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EX-21 - MIT Holding, Inc.v185946_ex21.htm
EX-32.2 - MIT Holding, Inc.v185946_ex32-2.htm
EX-31.2 - MIT Holding, Inc.v185946_ex31-2.htm
EX-31.1 - MIT Holding, Inc.v185946_ex31-1.htm
EX-32.1 - MIT Holding, Inc.v185946_ex32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 


FORM 10-K/A
Amendment No. 2


 
x
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2009

Or
 
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For The Transition Period From             To             

Commission File Number 333-136791
 


MIT HOLDING, INC.
(Exact name of registration as specified in its charter)
 

 
Delaware
 
20-5068090
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification No.)
37 West Fairmont Ave., Suite 202
Savannah, GA
 
31406
(Address of principal offices)
 
(Zip Code)

Registrant’s telephone number, including Area Code (912) 925-1905

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None
 


Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act ¨

Check whether the issuer (1) 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405  of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ¨. No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨           Accelerated filer ¨            Non-accelerated filer ¨ Smaller Reporting Company x

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

APPLICABLE ONLY TO CORPORATE REGISTRANTS

As of May 19, 2010, the registrant had 52,054,571 shares of common stock issued and outstanding .

At June 30, 2009, the aggregate market value of the voting stock held by non-affiliates was $ 3,821,192   based upon 25,474,615 shares held by non-affiliates, and the average of the bid price and the asked price of $.15, per share.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the part of the form 10-K (e.g., part I, part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or other information statement; and (3) any prospectus filed pursuant to rule 424 (b) or (c) under the Securities Act of 1933: None

Transitional Small Business Disclosure Format (check one) Yes ¨ No x
 
Nature of Amendment –

The Registrant is further amending the Annual Report on Form 10-K for the fiscal year ended December 31, 2009 in  order to reflect the fiscal year 2008 as audited.  Those financial statements, which were also filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, were audited by Drakeford & Drakeford LLC, our prior accounting firm, which had a disciplinary proceeding from the PCAOB in 2009 and is therefore not registered with the PCAOB at this time.  The financial statements for fiscal year 2008 have been audited by Michael T. Studer, CPA, PC. as reflected in the audit opinion included in this filing.  In addition, the  Balance Sheet and Statement of Stockholders Equity  have been marked as retated with respect to 2008 to reflect changes in the treatment of common and preferred stock. There are no other changes to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

 
 

 

Special Note Regarding Forward-Looking Statements

Certain statements in this section, and elsewhere in this Annual Report on Form 10-K (as well as information included in oral statements or other written statements made or to be made by the Company) constitute “forward-looking statements.” Such forward-looking statements include the discussions of the business strategies of the Company and expectations concerning future operations, margins, profitability, liquidity and capital resources. In addition, in certain portions of this Annual Report on Form 10-K, the words: “anticipates”, “believes”, “estimates”, “seeks”, “expects”, “plans”, “intends” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. Although the Company believes that such forward-looking statements are reasonable, it can give no assurance that any forward-looking statements will prove to be correct. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Investors are cautioned not to place undue reliance on our forward-looking statements. We make forward-looking statements as of the date on which Prospectus is filed with the SEC, and we assume no obligation to update the forward-looking statements after the date hereof whether as a result of new information or events, changed circumstances, or otherwise, except as required by law.

 
ii

 

MIT Holding, Inc.

TABLE OF CONTENTS

   
Page
Part I
     
Item
   
     
1.
Description of Business
1
1A.
Risk Factors
8
2.
Description of Property
13
3.
Legal Proceedings
14
4.
Reserved
14
     
Part II
     
5.
Market for Common Equity and Related Stockholder
14
6.
Selected Financial Information
16
7.
Management’s Discussion and Analysis or Plan of Operation
16
8.
Financial Statements
F-1 – F-22
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
22
9A.
Controls and Procedures
22
9B.
Other Information
23
     
Part III
     
10.
Directors, Executive Officers, Promoters and Control Person; Compliance with Section 16(a) of the Exchange Act
23
11.
Executive Compensation
27
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
31
13.
Certain Relationships and Related Transactions
32
     
14.
Principal Accountant Fees and Services
33
     
Other
15.
Exhibits, Financial Statement Schedules
34
 
Signature Page
35

 
 

 

PART I

ITEM 1.  DESCRIPTION OF BUSINESS
Overview

MIT Holding, Inc., a Delaware corporation, is a holding company. Through three wholly-owned subsidiaries MIT distributes wholesale pharmaceuticals, administers intravenous infusions, operates an ambulatory center where therapies are administered and sells and rents home medical equipment.

Our principal executive offices are located at 37 West Fairmont Avenue, Suite 202, Savannah, Georgia, 31406. The phone number is (912) 925-1905. The website is www.mitholdinginc.com. Shares of MIT Holding common stock are traded on the OTC Bulletin Board under the symbol MITD.OB.

History

Our current name and business operations have been preceded by historical name changes and changes in our capitalization.
 
MIT Holding, Inc. Merger with Convention All Holdings, Inc.

Our Company was formerly known as Convention All Holdings, Inc. and, until May 2, 2007, we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. On May 2, 2007, we then acquired a 100% ownership interest in MIT Holding, Inc. through a merger of MIT Holding, Inc. with and into MIT CVAH Acquisition Corp, a newly formed Delaware corporation and wholly-owned subsidiary, in exchange for 32,886,779 shares of our common stock (the "Merger").  In addition, 4,758,464 shares of common stock of MIT are issuable to the holders of 6% Series A Convertible Preferred Stock (“Series A Preferred Stock”) upon conversion of the Series A Preferred and 9,738,784 shares of common stock are issuable to the holders of certain warrants issued in conjunction with the Series A Preferred Stock at an exercise price of $0.75 per share (the “Warrants”) issued in a private placement by MIT as of May 31, 2007.   Simultaneously with the Merger, the company formerly known as MIT Holding, Inc. changed its name to Medical Infusion Group, Inc., and we changed our name to MIT Holding, Inc. As a result of the Merger, we now own 100% of Medical Infusion Group, Inc., which, in turn, continues to own 100% of the issued and outstanding shares of capital stock of MIT Ambulatory Care Center, Inc., a Georgia corporation ("Ambulatory"), Medical Infusion Technologies, Inc., a Georgia corporation (“Infusion”) and MIT International Distribution, Inc. (“MIT International”).

In May 2007 we changed our ticker symbol on the OTC Bulletin Board to MITD.OB.

 
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MIT Business and Operations

Overview

Through its three subsidiaries, MIT distributes wholesale pharmaceuticals, prepares intravenous medication for home infusion by the patient, operates an ambulatory center where intravenous infusions are administered and sells and rents home medical equipment. These services are carried out through a full service compounding pharmacy in Savannah, Georgia.

Strategy

MIT’s strategy is to continue marketing efforts in the Savannah and surrounding areas for its core clinical business in Infusion Technology, Ambulatory Care and Durable Medical Equipment (DME).  2009 saw a decline in revenues for all divisions of the company due to contraction of the economy which led to decreases in referrals and therapies administered.  The demand for these services is created through local physicians, hospitals and insurance companies and should continue to provide an array of therapies for our pharmacy based clinic in Savannah. The Company is no longer devoting substantial resources to wholesale activity, but this focus may change if market conditions and the Company’s financial condition improve.

MIT in 2009 continued to expend substantial effort to evaluate and confirm the efficacy of ProVectorBt, a proprietary biopesticide product developed by Dr. Thomas M. Kollars, Jr. (“Dr. Kollars. This product potentially reduces the spread of certain mosquito-borne infectious diseases including malaria, dengue fever and West Nile virus by killing adult mosquitoes and reducing mosquito population. MIT intends to market ProVector™ through international distribution channels to developing nations.

In order for MIT to expand into international markets and other domestic areas, MIT believes that it will need additional financing. There can be no assurance that MIT will expand into international markets or that it can obtain additional financing on favorable terms, if at all.

 
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Strategic Relationship with Georgia Southern University and Dr. Thomas Kollars, Jr.

In October 2007, MIT signed a sponsored program agreement with Georgia Southern University Research & Service Foundation, Inc.  (“GSURSF”), a research division of Georgia Southern University, to research and develop products to stop the spread of infectious diseases. Pursuant to the agreement, MIT and Georgia Southern funded research at the university. Dr. Thomas M. Kollars, Jr. (“Dr. Kollars”), GSURSF’s Chief Scientific Advisor and Director of the Biodefense and Infectious Disease Laboratory and Associate Professor of Epidemiology in the Jiann-Ping Hsu College of Public Health, Georgia Southern University, will oversee the project. Although the agreement with Georgia Southern terminated in August 2008, MIT has continued working with Dr. Kollars and his team of experts to develop the ProVectorBt, and obtain certification as to the efficacy of ProVectorBt.  This certification was completed by GSURSF on November 27, 2008.  .  Dr. Kollars has developed prototypes of the ProVector Bt flower that are being tested as we develop a commercial bio-pesticide product.  The initial product, ProVectorTM Bt, will be only be available internationally as necessary EPA approval for US use is in the early stage of development and may take up to six months or more to achieve. The company has registered with the EPA and received its registration number. The paperwork for an EPA establishment number which will allow us to immediately market the product for sale overseas has been applied for received. MIT is in discussion with potential distributor candidates but formal agreements are not in place at this time. It is essential for us to develop agreements with distributors overseas who already have established relationships with the governments where the product is to be sold. MIT does not have the personnel, the funds or time frame to set up its own distribution network to provide ProVector to the world market.

In 2007, MIT also entered into a license agreement with MedEnvVet Laboratories (Mevlabs), an affiliate of Dr. Kollars and the holder of the intellectual property rights to the ProVectorBt.  Pursuant to the license agreement, MIT acquired exclusive worldwide rights to sub-license, manufacture and sell the ProVectorBt.  MIT is in discussion with potential distribution candidates but formal agreements are not in place at this time.

Wholesale Distribution

MIT is no longer pursuing the domestic wholesale distribution line of business.

Our Suppliers

MIT purchases the majority of its products for domestic sales from six major distributors and several minor distributors. In 2009 the three major distributors supplied approximately 90% of the Company’s purchasing needs with the other 10% from the other distributors.  The Company does not have long-term contracts or arrangements with any of these distributors.  The loss of certain of these distributors could have a material adverse effect on our operations, although most of the pharmaceuticals that we purchase are available from multiple sources and are available in sufficient quantities to meet our needs and the needs of MIT’s patients. However, some pharmaceuticals are only available through the manufacturer and may be subject to limits on distribution. In such cases, MIT needs to establish and maintain good working relations with the manufacturer in order to assure sufficient supply to meet its patients’ needs. We utilize several national delivery companies as an important part of the local and national distribution of our products and services, particularly in the delivery of certain specialty pharmaceutical products

In 2008, MIT began utilizing a procurement process commonly called “mail order” supply.   This process provides drugs used in various therapies directly to the patient and MIT’s involvement is to administer the drugs so supplied to the patient.  This results in a reduction in revenue to the company with a corresponding reduction in cost of sales.

