Coro Global Inc. - Quarter Report: 2008 June (Form 10-Q)

 

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Table of Contents

	Page
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements	F-1
ITEM 2. Management Discussion and Analysis of Financial Condition and Results of Operations	3
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	5
ITEM 4. Controls and Procedures	5
ITEM 4(T). Controls and Procedures	5
PART II
OTHER INFORMATION	6
ITEM 1. Legal Proceedings	6
ITEM 1A. Risk Factors	6
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	6
ITEM 3. Defaults Upon Senior Securities	6
ITEM 4. Submission of Matters to a Vote of Security Holders	6
ITEM 5. Other Information	6
ITEM 6. Exhibits	7
Signatures	8

 

F-3

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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-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-KSB for the fiscal year ended December 31, 2007. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly the financial position of the Company as of June 30, 2008, and the results of operations and cash flows for the three and six months ended June 30, 2008 and 2007. The results of operations for the six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the entire fiscal year.

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 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 bring 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 unaudited condensed consolidated financial statements have been prepared contemplating a continuation of the Company as a going concern. However, the Company has reported a net loss of  $595,206 and $1,184,913 for the three and six months ended June 30, 2008 and $4,160,846 for the year ended December 31, 2007 and had an accumulated deficit of $10,713,365 as of June 30, 2008 and $9,528,804 as of December 31, 2007.

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 availability of its borrowing capacity, 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 for cash flow to 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.

 

F-4

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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.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company incurred advertising costs for the six months ended June 30, 2008 and 2007 of approximately $118,938 and $6,890, respectively.  An advertising contract was entered into in May 2008 which included advertising and promotion through advertising media and website promotions.   Total cost of the advertising was to be, $99,999 at signing of contract.  A total of $99,999 had been paid through June 30, 2008.

The Company contracted with Ruckus Marketing in 2007.  There developed a disagreement between parties as to the accuracy of deliverables. The contract was cancelled.  Ruckus Market filed suit for payment and a judgment resulted in $15,000 being due.  The judgment was paid in full on July 21, 2008

Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting For Income Taxes". The provision for income taxes is comprised of current and deferred components. The current component presents the amount of federal and state income taxes that are currently reportable to the respective tax authorities and is measured by applying statutory rates to the Company's taxable income as reported in its income tax returns.

Deferred income taxes are provided for the temporary differences between the carrying values of the Company's assets and liabilities for financial reporting purposes and their corresponding income tax basis. These temporary differences are primarily attributable to net operating losses. The temporary differences give rise to either a deferred tax asset or liability in the financial statements, which is computed by applying statutory tax rates to taxable or deductible temporary differences based upon classification (i.e., current or non-current) of the asset or liability in the financial statements which relate to the particular temporary difference.

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. In accordance with the provisions of Statement of Financial Accounting Standards No. 142 (SFAS No. 142), Goodwill and Other Intangible Assets, 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.

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.

 

F-5

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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.

Advance Customer Payments

The Company occasionally will receive lump sum payments from its clients that will be used to prepay a number of subscriptions on behalf of the client’s members. As the client’s members enroll for these subscriptions, then the amounts are deducted from the advance customer payments account and are recognized as revenue or deferred revenues as appropriate. A liability is recorded to reflect the amounts that are potentially refundable.

Reclassifications

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

Liquidity

As of June 30, 2008, we had cash and cash equivalents of $90,281.  Net cash used in operating activities for the quarter was approximately $,1,065,732. Current liabilities are approximately $873,044 of which $189,555 is for accounts payable and $626,434 is for loan payable to a related party. We have negative working capital of approximately $732,106 During the first quarter of 2008, we raised $300,000 from common stock sales and made a repayment to a related party that is our largest stockholder in the amount of $500,000. (Note 7)

The accompanying condensed consolidated financial statements have been prepared contemplating a continuation of the Company as a going concern. However, the Company has reported a net loss of  $1,184,913 for the six months ended June 30, 2008 and $4,160,846 for the year ended December 31, 2007 and had an accumulated deficit of $10,713,365 as of June 30, 2008 and $9,528,804 as of December 31, 2007.

Our registered independent certified public accountants have stated in their report dated March 31, 2008, 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.

 

Net Loss Per Share

 

Basic and diluted loss per share amounts are computed based on net loss divided by the weighted average number of common shares outstanding. Outstanding options to purchase 5,640,000 common shares, warrants to the purchase of 16,575,000 common shares were not included in the computation of diluted loss per share because the assumed conversion and exercise would be anti-dilutive for the six months ended June 30, 2008.  The warrants to the purchase of 200,000 common shares and outstanding options to purchase 5,640,000 common shares were not included in the computation of diluted loss per share because the assumed conversion and exercise would be anti-dilutive for the six months ended June 30, 2007.

F-6

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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

 

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.

