
groups of individuals such as AARP, large and medium sized corporations, home
healthcare agencies, retirement communities, nursing homes, public and private
schools, summer camps and internet users.
In particular, the MedeFile service is designed to be sold in several distinct
ways:
o MedeFile Website - through normal e-commerce mechanisms, patients may enroll
in the service directly from the MedeFile website. Membership may be purchased
on an annual basis and may be paid all at once, or over time at the patient's
discretion.
o Physician Referrals - Patients may enroll based on a doctor's referral. In the
event that these physicians are also Medefile CIS customers, they may easily
transfer their patients' information into the MedeFile system.
o Large group offerings (e.g., AARP, trade unions) - Large, membership-driven
organizations may offer the MedeFile system to their members at a discounted
rate, which may be negotiated with Medefile based on the size of the expected
enrollment. An additional promotional advantage may be derived from the use of
MedeFile through the website of the client organization. Hence, MedeFile
functionality may be accessed using each organization's site.
o Insurance companies - Similar to large group offerings identified above,
insurance companies will be able to offer the MedeFile service to their insured
as a means to decrease the cost of medical care.
Technology
Medefile will use and continue to update the most advanced security measures
available. Data transmitted between Web browsers and Web servers over the
Internet using TCP/IP is generally susceptible to unauthorized interception. To
protect sensitive data, the most common method of protection is data encryption.
MedeFile will use the industry standard Secure Sockets Layer (SSL), which is a
mechanism to secure Internet traffic so that it cannot be intercepted. SSL
utilizes digital certificates to verify the identity and integrity of a web site
(such as MedeFile) and to protect the security of transactions by certifying
their source and destination.
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Competition
There are other companies working in the medical information technology arena
such as GE Healthcare, Bio-Imaging Technologies, and Cyber Records. Some
competing companies offer a USB key for medical record storage but require the
customer to provide or "self-populate" the information to be stored. The
information in a self-populated record is limited and is only as accurate as the
individual's memory and understanding of their health condition. Other companies
expect each customer to obtain their own medical records from their various
healthcare providers. Some offer a CD-Rom for record storage. Usually, the
CD-Rom cannot be updated with any changes to an individual's medical status or
treatment. Therefore, a new CD-Rom needs to be obtained from that company in
order for the individual to have the most current, accurate information
regarding their health. There are companies that are solely web-based that do
not provide the customer the capability to have a copy of their records. In this
case, an internet connection is required to view stored documents. In addition,
there are companies that do not concentrate on digitizing an individual's
medical records but on converting medical facilities' records from paper to
electronic format.
The advantage to being a MedeFile member is that MedeFile gathers, consolidates,
organizes and securely stores each member's actual medical records on their
behalf. The MedeFile membership includes a Digital Health Profile (DHP) which
contains the member's general health history, emergency contacts, doctor
contacts, family medical history, allergies, medications, and current
conditions. A MedeFile membership also includes a MedeDrive which easily plugs
into any PC USB port on most Windows-based computers built in the last four
years. (Macintosh version is currently unavailable). The MedeDrive contains the
member's emergency medical information which can be easily accessed by emergency
care personnel, and the client's actual medical records which are stored in a
secure area of the subscriber's MedeFile. The MedeDrive USB key can be updated
easily and as frequently as the member desires at no additional cost.
Employees
As of March 2006, Medefile had a total of five employees, including four full
time and one part time employee.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006 COMPARED TO THREE MONTHS ENDED MARCH 31, 2005
Revenues
Revenues for the quarter ended March 31, 2006 totaled $6,033, an increase of
$5,983 compared to revenues of $50 during the three months ended March 31, 2005.
During the three months ended March 31, 2005, the Company had recognized minimal
revenue as we emerged from the development stage.
General and Administrative Expenses
General and administrative expenses for the quarter ended March 31, 2006 totaled
$802,363, consisting primarily of compensation, marketing costs and professional
fees. This was an increase of $740,680 or 1201% compared to general and
administrative expenses of $61,683 for the quarter ended March 31, 2005. The
primary reason for the increase was an increase in non-cash compensation of
$562,622 representing the cost of employee options vested during the period.
Impairment of Intangible Assets
There was no impairment of intangible assets during the three months ended March
31, 2006. During the three months ended March 31, 2005, the Company recorded an
impairment of intangible assets in the amount of $97,063.
7
Depreciation Expenses
Depreciation and amortization expense totaled $7,260 for the quarter ended March
31, 2006, an decrease of $28,402 compared to depreciation and amortization
expense of $35,662 during the quarter ended March 31, 2005.
Interest Expense
Interest expense (net) for the quarter ended March 31, 2006 was $14,650, an
increase of $14,186 or 3057% compared to interest expense (net) of $464 during
the quarter ended March 31, 2005. In both periods, the interest expense was
generated by the loan from related party. The reason for the increase was a
result of an increase in the average amount of the related party loan
outstanding during the quarter ended March 31, 2006.