Additionally, certain pharmaceuticals may become subject to general supply shortages, as in 2005 with IVIG immune globulin products. Such shortages can result in cost increases or hamper MIT’s ability to obtain sufficient quantities to meet the needs of our patients. MIT works diligently to obtain commitments from its suppliers, whenever possible, to secure ample supply of pharmaceuticals that are potentially subject to supply shortages, however, all of its purchasing is presently “spot” purchasing, and MIT maintains no long-term contracts with any suppliers, nor does it keep large inventories of our pharmaceuticals.

 
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Pharmacy Services, Home Infusion Therapy and Ambulatory Centers

MIT provides infusion pharmacy services through its pharmacy in Savannah, Georgia.  The pharmacy maintains a license from the Drug Enforcement Agency, and can dispense infusible and non-infusible prescription pharmaceuticals to treat a wide range of chronic and acute health conditions.  Many infusion therapies cost over $10,000 per patient per year.  These pharmaceuticals may require refrigeration during shipping as well as special handling to prevent potency degradation.  Patients receiving treatment usually require special counseling and education regarding their condition and treatment.  Retail pharmacies and other traditional distributors generally are designed to carry inventories of low cost, high volume products and are not generally equipped to handle the high cost, low volume specialty pharmaceuticals that have specialized handling and administration requirements.  As a result, these specialty pharmaceuticals are generally provided by pharmacies such as MIT’s that focus primarily on filling, labeling and delivering injectible pharmaceuticals and related support services.

Patients are generally referred to infusion pharmacy services providers by physicians, hospital discharge planners and case managers. The medications are mixed and dispensed under the supervision of a registered pharmacist and the therapy is typically delivered in the home of the patient by a registered nurse or trained caregiver. Depending on the preferences of the patient and/or the payor, these services may also be provided at an ambulatory infusion center. We believe that several factors will contribute to growth in non-hospital based infusion therapy, including:

 
·
Healthcare cost containment pressures;
 
·
Increased number of therapies that can be safely administered in patients’ homes;
 
·
Patient preference for at-home treatment;
 
·
Increased acceptance of home infusion by the medical community and by managed care organizations and other payors;
 
·
Technological innovations such as implantable injection ports, vascular access devices and portable infusion control devices; and
 
·
Increased utilization of home infusion therapies due to demographic trends, in particular increasing life expectancies.

MIT’s pharmacy customers can choose to have their therapies administered at the 3,000 square foot ambulatory care center in Savannah, Georgia staffed by three full-time nurses and two part-time doctors or in their own homes
MIT offers patients the following services:

 
·
Medication and supplies for administration and use at home or within our ambulatory infusion center;
 
·
Consultation and education regarding the patient’s condition and the prescribed medication;
 
·
Clinical monitoring and assistance in monitoring potential side effects; and
 
·
Assistance in obtaining reimbursement.

MIT provides its patients the following home infusion therapies:

 
·
Total Parenteral Nutrition: intravenous therapy providing required nutrients to patients with digestive or gastro-intestinal problems, most of whom have chronic conditions requiring treatment for life;
 
·
Anti-infective Therapy: intravenous therapy providing medication for infections related to diseases such as osteomyelitis and urinary tract infections;
 
·
Pain Management: intravenous or continuous injection therapy, delivered by a pump, providing analgesic pharmaceuticals to reduce pain;
 
·
Other therapies: treating a wide range of medical conditions, including IVIG

MIT’s primary product lines are centered upon infusion therapy.  During 2008, approximately 46.9% of infusion therapy revenue came from home infusion therapies and 53.1% from clinic infusion therapies. In 2008, IVIG and Synagis® products accounted for approximately 20.1% of therapies dispensed at MIT’s ambulatory centers.  Synagis® (palivizumab), the leading infusion product administered at the ambulatory center, is prescribed primarily between September and January. It is a monoclonal antibody licensed for any infectious disease, but is used primarily for respiratory diseases and allergies that normally establish themselves in the late summer through winter. In addition, Synagis® is also prescribed for prevention of human respiratory syncytial virus (including diseases such as measles and mumps) in pediatric patients.

Home Medical Equipment

The home medical equipment division carries a wide variety of durable medical equipment and supplies for purchase or lease. The division maintains inventory or can rapidly obtain a wide variety of home medical equipment products to match almost any request, from electric wheelchairs to nebulizers.  All of MIT’s business in 2008 related to home medical equipment was from physician referrals.

 
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Billing and Significant Payors

MIT derives most of its revenue from contracts with third party payors, insurance companies, self-insured employers and Medicare and Medicaid programs. Where permissible, they bill patients for any amounts not reimbursed by third party payors. For the most part, MIT’s infusion pharmacy revenue consists of reimbursement for both the cost of the pharmaceuticals sold and the cost of services provided. Pharmaceuticals are typically reimbursed on a percentage discount from the published average wholesale price (AWP) of each pharmaceutical. Nursing services are typically paid separately, on a per visit basis, while other patient support services and ancillary medical supplies are either reimbursed separately or on a per diem basis, where applicable.

MIT also provides services that are reimbursable through government healthcare programs such as Medicare and state Medicaid programs. For the twelve months ended December 31, 2008 and December 31, 2009 respectively, approximately 25.4% and 11.6% of our infusion pharmacy revenue came from government healthcare programs such as Medicare and Medicaid. The amounts due from these programs represented approximately 15.3% and 11.8% of our total accounts receivable, respectively, as of December 31, 2008 and December 31, 2009.

MIT is responsible for its own billing and collection practices.  MIT bills payors and tracks all of its accounts receivable through computerized billing systems. These systems allow the billing staff the flexibility to review and edit claims in the system before such claims are submitted to payors, which are submitted either electronically or through the mail. MIT utilizes electronic claim submission whenever possible to expedite claim review and payment, and to minimize errors and omissions.

MIT’s financial performance is highly dependent upon effective billing and collection practices. The process begins with an accurate and complete patient admission process, in which essential information about the patient, the patient’s insurance and their care needs is gathered.  A critical part of this process is verification of insurance coverage and authorization from the insurance company carrier to provide the required care, which typically takes place before we initiate services.

Sales and Marketing

MIT’s sales and marketing efforts focus on establishing, maintaining and strengthening relationships with local and regional patient referral sources and maintaining existing and developing new relationships with pharmaceutical manufacturers to gain distribution access as they release new products.

Most new patients are referred to MIT by physicians, medical groups, hospital discharge planners, case managers employed by Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) or other managed care organizations, insurance companies and home care agencies. MIT’s sales force is responsible for establishing and maintaining these referral relationships.

Government Regulation

MIT’s operations are subject to extensive regulation by a number of governmental entities at the federal, state and local level. The industry is also subject to frequent regulatory change. Laws and regulations in the healthcare industry are extremely complex and, in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation. Moreover, MIT’s business is impacted not only by those laws and regulations that are directly applicable to it but also by certain laws and regulations that are applicable to its managed care and other clients. If MIT fails to comply with the laws and regulations directly applicable to its business, it could suffer civil and/or criminal penalties, and it could be excluded from participating in Medicare, Medicaid and other federal and state healthcare programs, which would have an adverse impact on its business.

Professional Licensure.   Doctors, Nurses, pharmacists and certain other healthcare professionals MIT employs are required to be individually licensed or certified under applicable state law. MIT performs criminal and other background checks on employees and takes steps to ensure that employees possess all necessary licenses and certifications, and MIT believes that its employees comply in all material respects with applicable licensure laws.

Pharmacy Licensing and Registration.   Georgia laws require that our pharmacy be licensed as an in-state pharmacy to dispense pharmaceuticals in Georgia and that home infusion companies to be licensed as home health agencies.  MIT believes that it complies with all state licensing laws applicable to its business. If MIT is unable to maintain its licenses, its ability to operate would be severely limited, which could have an adverse impact on its business.

 
5

 

Laws enforced by the U.S. Drug Enforcement Administration (“DEA”), as well as some similar state agencies, require MIT’s pharmacy to register in order to handle controlled substances, including prescription pharmaceuticals. Federal and state laws also require that MIT follow specific labeling, reporting and record-keeping requirements for controlled substances. MIT maintains federal and state controlled substance registrations for each of its facilities that require such registration and follows procedures intended to comply with all applicable federal and state requirements regarding controlled substances.

Food, Drug and Cosmetic Act.   Certain provisions of the federal Food, Drug and Cosmetic Act govern the handling and distribution of pharmaceutical products. This law exempts many pharmaceuticals and medical devices from federal labeling and packaging requirements as long as they are not adulterated or misbranded and are dispensed in accordance with and pursuant to a valid prescription. MIT believes that it complies with all applicable requirements.

Wholesale Licenses. The DEA, the U.S. Food and Drug Administration (“FDA”) and various state regulatory authorities regulate the distribution of pharmaceutical products and controlled substances. Wholesale distributors of these substances are required to register for permits, meet various security and operating standards, and comply with regulations governing their sale, marketing, packaging, holding and distribution. The DEA, FDA and state regulatory authorities have broad enforcement powers, including the ability to seize or recall products and impose significant criminal, civil and administrative sanctions for violations of these laws and regulations. As a wholesale distributor of pharmaceuticals and certain related products, we are subject to these regulations. MIT has received all necessary regulatory approvals and believes that it is in compliance with all applicable pharmaceutical wholesale distribution requirements.

Medicare Prescription Drug, Improvement and Modernization Act of 2003.   The Medicare Prescription Drug Improvement and Modernization Act of 2003 (“MMA”) significantly expanded Medicare coverage for outpatient prescription drugs. Beginning in 2006, Medicare beneficiaries became eligible to enroll in prescription drug plans that are offered by private entities. Medicare reimbursement rates for certain pharmaceuticals were impacted by implementation of the MMA by the U.S. Department of Health and Human Services.  Further Medicare reimbursement reductions and policy changes are scheduled to be implemented in the future. The Deficit Reduction Act of 2005 reduced Medicaid reimbursement for certain prescription drugs, and the U.S. Congress may consider further reductions to Medicaid reimbursement. These policies may adversely affect MIT’s pharmacy business directly and its wholesale pharmaceutical distribution business indirectly.

The MMA also significantly expanded Medicare coverage for outpatient prescription pharmaceuticals through new Medicare Part D. Beginning in 2006, Medicare beneficiaries became eligible to enroll in outpatient prescription pharmaceutical plans that are offered by private entities and became eligible for varying levels of coverage for outpatient prescription pharmaceuticals. Beneficiaries who participate select from a range of stand-alone prescription pharmaceutical plans or Medicare Advantage managed care plans that include prescription pharmaceutical coverage along with other Medicare services (“Part D Plans”). The Part D Plans are required to make available certain pharmaceuticals on their formularies. Each Part D Plan negotiates reimbursement for Part D pharmaceuticals with pharmaceutical manufacturers. For eligible Medicare beneficiaries, the cost of equipment, supplies and professional services associated with infused covered Part D pharmaceuticals will continue to be reimbursed under Part A or Part B, as applicable. For beneficiaries who are dually eligible for benefit under Medicare and a state Medicaid program, covered infused pharmaceuticals will be reimbursed under individual state coverage guidelines.