2.  ACCOUNTS RECEIVABLE

During the second quarter of 2008 it was determined that $9,362.of Accounts Receivable was uncollectible.  This amount was expensed as a Bad Debt Expenses as of June 30, 2008.  Due to the collection history of the company an Allowance for Doubtful Accounts is not maintained.  Recognition of a specific uncollectible account is written directly against the invoice in Accounts Receivable and expensed in the current period.

3. PREPAID EXPENSES

Prepaid expenses consist of the following:

 

		June 30,, 2008				December 31, 2007
Prepaid expenses		$	16,667			$	25,412
Prepaid insurance			30,990				670
Total prepaid		$	47,657			$	26,082

4. FURNITURE AND EQUIPMENT

Furniture and equipment consists of the following:

 

		June30, 2008				December 31, 2007
Computers and equipment		$	169,286			$	157,884
Furniture and fixtures			38,618				38,618
Subtotal			207,904				196,502
Less: accumulated depreciation		$	(141,639	)		$	(133,150	)
Net furniture and equipment		$	66,265			$	63,352

 

Depreciation is calculated by using the straight-line method over the estimated useful life. Depreciation expense totaled $8,488 and $7,269 for the six months ended June 30, 2008 and the year ended December 31, 2007, respectively.

 

5. INTANGIBLE ASSETS

The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets, whereby the Company periodically tests its intangible assets for impairment.  On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets are tested for impairment, and write-downs will be included in results from operations. There was no impairment of acquired intangibles as of June 30, 2008 and December 31, 2007. 

 

F-7

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Identifiable intangible assets consist of the carrying value of a trademark totaling $1,339 as of June 30, 2008 and December 31, 2007. The trademark acquired is considered to have an undeterminable life, and as such will not be amortized. Instead, the trademark is tested annually for impairment, with any impairment charged against earnings in the Company’s consolidated statement of earnings. Management determined the fair value of the trademark acquired exceeded its recorded book value at June 30, 2008 and December 31, 2007.

6. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts Payable and Accrued  consist of
Accounts Payable		$	173,902
Payroll Liabilities			653
Settlement			15,000
Total		$	189,555

 

The settlement reflects an amount owed for a settlement resulting from a contract cancellation for advertising mentioned earlier in Note 1

7. LOAN PAYABLE - RELATED PARTY

The Company has been and continues to be dependent upon the funding from The Vantage Group, Ltd., (“Vantage”) the Company’s largest stockholder. On April 11, 2007, the Company issued two unsecured promissory notes to The Vantage Group as evidence of this indebtedness outstanding. Both notes bear interest at the rate of seven percent per annum. One note, with a principal amount of $1,115,379, was payable on July 1, 2008. The other note, is payable on demand in the principal amount of $700,000. During the year ended December 31, 2007, the Company borrowed a total of $1,245,000 against the demand note and repaid $20,979. On November 15, 2007, the Company and Vantage, entered into a debt conversion agreement. Pursuant to the debt conversion agreement, Vantage agreed to convert the aggregate principal amount of $2,100,000, of its indebtedness into an aggregate of 14,000,000 restricted shares of common stock of the Company. The conversion amount was used to satisfy the note maturing on July 1, 2008, and the remaining conversion amount was used to pay down the demand loan. In addition, the Company issued to Vantage 8,400,000 three year warrants to purchase an aggregate of 8,400,000 restricted shares of the Company’s common stock at an exercise price of $0.60 per share. As of December 31, 2007, the shares of common stock had not been issued and were recorded as common stock subscribed, until issuance. The shares were issued on February 7, 2008.

As of December 31, 2007, the Company was indebted to the Vantage Group Ltd. in the amount of $1,102,104, including accrued interest for the demand note bearing interest at 7% per annum. During the quarter ended March 31, 2008, the Company made payments on the demand note to Vantage for $500,000. The demand note balance and summarized transactions are shown below:

		June 30, 2008
Balance, December 31, 2007		$	1,102,104
Borrowings			-
Repayments			(500,000	)
Interest			24,330
Balance, June 30, 2008		$	626,434

8. EQUITY

Common Stock

On November 15, 2007, the Company and Vantage, the Company’s largest stockholder and primary source of funding, entered into a debt conversion agreement. Pursuant to the debt conversion agreement, Vantage agreed to convert the aggregate principal amount of $2,100,000 of its indebtedness into an aggregate of 14,000,000 restricted shares of common stock of the Company. At December 31, 2007 the conversion amount was recorded as common stock subscribed until issuance. In addition, the Company issued to Vantage 8,400,000 three year warrants to purchase an aggregate of 8,400,000 restricted shares of the Company’s common stock at an exercise price of $0.60 per share. The shares were issued on February 7, 2008.