Net Loss
For the reasons stated above, our net loss for quarter ended March 31, 2006 was
$818,240 or $0.005 per share, an increase of $623,418 or 320% compared to a net
loss of $194,822 or $0.99 per share during the three months ended March 31,
2005.
Liquidity and Capital Resources
As of March 31, 2006 we had cash and cash equivalents of $324,811. Our current
liabilities as of March 31, 2006 aggregated $23,028. Additionally, we had an
accumulated deficit of $2,577,028 and stockholders' deficiency of $774,069 at
March 31, 2006.
The Company used $291,933 of cash for operating activities during the quarter
ended March 31, 2006. Cash used in investing activities for the quarter ended
March 31, 2006 was $3,762. Cash provided by financing activities for the quarter
ended March 31, 2006 was $350,000, consisting of $350,000 of proceeds from loans
by related parties.
Our registered independent certified public accountants have stated in their
report dated April 7, 2006, that we have incurred operating losses in the past
years, and that we are dependent upon management's ability to develop profitable
operations. These factors among others may raise substantial doubt about our
ability to continue as a going concern.
We will need additional investments in order to continue operations to cash flow
break even. 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
and the downturn in the U.S. stock and debt markets 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, it is possible that we could 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.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements as of December 31,2005 or as
of the date of this report.
Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
8
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policy involves the most complex, difficult and subjective
estimates and judgments:
Stock-based Compensation
On January 1, 2006 the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004) "Share-Based Payment" ("SFAS 123 (R) which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to a Employee Stock Purchase
Plan based on the estimated fair values. SFAS 123 (R) supersedes the Company's
previous accounting under Accounting Principles Board Opinion No.25, "Accounting
for Stock Issued to Employees" ("APB 25") for the periods beginning fiscal 2006.
The Company adopted SFAS 123 (R) using the modified prospective transition
method, which required the application of the accounting standard as of January
1, 2006. Medefile's Consolidated Financial Statements as of and for three months
March 31, 2006 reflect the impact of SFAS(R). In accordance with the modified
prospective transition method, the Company's Consolidated Financial Statements
for the prior periods have not been restated to reflect, and do not include the
impact of SFAS 123 (R). Stock based compensation expense recognized under SFAS
123 (R) for the three months ended March 31, 2006 was $562,622. Pro forma stock
based compensation was $0 for the three months ended March 31, 2005.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act"), that are designed to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized, and reported within the time periods specified
in Securities and Exchange Commission rules and forms, and that such information
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating our disclosure
controls and procedures, management recognized that disclosure controls and
procedures, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the disclosure
controls and procedures are met. Additionally, in designing disclosure controls
and procedures, our management necessarily was required to apply its judgment in
evaluating the cost-benefit relationship of possible disclosure controls and
procedures. The design of any disclosure controls and procedures also is based
in part upon certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions.
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, our chief executive officer and chief financial officer
concluded that our disclosure controls and procedures are effective to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms.
(b) Changes in Internal Controls over financial reporting
There have been no changes in our internal controls over financial reporting
during our last fiscal quarter, which have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
(c) Limitations on Effectiveness of Disclosure Controls and Procedures
Disclosure controls and procedures cannot provide absolute assurance of
achieving financial reporting objectives because of their inherent limitations.
Disclosure controls and procedures is a process that involves human diligence
and compliance and is subject to lapses in judgment and breakdowns resulting
from human failures. Disclosure controls and procedures also can be circumvented
by collusion or improper management override. Because of such limitations, there
is a risk that material misstatements may not be prevented or detected on a
timely basis by disclosure controls and procedures. However, these inherent
limitations are known features of the financial reporting process. Therefore, it
is possible to design into the process safeguards to reduce, though not
eliminate, this risk.
9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Medefile is not a party to any pending legal proceeding, nor is its property the
subject of a pending legal proceeding, that is not in the ordinary course of
business or otherwise material to the financial condition of Medefile's
business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Effective January 17, 2006, the Registrant changed its name from Omnimed
International, Inc. to Medefile International, Inc. In addition, effective
January 17, 2006, the Registrant's quotation symbol on the OTC Bulletin Board
changed from OMDI.OB to MDFI.OB.
On January 20, 2006, the Company paid an in-kind dividend of 14 shares of common
stock for each share of common stock held by shareholders of record at the close
of business on January 16, 2006.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibit Index
10.1 Amendment No. 1 to Employment Agreement between Kevin Hauser and
Medefile International, Inc.
10.2 Peter LoPrimo Amended and Restated Employment Agreement
10.3 Eric Rosenfeld Amended and Restated Employment Agreement
31.1 Certification by Chief Executive Officer and Chief Financial Officer,
required by Rule 13a- 14(a) or Rule 15d-14(a) of the Exchange Act,
promulgated pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Chief Executive Officer and Chief Financial Officer,
required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and
Section 1350 of Chapter 63 of Title 18 of the United States Code,
promulgated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDEFILE INTERNATIONAL, INC.
/s/ Milton Hauser
----------------------
Milton Hauser
President, Chief Executive Officer,
Acting Chief Financial Officer and Director
(Chief Executive Officer and Chief Financial Officer)
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