Stark Law & Anti-Kickback Statute.  MIT and its customers are subject to fraud and abuse laws, including the federal anti-kickback statute and the Stark law. The anti-kickback statute prohibits persons from soliciting, offering, receiving or paying any remuneration in order to induce the referral of a person for the furnishing or arranging for the furnishing of any item or service or for inducing the purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering of items or services that are in any way paid for by Medicare, Medicaid, or other federal healthcare programs. The Stark law prohibits physicians from making referrals for designated health services to certain entities with which they have a financial relationship. The fraud and abuse laws and regulations are broad in scope and are subject to frequent modification and varied interpretation.  MIT attempts to structure all of its business relationships to comply with these laws.

Health Information Practices.  The Health Information Portability and Accountability Act of 1996 (“HIPAA”) and the regulations promulgated thereunder by HHS set forth health information standards in order to protect security and privacy in the exchange of individually identifiable health information. Significant criminal and civil penalties may be imposed for violation of these standards.

 
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Pedigree Requirements. In recent years, some states have passed or have proposed laws and regulations that are intended to protect the safety of the supply channel.  For example, Florida and other states are implementing pedigree requirements that require pharmaceuticals to be accompanied by information tracing pharmaceuticals back to the manufacturers.  Georgia presently has no such statute. These and other requirements are expected to increase MIT’s cost of operations. At the federal level, the FDA issued final regulations pursuant to the Pharmaceutical Drug Marketing Act that became effective in December 2006. The regulations impose pedigree and other chain of custody requirements that increase the costs and/or burden to MIT of selling to other pharmaceutical distributors and handling product returns.

Competition

The intravenous ambulatory market is highly fragmented with a small number of high volume participants. Most intravenous therapies are originally prescribed to patients while confined to a hospital, and MIT maintains significant relationships with most of the major hospitals in the metropolitan Savannah area. There are no other listed ambulatory centers in Savannah, Georgia.

Over twenty home medical equipment suppliers are in the Savannah area. Most are inside pharmacies. MIT maintains a competitive advantage in that once a patient is referred to MIT, MIT may cross-sell to the patient home medical equipment prescriptions written by the referring physician. MIT formed its home medical equipment division so that an infusion patient with a durable medical equipment prescription would not have to go to another source.  Similarly, the pharmacy was established so an infusion patient with a prescription for pharmaceuticals could have the prescription filled by MIT’s pharmacy.

Insurance

MIT caries a professional liability insurance policy that provides for coverage in the amount of $1,000,000 per occurrence and $2,000,000 in the aggregate.  A successful claim not covered by our professional liability insurance or substantially in excess of our insurance coverage could cause us to pay out a substantial award, harming our financial condition and results of operations.  MIT also maintains officers and directors liability insurance for aggregate coverage of $3,000,000.

Employees

    As of December 31, 2009, MIT employed 34 persons on a full-time basis of which 8 were involved in administration, 23 in medical services, and 3 for durable medical equipment.  None of MIT’s employees are represented by a labor union or bound by a collective bargaining unit. MIT believes that its relationship with its employees is satisfactory.

 
7

 

Item 1A.  RISK FACTORS

Before you purchase our securities, you should carefully consider the risks described below and the other information contained in this prospectus, including our financial statements and related notes. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the adverse events described in this “Risk Factors” section actually occurs, our business, results of operations and financial condition could be materially adversely affected and you might lose all or part of your investment.

Our restricted cash flow raises substantial doubt about our ability to continue operations unless we obtain financing or generate adequate cash flow.

Although we had revenues of $6,400,042 in 200 and had receivables of $1,898,794 as of December 31, 2009, our inability to achieve sufficient increases  in our revenues has created a liquidity challenge that raises doubt about our ability to continue as a going concern.  The auditor’s opinion which accompanies our financial statements is qualified as to our ability to continue as a going concern.  Revenues declined in 2009 to $6,400,042 from $9,510,626 in 2008. In addition, collection of medical receivables can be delayed as they are submitted to insurance companies and government agencies, Unless we generate sufficient collections on our receivables, otherwise increase revenues or obtain financing through other means, our operations may be difficult to sustain.

On April 4, 2008, we received a letter from Northern indicating that Northern considered MIT in default of its obligations under the credit agreement, and declaring all amounts under the credit agreement due and payable in full immediately.  Subsequent to this letter, we received oral assurances from Northern that they would continue to fund MIT for an additional 60 days from April 4. On August 1, 2008, we received a term loan from Globank, Inc. in the amount of $500,000 and used the proceeds to pay off our obligation to Northern.  The term loan from Globank, Inc. matures on July 31, 2010.

We rely on reimbursements from Medicare and Medicaid.

For the fiscal year ended December 31, 2009 over 11% of our ambulatory and infusion revenue came from reimbursement by federal and state programs such as Medicare and Medicaid. Reimbursement from these and other government programs is subject to statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments, governmental funding restrictions and changes to, or new legislation, all of which may materially affect the amount and timing of reimbursement payments to us. Changes to the way Medicare pays for our services may reduce our revenue and profitability on services provided to Medicare patients and increases our working capital requirements.

In addition, we are sensitive to possible changes in state Medicaid programs as we do business with a number of state Medicaid providers. Budgetary concerns in many states have resulted in and may continue to result in, reductions to Medicaid reimbursement as well as delays in payment of outstanding claims. Any reductions to, or delays in collecting amounts reimbursable by state Medicaid programs for our products or services, or changes in regulations governing such reimbursements, could cause our revenue and profitability to decline and increase our working capital requirements.
 
Our new products strategy is unproven and risky.

Our business strategy is to develop the sales of ProVector™ in the international market. Our ability to implement its plans will depend primarily on the ability to attract distributors in targeted markets where malaria, dengue fever or West Nile disease are present.  Development of a distribution network throughout the world will determine our sales and growth rate for Provector in 2010. MIT is in discussion with potential distribution candidates but formal agreements are not in place at this time.  There can be no assurance at this time as to when the distribution network will be in place to generate sales for ProVector™

 
8

 

MIT has no history with manufacture and distribution of Provector™.
 
Distributing ProVector™ overseas is a heavily regulated endeavor, and we will be subject to both domestic and foreign governmental regulatory schemes and may be required to rely on a limited number of distributors in each foreign country in which it will sell products and may be required to obtain registrations in each country to import product.  We have no significant experience complying with the legal systems of countries other than the United States.  We will be dependent on our relationships with foreign distributors, suppliers, purchasers and government agencies and enforcement of our rights in foreign courts, particularly in less developed countries, is uncertain. Such compliance will be time consuming and expensive, and is expected to require hiring legal and/or business advisers who are specialists in such transactions. Changes in foreign statues and regulations could adversely affect our operations.  Achieving significant revenues denominated in foreign currencies would also subject our financial results to the risk of foreign exchange fluctuations.
 
Our revenues are subject to fluctuations which may adversely affect our business

MIT’s revenues increased from $7.8 million in 2004 to $16.1 million in 2005, then declined to $13.0 million in 2006.  Revenues in 2007 declined to 12.6 million and in 2008, sales declined by $3.17 million to $9.5 million.  In 2009, Revenue fell $3.1 million to $6.4 million. This was a result of our discontinuing  competition in the wholesale market due to decreasing demand for wholesale products and diminishing margins and insufficient capital resources to aggressively compete in this market
 
Our accounts receivable are subject to an agreement with Northern Healthcare Capital, LLC.

 In April 2007, MIT and Northern Healthcare Capital, LLC (“Northern”) entered into a revolving line of credit to replace the receivable purchase agreement. The initial facility amount is $2,000,000, with the facility increasing in increments of $400,000 at such time as MIT’s outstanding balance exceeds 85% of the then existing amount outstanding under the facility.  This credit agreement with Northern is personally guaranteed by Mr. Parker.  This agreement a purchase agreement with Northern executed in May 2005 whereby Northern purchased from MIT the rights to all our accounts receivable.   Over 95% of our revenues are subject to the agreement with Northern.  We are dependent on our agreement with Northern and there can be no assurance that we could obtain alternate financing on terms as favorable to us.

On April 4, 2008, we received a letter from Northern indicating that Northern considered MIT in default of its obligations under the credit agreement, and declaring all amounts under the credit agreement due and payable in full immediately.  Subsequent to this letter, we received oral assurances from Northern that they would continue to fund MIT for an additional 60 days from April 4. On August 1, 2008, we received a term loan from Globank, Inc. in the amount of $500,000 and used the proceeds to pay off our obligation to Northern.  The term loan from Globank, Inc. matures on July 31, 2010.

MIT experiences seasonal liquidity.

MIT has historically experienced seasonal liquidity due to the natural cycle of demand for our wholesale pharmaceutical products, and we expect this seasonal fluctuation in liquidity to continue.  MIT historically experienced decreases in revenue in the first half of the year compared to the second half.  Lesser cash flow could adversely affect MIT’s liquidity and funds available for operations.

The loss of Mr. Parker could adversely affect our operations.
 
Our success depends upon the availability and performance of our key employees, such as President, William C. Parker, MIT’s founder. We intend to purchase “key person” insurance for Mr. Parker for coverage in the amount of at least $1,000,000.  However, MIT does not currently have such insurance, and it may not be able to obtain such insurance on favorable terms, at all.  The loss of Mr. Parker’s services could have a material adverse effect upon our business and results of operations.

We are highly dependent on reimbursement from non-governmental third party payors.

We are highly dependent on reimbursement from a managed care organizations and other non-governmental third party payors.  For the fiscal years ended December 31, 2009 and December 31, 2008, approximately 88.4% and 97.3% of our revenue came from managed care organizations and other non-governmental payors, including self-pay patients. Many payors seek to limit the number of providers that supply pharmaceuticals to their enrollees in order to build volume that justifies their discounted pricing.  From time to time, payors with whom we have relationships require that we bid against our competitors to keep their business. As a result of such bidding process, we may not be retained, and even if we are retained, the prices at which we are able to retain the business may be less than what we sought. The loss of a payor relationship could significantly reduce the number of patients we serve and have a material adverse effect on our revenue and net income, and a reduction in pricing could reduce our gross margins and our net income.

 
9

 

We are subject to numerous governmental regulations, including healthcare reform laws.

Non-compliance with laws and regulations applicable to MIT’s business and future changes in those laws and regulations could have a material adverse effect on MIT.  MIT’s operations are subject to stringent laws and regulations at both the federal and state levels, requiring compliance with burdensome and complex billing, substantiation and record-keeping requirements. Financial relationships between MIT and physicians, nurses, and other referral sources are also subject to strict limitations.