On November 16, 2007, pursuant to the terms of a securities purchase agreement the Company sold subscriptions for 11,000,000 restricted shares of the Company’s common stock and three year warrants to purchase an aggregate of 6,600,000 restricted shares of the Company’s common stock at an exercise price of $0.60 per share for aggregate proceeds of $1,650,000.  As of December 31, 2007, the shares of common stock had not been issued and the funds were recorded as common stock subscribed until issuance. The shares were issued on February 7, 2008.

 

F-8

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During the quarter ended March 31, 2008, pursuant to the terms of the Purchase Agreement, the Company issued and sold 2,000,000 restricted shares of the Company’s common stock and three year warrants to purchase an aggregate of 1,200,000 restricted shares of the Company’s common stock at an exercise price of $0.60 per share for aggregate proceeds of $300,000.  The Company claims an exemption from the registration requirements of the Act for the private placement of these securities pursuant to Section 4(2) of the Act and/or Regulation D promulgated thereunder since, among other things, these transactions did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about us 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.

The Company issued 37,500 shares of common stock to an employee per their employment agreement during the quarter ended March 31, 2008. The Company recognized compensation expense of $22,125 based on the closing price of the Company’s common stock as of the grant date.

Stock Options

A summary of option activity under the Plan as of December 31, 2007, and changes during the period then ended are presented below:

	Options		Weighted-Average Exercise Price
Outstanding at December 31, 2007	5,640,000		$	.080
Issued	--			--
Exercised	--			--
Forfeited or expired	--		$	--
Outstanding at June 30, 2008	5,640,000		$	0.80
Non-vested at June 30, 2008	--		$	--
Exercisable at June 30, 2008	5,640,000		$	0.80

  

The options outstanding as of June 30, 2008 have been segregated for additional disclosure as follows:

 

Options Outstanding			Options Exercisable
			Weighted
		Weighted	Average		Weighted
Range of		Average	Remaining		Average
Exercise	Number	Exercise	Contractual	Number	Exercise
Price	Outstanding	Price	Life	Exercisable	Price
$0.80	5,640,000	$ 0.80	1.50	5,640,000	$ 0.80

 

At June 30, 2008, the exercisable and outstanding options had no intrinsic value. Intrinsic value represents the difference between the company’s closing stock price on the last trading day of the fiscal period, which was $0.145 as of June 30, 2008, and the exercise price multiplied by the number of options outstanding.

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. Share based compensation expense recognized under SFAS 123 (R) for the six months ended June 30, 2008 and 2007 was $102,678 and $1,163,587 respectively.

 

F-9

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Warrants

On June 19, 2006 the Company issued 200,000 warrants to consultants for services to be provided. The warrants vested in 50,000 increments on June 19, 2006; September 18, 2006, December 17, 2006 and March 17, 2007. The estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions:

 

Risk-free interest rate at grant date			4.75	%
Expected stock price volatility			86	%
Expected dividend payout			--
Expected option in life-years			4

 

As of December 31, 2007, all warrants were fully vested. During the quarter ended March 31, 2008, the Company issued 16,200,000 three year warrants to purchase an aggregate of 16,200,000 restricted shares of the Company’s common stock at an exercise price of $0.60 per share as part of the common stock sales. A summary of the warrants outstanding and exercisable appears below:

 

Warrants Outstanding													Warrants Exercisable
									Weighted												Weighted
									Average				Weighted								Average
									Remaining				Average								Remaining
Exercise					Number				Contractual				Exercise				Number				Contractual
Prices					Outstanding				Life (years)				Price				Exercisable				Life (years)
	$	3.50				50,000				2.22			$	3.50				50,000				2.22
	$	5.00				50,000				2.22			$	5.00				50,000				2.22
	$	6.50				50,000				2.22			$	6.50				50,000				2.22
	$	8.00				50,000				2.22			$	8.00				50,000				2.22
	$	0.60				16,200,000				2.50			$	0.60				16,200,000				2.50
	$	0.56				175,000				4.50			$	0.56				175,000				4.50
						16,575,000				2.51			$	0.66				16,575,000				2.51

  

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

Risk-free interest rate at grant date			4.75	%
Expected stock price volatility			155	%
Expected dividend payout			--
Expected option in life-years			5

 

Transactions involving warrants are summarized as follows:

 

	Number of Warrants		Weighted-Average Price Per Share
Outstanding at December 31, 2007	200,000		$	5.75
Granted	16,375,000			0.60
Exercised	-			-
Canceled or expired	-			-
Outstanding at June 30, 2008	16,575,000		$	0.66

 

9. RELATED PARTY TRANSACTIONS

During the quarter ended March 31, 2008, the Company repaid $500,000 of the loan payable – related party to the Vantage group, the Company’s largest shareholder. 

 

10.  SUBSEQUENT EVENTS

In July 2008 the Company agreed to sell one million common shares of stock at $0.15.  The funds were received on July 25, 2008 and as of this filing no shares have been transferred or documents executed.  The Company intends to execute the documents and transfer the shares prior to the end of August 2008.

F-10

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

None.