In addition, strict licensing and safety requirements apply to the provision of services, pharmaceuticals and equipment. Violations of these laws and regulations could subject MIT to severe fines, facility shutdowns and possible exclusion from participation in federal healthcare programs such as Medicare and Medicaid. Government officials and the public will continue to debate healthcare reform. Changes in healthcare law, new interpretations of existing laws, or changes in payment methodology may have a dramatic effect on MIT’s business and results of operations.

MIT faces downward pricing pressures.

MIT believes that continued pressure to reduce healthcare costs could have a material adverse effect on MIT’s revenue. The current market continues to exert pressure on healthcare companies to reduce health care costs, resulting in reduced margins for home healthcare providers such as MIT.  Larger group purchasing organizations and supplier groups exert additional pricing pressure on home healthcare providers. These include managed care organizations, which control an increasing portion of the healthcare economy.

MIT faces competition from other providers for its products and services.

The segment of the healthcare market in which MIT operates is highly competitive. In each of its service lines, there are a number of national providers and numerous regional and local providers. Other types of healthcare providers, including, individual hospitals and hospital systems, home health agencies and health maintenance organizations have entered, and may continue to enter the market to compete with MIT’s various service lines. Some of these competitors have access to significantly greater financial and marketing resources than MIT. This may increase pricing pressure and limit MIT’s ability to maintain or increase its market share.

MIT relies heavily on a single source product manufacturer and certain distributors.

We sell intravenous therapies that are supplied to us by a variety of manufacturers, many of which are the only source of that specific pharmaceutical. In order to have access to these therapies, and to be able to participate in the launch of new intravenous pharmaceuticals, we must maintain good working relationships with the manufacturers. Most of the manufacturers of the pharmaceuticals we sell have the right to cancel their supply contracts with us without cause and after giving only minimal notice. The loss of our relationship with one or more pharmaceutical distributors may reduce our revenue and profitability.  In addition, IVIG, which is comprised of approximately seven products derived from numerous manufacturers and distributors accounted for approximately 24.8% and 15.8% of MIT’s revenues for the years ended December 31, 2009 and December 31, 2008, respectively. The loss of a key pharmaceutical manufacturer could have material adverse affect on our business.  There can be no assurance that MIT will have access to adequate supplies on acceptable terms to meet its demands.

 
10

 

Quantities of our intravenous therapies are limited.

Certain of the intravenous therapies that we distribute have limited shelf life and some, such as blood products, are subject to supply shortages.  There can be no assurance that we can obtain the supplies of products that we desire. In such event, the operations of our wholesale distribution business will be adversely affected.

Development of new productsthat compete with MIT’s product line could materially, adversely affect its financial condition.

The pharmaceutical distribution industry is highly competitive and characterized by changing client preferences and continuous introduction of new products and/or services.  MIT believes that its future growth will depend, in part, on its ability to anticipate changes in client preferences and develop and introduce, in a timely manner, new products and/or services that adequately address such changes.  There can be no assurance that MIT will be successful in developing, introducing and marketing new products and/or services on a timely and regular basis.  If MIT is unable to introduce new products and/or services or if MIT’s new products and/or services are not successful, such events could have a material, adverse effect upon its business, operating results and financial condition.

Changes in state and federal government regulation could restrict our ability to conduct our business.
 
The marketing, sale and purchase of intravenous pharmaceutical therapies, pharmaceuticals, other medical supplies and provision of healthcare services generally is extensively regulated by federal and state governments. Other aspects of our business are also subject to government regulation. We believe we are operating our business in compliance with applicable laws and regulations. The applicable regulatory framework is complex, and the laws are very broad in scope. Many of these laws remain open to interpretation and have not been addressed by substantive court decisions. Accordingly, we cannot provide any assurance that our interpretation would prevail or that one or more government agencies will not interpret them differently. Changes in the law or new interpretations of existing law can have a dramatic effect on what we can do, our cost of doing business and the amount of reimbursement we receive from governmental third party payors, such as Medicare and Medicaid. Also, we could be affected by interpretations of what the appropriate charges are under government programs.
 
Some of the healthcare laws and regulations that apply to our activities include:
 
 
·
The federal “Anti-Kickback Statute” prohibits individuals and entities from knowingly and willfully paying, offering, receiving, or soliciting money or anything else of value in order to induce the referral of patients or to induce a person to purchase, lease, order, arrange for, or recommend services or goods covered in whole or in part by Medicare, Medicaid, or other government healthcare programs. Although there are “safe harbors” under the Anti-Kickback Statute, some of our business arrangements and the services we provide may not fit within these safe harbors or a safe harbor may not exist that covers the arrangement. The Anti-Kickback Statute is an intent based statute and the failure of a business arrangement to satisfy all elements of a safe harbor will not necessarily render the arrangement illegal, but it may subject that arrangement to increased scrutiny by enforcement authorities. Violations of the Anti-Kickback Statute can lead to significant penalties, including criminal penalties, civil fines and exclusion from participation in Medicare and Medicaid.
 
 
·
The “Stark Law” prohibits physicians from making referrals to entities with which the physicians or their immediate family members have a “financial relationship” (i.e., an ownership, investment or compensation relationship) for the furnishing of certain Designated Health Services (“DHS”) that are reimbursable under Medicare. The Stark Law exempts certain business relationships which meet its exception requirements. However, unlike the Anti-Kickback Statute under which an activity may fall outside a safe harbor and still be lawful, a referral for DHS that does not fall within an exception is strictly prohibited by the Stark Law. A violation of the Stark Law is punishable by civil sanctions, including significant fines and exclusion from participation in Medicare and Medicaid.
 
 
·
The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) provides federal privacy protections for individually identifiable health information. Through the adoption of the Privacy Rule, HIPAA set national standards for the protection of health information for providers and others who transmit health information electronically. In addition to regulating privacy of individual health information, HIPAA includes several anti-fraud and abuse laws, extends criminal penalties to private health care benefit programs and, in addition to Medicare and Medicaid, to other federal health care programs, and expands the Office of Inspector General’s authority to exclude persons and entities from participating in the Medicare and Medicaid programs.
 
 
·
MIT must obtain state certain licenses to operate and dispense pharmaceuticals. If we are unable to maintain our licenses or if states or the federal government place burdensome restrictions or limitations on pharmaceutical distributors, this could limit or affect our ability to operate in some states which could adversely impact our business and results of operations.

 
11

 

It is unlikely that MIT will pay dividends in the foreseeable future.

MIT has not paid cash dividends to its shareholders in the past, and there is no assurance that MIT will pay dividends in the future.  MIT does not intend to declare or pay cash dividends in the foreseeable future.  Earnings, if any, are expected to be retained to finance and expand its business.

We may be subject to liability for the services we offer and the products we sell.

We and other participants in the health care market are likely to continue to be subject to lawsuits based upon alleged malpractice, product liability, negligence or similar legal theories, many of which involve large claims and significant defense costs. A successful claim not covered by our professional liability insurance ($1,000,000 per occurrence) or substantially in excess of our general liability insurance ($1,000,000 per occurrence) coverage could cause us to pay out a substantial award, harming our financial condition and results of operations. In addition, we retain liability on claims up to the $500 - $1,000 amount of our deductibles, which generally are upwards of $2,000 per year for infusion per occurrence. Further, our insurance policy is subject to annual renewal and it may not be possible to obtain liability insurance in the future on acceptable terms, with adequate coverage against potential liabilities, or at all. Also, claims against us, regardless of their merit or eventual outcome, could be a serious distraction to management and could harm our reputation.

We are controlled by our principal shareholders and as a result you may not be able to exert meaningful influence on significant corporate decisions.

At present, our officers, directors and principal shareholders own approximately 57% of the issued and outstanding shares, including 6,000,000 shares over which Mr. Parker, our Chief Executive Officer, had the right to vote until May 2009 and therefore have the ability to elect all of the members of the Board of Directors of the company.  Mr. Parker, alone has the right to vote a majority of the outstanding shares of common stock. As such, control of the company will remain with the controlling shareholders who will continue to formulate business decisions and policy.

We are subject to price volatility due to our operations materially fluctuating, as a result, any quarter-to-quarter comparisons in our financial statements may not be meaningful and may also cause the price of our stock to fluctuate.

As a result of the evolving nature of the markets in which we compete, and the early stage in development of our business plan, our operating results have and may in the future, fluctuate materially, as a result of which quarter-to-quarter comparisons of our results of operations may not be meaningful. Until we have developed and demonstrated uses for our services and technology which is accepted by a significant number of customers on a regular basis (through licensing or otherwise) our quarterly results of operations may fluctuate significantly which, in turn, may cause the price of our stock to fluctuate.

Selling stockholders from the 2007 Private Placement intend to sell their shares of common stock in the public market, which sales may cause our stock price to decline.
 
The officers, directors and significant shareholders of the company (who currently comprise approximately 57% of our issued and outstanding stock) are subject to the provisions of various insider trading and rule 144 regulations. Also, officers and key employees are subject to restrictions on selling their shares of common stock without the consent of Meyers Associates L.P. our financial advisor in the recent private placements, until May 2, 2009 with respect to 24,270,760 shares of common stock.  However, selling stockholders from the 2007 Private Placement intend to sell in the public market up to 21,805,499 shares of common stock which were registered for resale pursuant to a registration statement that became effective August 13, 2007. This amount compared to the total number of shares of common stock issued and outstanding could cause our stock price to decline.   Additionally, shares of common stock held by non-affiliates may currently be eligible for resale pursuant to Rule 144, as amended.
 
MIT’s common stock is deemed to be a "penny stock," which may make it more difficult for investors to sell their shares due to suitability requirements.

MIT’s common stock could be considered to be a "penny stock" if it meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Securities Exchange Act of 1934, as amended.  These include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share;  (ii) it is not traded on a "recognized" national exchange; (iii) it is not quoted on the NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years.  The principal result or effect of being designated a "penny stock" is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.

 
12

 

Broker-dealer requirements may affect trading and liquidity of MIT’s common stock which may result in shareholders being unable to sell their shares.

Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account.

Potential investors in MIT’s common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "penny stock."  Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor.   This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives.  Compliance with these requirements may make it more difficult for holders of MIT’s common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.
 
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K. We have established disclosure controls and procedures effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of December 31, 2009. Commencing by the fiscal year ended December 31, 2010, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. However, there can be no assurance that we will receive a positive attestation from our independent auditors. In the event we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

We may be affected by global climate change or by legal, regulatory, or market responses to such change.

The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns. Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost of key raw materials that we use to produce our products. Additionally, the sale of our products can be impacted by weather conditions.

Laws enacted that directly or indirectly affect our production, distribution (which, in particular, could place restrictions on our use of delivery vehicles), packaging, cost of raw materials, fuel, ingredients, and water could all impact our business and financial results.

ITEM 2. DESCRIPTION OF PROPERTY

MIT is headquartered in Savannah, Georgia at 115 Echols Street, while its administrative offices are at 37 West Fairmont Street Suite 202, also in Savannah. This rented facility on Echols Street consists of two buildings, one warehouses all inventory and is also the location of MIT’s pharmacy, clean room for compounding and the Savannah ambulatory center.  The second building houses the wholesale trading operations. MIT believes that its premises are sufficient for its current operations.

 
13

 

The following are the key terms of MIT’s lease agreements:

 
·
The lease on the facility located at 115B Echols St., Savannah, GA was entered into January 1, 2007 and expires January 1, 2009.  The rent is $4120 per month. The lease is now on a month to month basis. This lease is personally guaranteed by William C. Parker, Chairman of the Board.
 
·
MIT leases three suites in the facility located at 37 W. Fairmont Avenue, Savannah, GA.  The leases for Suites 202 and 204 each commenced November 1, 2004, for a term of 36 months.  This lease is now on a month to month basis.  The monthly rent on Suite 202 is $1360, and the monthly rent on Suite 204 is $1123.  The lease for Suite 206 is $1158 and has been added to the master lease. This lease is personally guaranteed by William C. Parker.

ITEM 3.  LEGAL PROCEEDINGS

From time to time, we are party to litigation that we consider to be a part of the ordinary course of our business. At present, we are not involved in any pending claims that we believe could reasonably be expected to have a material adverse effect on our business, financial condition, or results of operations.

ITEM 4.  RESERVED

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market information

Our common stock is presently traded in the over-the-counter market and quoted on the National Association of Securities Dealers' OTC Bulletin Board under the ticker symbol "MITD.OB". The shares are thinly traded and a limited market presently exists for the shares. The following table describes, for the respective periods indicated, the prices of MIT common stock in the over-the-counter market, based on inter-dealer bid prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.  There was no trading reporting prior to May 7, 2007.

Period
 
High
   
Low
 
                 
2009:
               
Quarter Ended March 31
 
$
.06
   
$
.03
 
Quarter Ended June 30
   
.15
     
.04
 
Quarter Ended September 30
   
.20
     
.08
 
Quarter Ended December 31
   
.16
     
.04
 
2008:
               
Quarter Ended March 31
 
$
1.05
   
$
.80
 
Quarter Ended June 30
   
 .80
     
.55
 
Quarter Ended September 30
   
.55
     
.28
 
Quarter Ended December 31
   
.28
     
.06
 

Holders Of Record

According to the Company’s transfer agent, the Company had approximately 101 stockholders of record as of April 14, 2010.  Because many of the Company’s shares of common stock are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of beneficial stockholders represented by those record holders.

Dividend Policy

We have never declared or paid any cash dividends on our capital stock. We currently plan to retain future earnings, if any, to finance the growth and development of our business and do not anticipate paying any cash dividends in the foreseeable future. We may incur indebtedness in the future which may prohibit or effectively restrict the payment of dividends, although we have no current plans to do so. Any future determination to pay cash dividends will be at the discretion of our board of directors.

 
14

 

Transfer Agent

Add name/address/telephone number of transfer agent

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

In December 2006 and January 2007, MIT issued 11.39 units, each unit consisting of a promissory note in the amount of $100,000 and 200,000 shares of Common Stock. The subordinated promissory notes (each a “Bridge Note” and collectively, the “Bridge Notes”) bear interest at the rate of 10% per annum.  The shares of common stock issued in connection with these Bridge Notes were registered for resale in a SB-2 registration statement declared effective August 13, 2007 (the “Registration Statement”). The consideration for these Bridge Notes and the shares of Common Stock consisted of $1,000,000 in cash and $138,889 from the conversion of a previously issued promissory note. MIT has used the proceeds of this financing for working capital.  Of the aggregate $1,317,394, holders of Bridge Notes in the aggregate amount of $1,214,894 (including accrued interest of $41,739.57) converted the principal balance of their notes and accrued interest into units in our private placement Series A Convertible Preferred Stock and common stock purchase warrants (the “Private Placement”). Holders of Bridge Notes in the amount of $102,500 were paid from the proceeds of the Private Placement.

The Private Placement commenced March 19, 2007 and closed May 31, 2007.  MIT closed on an aggregate 4,234.4 units at $1000.00 per unit, each unit consisting of: (i) one share of Series A Convertible Preferred Stock convertible at the holder’s option into an aggregate of 2,000 shares of common stock, $.000001 par value at a fixed conversion price of $0.50 per share and (ii) warrants to purchase an aggregate of 2,000 shares of Common Stock exercisable for a period of five years from the effective date of the registration statement which MIT has agreed to file with respect to the shares of Common Stock, $.0001 par value, issuable upon exercise of the warrants at a fixed price of $0.75 per share (each a “Unit” and collectively, the “Units”).  MIT offered the Units to institutional and accredited investors.  MIT raised proceeds in the aggregate amount of $4,234,392 from sale of the Units, of which $1,214,892.00 consisted of principal and accrued interest which holders of Bridge Notes converted into Units.  Meyers Associates, LP, who acted as our financial advisor, received, as part of its compensation, a five-year option to purchase up to 635 Units. at a price of $1,000 per Unit.   The holders of the Series A Preferred Stock and warrants are selling shareholders under the Registration Statement.

On October 5, 2007 the Board approved the issuance of 300,000 shares of restricted stock common stock to MedEnvVet Laboratories, Inc., pursuant to Section 4(2) of the Securities Act in consideration for an exclusive worldwide license to the intellectual property rights associated with the ProVector™, as further described in Item 1, above.  The issuance is exempt from the registration requirements of the Securities Act of 1933, as amended, by reason of Section 4(2) thereof.  The share certificates were issued November 2, 2007.

On June 7, 2007 the Board approved the issuance of 312,500 shares of restricted common stock to Arlene Wilhelm and 250,000 shares of restricted common stock to one non-management employee, pursuant to the terms of each employee’s respective employment agreement.  The issuances are exempt from the registration requirements of the Securities Act of 1933, as amended, by reason of Section 4(2) thereof.  The share certificates were issued November 20, 2007.

Pursuant to an agreement dated July 30, 2007, the Company issued Investor Relations Group a five year-warrant to purchase 250,000 shares of common stock of the Company at an exercise price of $2.20 per share.   The warrant was issued as partial consideration for public relations services to be rendered. This Warrant shall vest and become exercisable as follows:

 
1.
62,500 shares on October 31, 2007;
 
2.
62,500 shares on January 31, 2007;
 
3.
62,500 shares on April 30, 2008; and
 
4.
62,500 shares on July 30, 2008.

In the first quarter of 2009, the Board of Directors authorized the issuance of a total of 850,000 shares of common stock to Board Members and key employees valued at a price of $0.03 per share, or $25,500 total. In the fourth quarter of 2009, the Board of Directors authorized the issuance of 2,139,937 shares of common stock to Board Members valued at prices ranging from $0.04 per share to $0.76 per share, or $148,352 total.  The Company included the $173,582 estimated fair value of the shares in selling, general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2009 and increased common stock and additional paid-in capital by the same amount.

 
15

 

ITEM 6.  SELECTED FINANCIAL INFORMATION

Following is a summary of our operations and financial condition from 2008 through 2009. You are urged to review the detailed audited financial statements and accompanying footnotes for a complete understanding of our operations.
 
   
2009
   
2008
   
 
   
 
   
 
 
Net sales
  $ 6,400,042       9,510,626                          
Net income(loss) from continuing operations
  $ (1,243,665 )     (2,361,899 )                        
Net income(loss) from discontinuing operations
  $         (1,883,200 )                        
Net income(loss)
  $ (1,243,665       (4,387,853 )                        
Net income(loss) per common share
  $ (.03 )     (.09 )                        
Total assets
  $ 1,103,309       2,875,479                          
Long-term debt
  $ -       620,064                          
Working capital
  $ (2,278,070 )     (490,882 )                        
Stockholders' equity
  $ (2,347,021 )     (943,406 )                        

No cash dividends have been paid during any of the periods stated above.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS

The statements contained in this prospectus are not purely historical statements, but rather include what we believe are forward-looking statements.  The forward-looking statements are based on factors set forth in the following discussion and in the discussions under "Risk Factors" and "Business." Our actual results could differ materially from results anticipated in these forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.

Overview

Through its subsidiaries, MIT prepares intravenous medication for home infusion by the patient, operates an ambulatory center where intravenous infusions are administered and sells and rents home medical equipment.  MIT and its subsidiaries have been based in Savannah, Georgia for 19 years and operates an ambulatory care center there. Our home infusion and ambulatory center accounts for the majority of our revenues and is anticipated to be our most significant area of growth.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Our significant accounting policies are summarized in Note 1 to our audited financial statements for the year ended December 31, 2010. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

 
16

 

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). They consist mainly of pharmaceutical supplies and medical equipment.

Factored Accounts Receivable and Factoring Agreement.

MIT concluded its Factoring Agreement with Northern Healthcare in August of 2008.

 Revenue Recognition

Sales and services are recorded when products are delivered to the customers. Provision for discounts, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of the Company’s final test procedures.

Advertising Cost

Advertising cost is expensed as incurred.

Estimates

Preparing the Company’s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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 reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements

New accounting statements issued, and adopted by the Company, include the following:

In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets” - an amendment to FASB SFAS No. 140. Statement 156 requires that an entity recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a service contract under certain situations. The new standard is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS No.156 did not have a material impact on the Company's financial position and results of operations.

In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and establishes guidelines for recognition and measurement of a tax position taken or expected to be taken in a tax return. We have adopted this statement which became effective on January 1, 2007.   The Company has not made any adjustments as a result of the adoption of this interpretation.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. We are currently evaluating the impact on our consolidated financial statements of SFAS 157, which will become effective for us on January 1, 2008 for financial assets and January 1, 2009 for non-financial assets.

In February 2007, the Financial Accounting Standards Board issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 amends SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 applies to all entities, including not-for-profit organizations. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. This statement is effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. The Company has not yet determined the effect of SFAS No. 159 on its financial position, operations or cash flows.

 
17

 
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.”  It will require an acquirer to recognize, at the acquisition date, the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their full fair values as of that date. In a business combination achieved in stages (step acquisitions), the acquirer will be required to remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss in earnings. The acquisition-related transaction and restructuring costs will no longer be included as part of the capitalized cost of the acquired entity but will be required to be accounted for separately in accordance with applicable generally accepted accounting principles in the U.S. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements.” The statement clarifies the definition of a non-controlling (or minority) interest and requires that non-controlling interests in subsidiaries be reported as a component of equity in the consolidated statement of financial position and requires that earnings attributed to the non-controlling interests be reported as part of consolidated earnings and not as a separate component of income or expense. However, it will also require expanded disclosures of the attribution of consolidated earnings to the controlling and non-controlling interests on the face of the consolidated income statement. SFAS No. 160 will require that changes in a parent’s controlling ownership interest, that do not result in a loss of control of the subsidiary, are accounted for as equity transactions among shareholders in the consolidated entity therefore resulting in no gain or loss recognition in the income statement. Only when a subsidiary is deconsolidated will a parent recognize a gain or loss in net income. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008, and will be applied prospectively except for the presentation and disclosure requirements that will be applied retrospectively for all periods presented. The Company is currently evaluating the impact of SFAS No. 160 to its financial position and results of operations.

Results of Operations

Comparison of year ended December 31, 2009 to the year ended December 31, 2008.

The following tables show the operations of the Company’s reportable segments:

   
Medical
                         
       
Infusion
   
Wholesale/
   
Ambulatory
   
     
   
     
 
   
and MIT
   
International
   
Care
   
DME
   
Combined
 
2009
                             
Revenue
  $ 2,610,009     $ 0     $ 3,344,603     $ 445,430     $ 6,400,042  
Income (loss) before taxes
    (869,814 )     0       (333,626 )     (196.967 )     (1,400,407 )
Interest expense
    349,802       0       0       0       349,802  
Depreciation and amortization
    65,430       0       0       0       65,430  
Assets
    569,468       0       311,233       222,508       1,103,209  
2008
                                       
Revenue
  $ 3,751,619     $ 648,395     $ 4,222,825     $ 887,788     $ 9,510,627  
Income (loss) before taxes
    (4,156,827 )     (303,501 )     117,955       97,274       (4,245,099 )
Interest expense
    282,830       0       0       0       282,830  
Depreciation and amortization
    42,997       0       0       0       42,997  
Assets
    1,451,287       54,582       822,958       546,652       2,875,479  

 
18

 

Revenues

Consolidated revenues for the year ended 2009 were $6,400,042 as compared to $9,510,627 for the year ended December 31, 2008, representing a decrease of $3,110,584 or 32.7%. Consolidated cost of sales for the year ended December 31, 2009 were $2,662,685 or 41.6% of sales as compared to cost of sales for the year ended December 31, 2008 of $5,009,583 or 52.6% of sales. This resulted in a gross profit for the year ended December 31, 2009 of $3,737,357 or 58.4% as compared to gross profit for the year ended December 31, 2008 of $4,501,043 or 47.3%.  The decrease in our consolidated revenues for the year ended 2009 were the result of decreasing referrals and therapies administered and the discontinuance of the wholesale line of business.  The reduction and improvement in the costs of good sold and the gross profit is directly related to mail order drugs supplied by certain healthplans. For the year ended 2009, for the ambulatory division,  sales decreased by $878,222 while costs of goods sold for the division decreased by $883,707 resulting in an increase in gross profit of $5,485. Revenues for the infusion division decreased by $1,143,497 while cost of goods were reduced by $797,667 to $847,745 for the year resulting in a decrease in gross profit of $345,830.

Operating Expenses

Total operating expenses decreased $1,792,745, or a 43.7% decrease to $4,787,818 for the year ended December 31, 2009 from $6,580,563 for the year ended December 31, 2008. The decrease in operating expense is attributable to the $1,719,766 decrease in bad debt expense in 2009. . The major components of operating expense include:
  
 
Salaries and payroll related costs decreased $269,945 to $1,904,279 for the year ended December 31, 2009 as compared to $2,174,224 for the year ended December 31, 2008, a decrease of 12.4%. The decrease was due primarily to the realignment of personnel at a decreased cost.
 
 
 
Sales, general and administrative expenses increased $174,533 or 10.4% to $1,831,116 for the year ended December 31, 2009 as compared to $1,656,583 for the year ended December 31, 2008.  The increase was due primarily to a planned increase in our efforts to establish the Provector product line as a viable new product. Expenses relating to this product increased $361,336 from $21,400 to $382,736. We anticipate seeing the results of these expenditures in subsequent quarters. This increase in spending was offset by reductions in travel and related expenses and a decrease in legal and accounting fees.  Legal and professional expenses were $266,511; Travel and entertainment was $25,497; consulting fees of $267,328; outside and contract labor $108,556; license fees of $110,926. Additional expenses included office expense of $194,008; Advertising of $25,828; rent expense of $111,300; insurance expense of $139,510 and telephone of $38,886; and contract services of $271,980;
 
 
 
Depreciation and amortization increased $22,443 or 52.1% to $65,430 for the year ended December 31, 2009 as compared to $42,997 for the year ended December 31, 2008. The increase was mainly attributable to the amortization and depreciation of assets acquired.

Operating Income

Operating loss increased $1,029,058 or 49.4% to $1,050,461 for the year ended December 31, 2009 from $$2,079,519 for the year ended December 31, 2008. Operating loss as a percentage of gross revenue was -16.4% for the year ended December 31, 2008 as compared to -21.8% for the year ended December 31, 2008.

 
19

 

Income Tax

There was no tax liability for 2009 and 2008 due to losses sustained in both years.

Net income
 
As a result of the above factors, and the loss on minority investment of $1,883,200 in 2008, net loss decreased from $4,245,099 for the year ended December 31, 2008 to $1,243,365 for the year ended December 31, 2009.

Liquidity and Capital Resources

As of December 31, 2009, we had cash of $113.596, as compared to $111,337 at December 31, 2008. For the year ended December 31, 2009, net cash provided by operating activities aggregated 322,356 as compared to cash provided by operations for the year ended December 31, 20 of $383,315. As of December 31, 2008, we had cash of $111,337 as compared to a cash balance of $51,404 as of December 31, 2007.

In December 2006 and January 2007, MIT issued 11.39 units, each unit consisting of a promissory note in the amount of $100,000 and 200,000 shares of Common Stock. The subordinated promissory notes (each a “Bridge Note” and collectively, the “Bridge Notes”) bear interest at the rate of 10% per annum.  The shares of common stock issued in connection with these Bridge Notes were registered for resale in a SB-2 registration statement declared effective August 13, 2007 (the “Registration Statement”). The consideration for these Bridge Notes and the shares of Common Stock consisted of $1,000,000 in cash and $138,889 from the conversion of a previously issued promissory note. MIT has used the proceeds of this financing for working capital.  Of the aggregate $1,317,394, holders of Bridge Notes in the aggregate amount of $1,214,894 (including accrued interest of $41,739.57) converted the principal balance of their notes and accrued interest into units in our private placement Series A Convertible Preferred Stock and common stock purchase warrants (the “Private Placement”). Holders of Bridge Notes in the amount of $102,500 were paid from the proceeds of the Private Placement.

The Private Placement commenced March 19, 2007 and closed May 31, 2007.  MIT closed on an aggregate 4,234.4 units at $1000.00 per unit, each unit consisting of: (i) one share of Series A Convertible Preferred Stock convertible at the holder’s option into an aggregate of 2,000 shares of common stock, $.0001 par value at a fixed conversion price of $0.50 per share and (ii) warrants to purchase an aggregate of 2,000 shares of Common Stock exercisable for a period of five years from the effective date of the registration statement which MIT has agreed to file with respect to the shares of Common Stock, $.0001 par value, issuable upon exercise of the warrants at a fixed price of $0.75 per share (each a “Unit” and collectively, the “Units”).  MIT offered the Units to institutional and accredited investors.  MIT raised proceeds in the aggregate amount of $4,234,392 from sale of the Units, of which $1,214,892.00 consisted of principal and accrued interest which holders of Bridge Notes converted into Units.  Meyers Associates, LP, who acted as our financial advisor, received, as part of its compensation, a five-year option to purchase up to 635 Units. at a price of $1,000 per Unit.   The holders of the Series A Preferred Stock and warrants are selling shareholders under the Registration Statement.

The Company commenced a Private Placement on March 19, 2007 and it terminated on May 31, 2007. Through that period, the Company closed on an aggregate 4,234.4 units at $1000.00 per unit, each unit consisting of: (i) one share of Series A Convertible Preferred Stock convertible at the holder's option into an aggregate of 2,000 shares of common stock, $.0001 par value at a conversion price of $0.50 per share and (ii) warrants to purchase an aggregate of 2,000 shares of Common Stock exercisable for a period of five years from the effective date of the registration statement which the Company has agreed to file with respect to the shares of Common Stock, $.0001 par value, issuable upon exercise of the warrants at a price of $0.75 per share (each a "Unit" and collectively, the "Units").

On April 4, 2008, we received a letter from Northern indicating that Northern considered MIT in default of its obligations under the credit agreement, and declaring all amounts under the credit agreement due and payable in full immediately.  Subsequent to this letter, we received oral assurances from Northern that they would continue to fund MIT for an additional 60 days from April 4. On August 1, 2008, we received a term loan from Globank, Inc. in the amount of $500,000 and used the proceeds to pay off our obligation to Northern.  The term loan from Globank, Inc. matures on July 31, 2010.

 
20

 

Our inability to achieve sufficient collections on our revenues has created a liquidity challenge that raises doubt about our ability to continue as a going concern.  The auditor’s opinion which accompanies our financial statements is qualified as to our ability to continue as a going concern.

Off- Balance Sheet Arrangements
 
We are not a party to any off-balance sheet arrangements.

 
21

 

ITEM 8.  FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 
Page
   
Financial Statements
 
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2
   
Consolidated Balance Sheets as of December 31, 2009 and December 31, 2008
F-3
   
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008
F-4
   
Consolidated Statements of Stockholders’ Equity (Deficiency) for the years ended December 31, 2009 and 2008
F-5
   
Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008
F-6
   
Notes to Consolidated Financial Statements
F-7 - F-23
 
 
F-1

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of MIT Holding, Inc.

I have audited the accompanying consolidated balance sheets of MIT Holding, Inc. (the “Company”) as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders’ equity (deficiency), and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management. My responsibility is to express an opinion on these financial statements based on my audits. I also audited the adjustments described in Note O that were applied to restate the number of issued and outstanding shares of Series A Convertible Preferred Stock and the additional paid-in capital and accumulated deficit balances at December 31, 2007. In my opinion, such adjustments are appropriate and have been properly applied.

I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all material respects, the  financial position of MIT Holding, Inc. as of December 31, 2009 and 2008 and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company’s present financial situation raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 
 
/s/ Michael T. Studer CPA P.C.
Michael T. Studer CPA P.C.
 
Freeport, New York
May 19, 2010
 
F-2


MIT HOLDING, INC.
CONSOLIDATED BALANCE SHEETS

   
December 31, 2009
   
December 31, 2008
 
ASSETS
       
       (Restated)
 
CURRENT ASSETS
           
Cash and cash equivalents
  $ 113,596     $ 111,337  
Accounts receivable, net of allowance for doubtful accounts of $1,241,477 and $998,149, respectively
    657,317       2,293,779  
Inventories
    181,928       139,863  
Employee advances
    2,258       1,500  
Prepaid expenses
    40,000       161,460  
                 
Total current assets
    995,099       2,707,939  
                 
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $123,373 and $102,541, respectively
    6,039       20,871  
                 
OTHER ASSETS
               
Non-compete agreement, net of accumulated amortization of $97,929 and $53,331, respectively
    102,071       146,669  
                 
Total other assets
    102,071       146,669  
                 
TOTAL ASSETS
  $ 1,103,209     $ 2,875,479  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
CURRENT LIABILITIES
               
Accounts payable and accrued expenses
  $ 2,333,915     $ 2,565,534  
Current portion of debt
    939,254       633,287  
                 
Total current liabilities
    3,273,169       3,198,821  
                 
LONG-TERM DEBT
    -       620,064  
                 
Estimated liability for equity-based financial instruments with characteristics of liabilities: 
               
Series A Convertible Preferred stock (1,896.73 shares issued and outstanding at December 31, 2009)
    151,738       -  
Warrants
    25,323       -  
                 
TOTAL LIABILITIES
    3,450,230       3,818,885  
                 
STOCKHOLDERS' EQUITY (DEFICIENCY)
               
Preferred stock, $0.000001 par value; 5,000,000 shares authorized, 0 and 1,896.73 shares issued and outstanding at December 31, 2009 and December 31, 2008, respectively
    -       -  
Common stock, $0.000001 par value; 250,000,000 shares authorized, 51,734,571 and 48,744,634 shares issued and outstanding at December 31, 2009 and December 31, 2008, respectively
    52       49  
Additional paid-in capital (as restated at December 31, 2008 - note O)
    6,258,962       8,956,429  
Retaining Earnings (accumulated deficit) (as restated at December 31, 2008 - note O)
    (8,606,035 )     (9,899,884 )
                 
Total stockholders' equity (deficiency)
    (2,347,021 )     (943,406 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  $ 1,103,209     $ 2,875,479  

The accompanying notes are an integral part of these statements.

 
F-3

 
 
MIT HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

   
December 31, 2009
   
December 31, 2008
 
         
     
 
Revenue
           
             
Sales and services rendered
  $ 6,400,042     $ 9,510,627  
                 
Cost of medical supplies
    2,662,685       5,009,583  
                 
Gross profit
    3,737,357       4,501,044  
                 
Operating Expenses
               
Salaries and payroll cost
    1,904,279       2,174,224  
Selling, general and administrative
    1,831,116       1,656,583  
Provision for doubtful accounts
    986,993       2,706,759  
Depreciation and amortization
    65,430       42,997  
                 
Total operating expenses
    4,787,818       6,580,563  
                 
Income (loss) from operations
    (1,050,461 )     (2,079,519 )
                 
Other income (expense):
               
Income (expense) from revaluation of equity-based financial instruments with characteristics of liabilities at fair values
    156,741       -  
Interest expense
    (349,945 )     (282,380 )
Loss on minority interest in foreign corporation
    -       (1,883,200 )
                 
Income (loss) before provision for income taxes
    (1,243,665 )     (4,245,099 )
                 
Provision for income taxes
    -       -  
                 
Net income (loss)
    (1,243,665 )     (4,245,099 )
                 
Increase in cumulative dividends payable on Series A Preferred Stock
    113,804       113,804  
                 
Net income (loss) atributable to common stockholders
  $ (1,357,469 )   $ (4,358,903 )
                 
Net income (loss) per common share:
               
Basic and diluted
  $ (0.03 )   $ (0.09 )
                 
Weighted average number of common shares outstanding:
               
Basic and diluted
    49,452,967       48,687,134  

The accompanying notes are an integral part of these statements.

 
F-4

 

MIT HOLDING, INC.

CONSOLIDATED  STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
(Restated)

   
Series A Convertible
               
Retained
   
Total
 
   
Preferred Stock,
$.000001 par value
   
Common Stock ,
$.000001 par value
   
Additional
Paid-in
   
Earnings
(Accumulated
   
Stockholders’
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit)
   
(Deficiency)
 
                                                         
Balance at December 31, 2007 (as restated – note O)
    1,949.23     $ -       48,639,634     $ 49       8,956,429     $ (5,654,785 )   $ 3,301,693  
                                                         
Conversion of preferred stock into common stock
    (52.50 )     -       105,000       -       -       -       -  
                                                         
Net loss for the year ended December  31, 2008
 
-
   
-
   
-
   
-
   
-
   
(4,245,099
 
(4,245,099
                                                         
Balance at December 31, 2008 (as restated – note O)
    1,896.73       -       48,744,634       49       8,956,429       (9,899,884 )     (943,406 )
                                                         
Cumulative effect of change in accounting principle relating to reclassification of Series A Convertible Preferred Stock and warrants from stockholders’ equity to liabilities (note H)
    (1,896.73 )  
-
   
-
   
-
   
(2,871,316
    2,537,514    
(333,802
                                                         
Balance at January 1, 2009 (after cumulative effect adjustment)
    -       -       48,744,634       49       6,085,113       (7,362,370 )     (1,277,208 )
                                                         
Issuance of common stock for services in first quarter 2009
    -       -       850,000       1       25,499       -       25,500  
                                                         
Issuance of common stock for services in fourth quarter 2009
    -       -       2,139,937       2       148,350       -       148,352  
                                                         
Net loss for the year ended December 31, 2009
 
-
   
-
   
-
   
-
   
-
   
(1,243,665
 
(1,243,665
                                                         
Balance at December 31, 2009
    -     $ -       51,734.571     $ 52     $ 6,258,962     $ (8,606,035 )   $ (2,347,021 )

The accompanying notes are an integral part of these statements.

 
F-5

 

               MIT HOLDING, INC.

CONSOLIDATED  STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

   
December 31, 2009
   
December 31, 2008
 
 
       
 
 
OPERATING ACTIVITIES
               
Net income (loss)
  $ (1,243,665 )   $ (4,245,099 )
Adjustments to reconcile net income (loss) to cash provided by (used for) operating activities:
               
Income from revaluation of equity-based financial instruments with characteristics of liabilities at fair values
    (156,741 )     -  
Depreciation and amortization
    65,430       42,997  
Issuance of common stock for services
    173,852       -  
Provision for doubtful accounts
    986,993       2,706,759  
Loss on minority interest in foreign corporation
    -       1,883,200  
Changes in operating assets and liabilities:
               
Receivables
    649,469       (209,013 )
Inventories
    (42,065 )     120,889  
Prepaid expenses
    121,460       (161,460 )
Employee advances
    (758 )     (1,500 )
Notes receivable
    -       59,255  
Healthcare Reserve
            (87,382 )
Accounts payable and accrued expenses
    (231,619 )     417,034  
Litigation payable
    -       (101,209 )
Notes payable
    -       -  
Income taxes payable
    -       (41,156 )
                 
Cash provided by operating activities
    322,356       383,315  
                 
INVESTING ACTIVITIES
               
Capital expenditures
    (6,000 )     (30,885 )
                 
Cash used for investing activities
    (6,000 )     (30,885 )
                 
FINANCING ACTIVITIES
               
Proceeds from notes
    -       853,064  
Repayment of debt
    (314,097 )     (1,145,561 )
                 
Cash used for financing activities
    (314,097 )     (292,497 )
                 
NET INCREASE (DECREASE) IN CASH
    2,259       59,933  
                 
CASH BALANCE BEGINNING OF PERIOD
    111,337       51,404  
                 
CASH BALANCE END OF PERIOD
  $ 113,596     $ 111,337  
                 
Supplemental Disclosures:
               
Interest
  $ 331,811     $ 185,402  
Taxes
  $ -     $ 68,659  

The accompanying notes are an integral part of these statements.

 
F-6

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.
Nature of Operations/ Basis of Presentation

Nature of Operations

MIT Holding, Inc., a Delaware corporation, is a holding company. Through three wholly-owned subsidiaries, MIT distributes wholesale pharmaceuticals, administers intravenous infusions, operates an ambulatory center where therapies are administered and sells and rents home medical equipment. Medical Infusion Technologies, Inc. was incorporated in November 1991 in the state of Georgia. On July 6, 2006, an agreement and plan of merger was made between MIT Holding, Inc., a Delaware corporation, Medical Infusion Technologies, Inc., and MIT Acquisition A, Inc. By this agreement, MIT Holding, Inc. became the parent company and Medical Infusion Technologies, Inc. and MIT Ambulatory Care Center, Inc., the wholly-owned subsidiaries.

MIT Holding, Inc. Merger with Convention All Holdings, Inc.

Our company was formerly known as Convention All Holdings, Inc. and, on May 2, 2007, we acquired a 100% ownership interest in MIT Holding, Inc. through a merger of MIT Holding, Inc. with and into MIT CVAH Acquisition Corp, a newly formed Delaware corporation and wholly-owned subsidiary, in exchange for 32,886,779 shares of our common stock. Simultaneously with the Merger, the company formerly known as MIT Holding, Inc. changed its name to Medical Infusion Group, Inc., and we changed our name to MIT Holding, Inc. As a result of the Merger, we now own 100% of Medical Infusion Group, Inc., a Delaware corporation, which, in turn, continues to own 100% of the issued and outstanding shares of capital stock of MIT Ambulatory Care Center, Inc., a Georgia corporation ("Ambulatory"), Medical Infusion Technologies, Inc., a Georgia corporation (“Infusion”) and MIT International Distribution, Inc., a Delaware corporation (“MIT International”).

 
F-7

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
 POLICIES (continued)

Basis of Presentation

 The preparation 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 reporting period. Actual results could differ from those estimates. These financial statements have been reformatted to be consistent with reports issued this calendar year.  The changes reflected in these statements have no material effect on net loss.
 
2.
Cash Equivalents

Investments having an original maturity of 90 days or less that are readily convertible into cash are considered cash equivalents. The Company had no cash equivalents as of December 31, 2009 and December 31, 2008.

3.
Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, net, accounts payable and accrued expenses, and debt.  The fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments or based upon market quotations or quotations of instruments with similar interest rates and similar maturities.

4. 
Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). They consist mainly of pharmaceutical supplies and medical equipment.

 
F-8

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
 POLICIES (continued)

5.   Property and Equipment

Property and equipment are stated at cost and are depreciated principally on methods and at rates designed to amortize their costs over their estimated useful lives.

The estimated service lives of property and equipment are principally as follows:
Furniture and fixtures
 
5- 7 years
Computer equipment
 
3- 7 years
Vehicles
 
5- 7 years

Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized.

6.
Long-Lived Assets

Property and equipment and other long-lived assets, including non-compete agreements, are evaluated for impairment whenever events or conditions indicate that the carrying value of an asset may not be recoverable, but not less than annually.  If the sum of undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets.

7. 
Revenue Recognition

Sales and services are recorded when products are delivered to the customers. Provision for discounts, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of the Company’s final test procedures.

8.
Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) 718, “Compensation- Stock Compensation”.

 
F-9

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
 POLICIES (continued)

In addition to requiring supplemental disclosures, ASC 718, Compensation – Stock Compensation, addresses the accounting for share-based payment transactions in which a company receives goods in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments.  FASB ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.

References to the issuances of restricted stock refer to stock of a public company issued in private placement transactions to individuals who are eligible to sell all or some of their shares of restricted Common Stock pursuant to Rule 144 promulgated under the Securities Act of 1933 (“Rule 144”), subject to certain limitations.  In general, pursuant to Rule 144, a stockholder who is not an affiliate and has satisfied a six-month holding period may sell all of his restricted stock without restriction, provided that the Company has current information publicly available.  Rule 144 also permits, under certain circumstances, the sale of restricted stock, without any limitations, by a non-affiliate of the Company that has satisfied a one-year holding period.

9. 
Advertising Costs

Advertising costs are expensed as incurred. Advertising expense totaled $ 21,348 for the year ended December 31, 2009 and $ 22,139 for the year ended December 31, 2008.

10.
Income Taxes

Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements by applying enacted statutory tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized.  Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

11.
Net Income (Loss) per Common Share

Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as warrants and convertible securities) outstanding.  Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.

 
F-10

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 
          
NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
 POLICIES (continued)

For the years ended December 31, 2009 and 2008, diluted weighted average number of common shares outstanding exclude 3,793,460 shares issuable on conversion of Series A Preferred Stock and 8,418,780 shares issuable on exercise of outstanding warrants.

12.
Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

13.
Recent Accounting Pronouncements

Effective for interim and annual periods ending after September 15, 2009,  the FASB Accounting Standards Codification (the “Codification”) is the single source of authoritative literature  of U.S. generally accepted accounting principles (“GAAP”).  The Codification consolidates all authoritative accounting literature into one internet-based research tool, which supersedes all preexisting accounting and reporting standards, excluding separate rules and other interpretive guidance released by the SEC.  New accounting guidance is now issued in the form of Accounting Standards Updates, which update the Codification.  The adoption of the Codification did not result in any change in the Company’s significant accounting policies.

In May 2009, the FASB issued standards that establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.   These standards require the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether the date represents the date the financial statements were issued or were available to be issued.  This standard is effective in the first interim period ending after June 15, 2009.  This standard did not have any significant impact on disclosures in the Company’s consolidated financial statements.

In June 2009, the FASB issued authoritative guidance which eliminates the exemption for qualifying special-purpose entities from consolidation requirements, contains new criteria for determining the primary beneficiary of a variable interest entity, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity.  The guidance is applicable for annual periods beginning after November 15, 2009 and interim periods therein and thereafter.  The Company does not expect the adoption of this standard to have a material effect on its consolidated financial position or results of operations.

 
F-11

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

NOTE A – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
  POLICIES (continued)

In June 2009, the FASB issued authoritative guidance which eliminates the concept of a qualifying special-purpose entity, creates more stringent for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets.  The guidance is applicable for annual periods beginning after November 15, 2009 and interim periods therein and thereafter.  The Company does not expect the adoption of this standard to have a material effect on its consolidated financial position and results of operations.

Certain other accounting pronouncements have been issued by FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company.  The impact on the Company’s consolidated financial position and results of operations from adoption of these standards is not expected to be material.

NOTE B—GOING CONCERN

There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. Although we had revenues of $ 6,400,042 for the year 2009 and had receivables of $ 657,317 as of December 31, 2009, our inability to achieve sufficient collections on our revenues has created a liquidity challenge that raises doubt about our ability to continue as a going concern.  The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing stockholders.

The accompanying financial statements do not include any adjustments related to the recoverability of classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 
F-12

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

NOTE C – ACCOUNTS RECEIVABLE

Accounts receivable consist of:
   
December 31,
 
   
2009
   
2008
 
Ambulatory care
  $ 526,744     $ 940,936  
Infusions
    797,502       1,392,850  
Durable medical equipment
    523,078       703,560  
Wholesale
    51,470       254,582  
                 
Total
    1,898,794       3,291,928  
                 
Allowance for doubtful accounts
    (1,241,477 )     (998,149 )
                 
Net
  $ 657,317     $ 2,293,779  

The allowance for doubtful accounts changed as follows:

   
Year Ended December 31,
 
   
2009
   
2008
 
Balance, beginning of year
  $ 998,149     $ -  
Provision for doubtful accounts
    986,993       2,706,759  
Writeoffs
    (743,665 )     (1,708,610 )
                 
Balance, end of year
  $ 1,241,477     $ 998,149  
 
 
F-13

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
December 31, 2009
 

NOTE D – INVENTORIES

Inventories consist of:

   
December 31,
 
   
2009
   
2008
 
Ambulatory care
  $ 81,868     $ 62,938  
Infusions
    63,675       48,952  
Durable medical equipment
    36,385       27,973  
Wholesale
    -       -  
                 
Total
  $ 181,928     $ 139,863  

NOTE E – MINORITY INTEREST IN FOREIGN CORPORATION

On December 20, 2007, the Company entered into a business development and consulting agreement with Miura Enterprises, S.A. (“Miura”) of the Dominican Republic whereby we exchanged the account receivable from our Dominican customer for an 18% equity ownership in Miura.  One of Miura’s task was to assist the Company in the collection of this account receivable and we were to receive up to 80% of the amount collected.  As of December 31, 2008, none of the receivable was collected and the Company had ceased operations in the Dominican Republic.  Accordingly, the Company recognized a $1,883,200 loss and reduced the carrying value of its investment to 0.

NOTE F – NON-COMPETE AGREEMENT

 Non-compete agreement consists of:

   
December 31,
 
   
2009
   
2008
 
Consideration to seller of Infusion and Ambulatory (and Company's chief operating officer) attributable to non-compete agreement executed May 10, 2005
  $ 200,000     $ 200,000  
                 
Accumulated amortization
    (97,929 )     (53,331 )
                 
Total
  $ 102,071     $ 146,669  

The non-compete agreement is being amortized over the estimated remaining period of the agreement (see Note N).

 
F-14

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

NOTE G – DEBT
 
The Company’s debt is as follows:

   
December 31,
   
December 31,
 
   
2009
   
2008
 
Globank, Inc., interest at 60% payable monthly, due in full on July 29, 2010, secured by guaranties of the Company’s chief executive officer and the Company’s three subsidiaries
  $ 500,000     $ 500,000  
                 
The Coastal Bank - installment loan, interest at 10%, initially due September 28, 2008, now informally due in monthly installments of principal and interest of $10,000 through April 20, 2011, secured by Company assets and guaranty of the Company’s Chief Executive Officer
    146,038       261,083  
                 
The Coastal Bank – vehicle loans, interest at rates ranging from 6.5% to 8.22%, due in monthly installments of principal and interest through November 21, 2010
    8,151       27,203  
                 
CuraScript (former supplier) pursuant to Settlement Agreement, interest at 0%, due in monthly installments of $15,000 through July 15, 2010
    142,565       300,064  
                 
Note for legal fees, interest at 0%, past due
    142,500       165,000  
                 
Total
    939,254       1,253,351  
                 
Current portion of debt
    939,254       633,287  
                 
Long – term debt
  $ -     $ 620,064  

NOTE H – ESTIMATED LIABILITY FOR EQUITY-BASED FINANCIAL INSTRUMENTS
 WITH CHARACTERISTICS OF LIABILITIES

Effective January 1, 2009, in accordance with EITF Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock”, the Company reclassified the fair values at January 1, 2009 of the outstanding Series A Convertible Preferred Stock and warrants from the private placement of the units which closed May 31, 2007 from stockholders’ equity to liabilities, as follows:

 
F-15

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

   
Common
       
   
Shares
   
Fair
 
   
Equivalent
   
Value
 
Series A Convertible Preferred Stock
    3,793,460     $ 227,608  
Warrants
    8,168,780       106,194  
                 
Total financial instruments
    11,962,240     $ 333,802  

Since at January 1, 2009 the carrying value of the outstanding financial instruments was $2,871,316, the Company recognized a cumulative effect adjustment resulting from a change in accounting principle of $2,537,514.  Accordingly, the accumulated deficit balance at December 31, 2008 was decreased from $9,899,884 to $7,362,370, as adjusted, on January 1, 2009.

The characteristics which require classification of the Series A Preferred Stock and warrants as liabilities are the Company’s obligations to reduce the conversion price of the Series A Preferred Stock and the exercise price of the warrants in the event that the Company sells, grants, or issues any nonexcluded shares, options, warrants, or any convertible instrument at a price below the $0.50 current conversion price of the Series A Preferred Stock.  As a result, the Company remeasures the fair values of these financial instruments each quarter, adjusts the liability balances, and reflects changes in operations as “income (expense) from revaluation of equity-based financial instruments with characteristics of liabilities at fair values”.

At December 31, 2009, the fair values of the financial instruments consisted of:

   
Common
       
   
Shares
   
Fair
 
   
Equivalent
   
Value
 
Series A Convertible Preferred Stock
    3,793,460     $ 151,738  
Warrants
    8,168,780       25,323  
                 
Total financial instruments
    11,962,240     $ 177,061  

Below is a reconciliation of the change in the fair values of the financial instruments from January 1, 2009 through December 31, 2009:

 
F-16

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

   
Common
       
   
Shares
   
Fair
 
   
Equivalent
   
Value
 
Balance, January 1, 2009
    11,962,240     $ 333,802  
Revaluation credited to operations
    -       (164,271 )
Balance, March 31, 2009
    11,962,240       169,531  
Revaluation charged to operations
    -       789,139  
Balance, June 30, 2009
    11,962,240       958,670  
Revaluation credited to operations
    -       (403,695 )
Balance, September 30, 2009
    11,962,240       554,975  
Revaluation credited to operations
    -       (377,914 )
                 
Balance, December 31, 2009
    11,962,240     $ 177,061  

NOTE I – PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of Preferred Stock, of which 5,000 shares have been designated Series A Preferred Stock, par value $ 0.000001. As of December 31, 2009 and December 31, 2008, there are 1,896.73 shares of Series A Preferred Stock issued and outstanding. Holders of Series A Preferred Stock are entitled at any time to convert their shares of Series A Preferred Stock into Common Stock, without any further payment therefore. Each share of Series A Preferred Stock is initially convertible into 2,000 shares of Common Stock, equivalent to a Conversion Price of $0.50 per share. The number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock is subject to adjustment upon the occurrence of certain events, including, among others, a stock split, reverse stock split or combination of MIT's Common Stock; an issuance of Common Stock or other securities of MIT as a dividend or distribution on the Common Stock; a reclassification, exchange or substitution of the Common Stock; or a capital reorganization of MIT. In the event that MIT issues any additional shares of its Common Stock following the Offering, the Conversion rate will be that number of shares of Common Stock equal to $1,000 divided by the price per share at which MIT issues Common Stock in such offering. At our option, following the effectiveness of a registration statement registering the shares of Common Stock issuable upon the conversion of the Series A Preferred Stock and the exercise of the Warrants, if the price of the Common Stock trades above 300% of the Conversion Price per share during any period of 30 consecutive trading days and the average trading volume is at least 50,000 shares per day, for such 30 day period, each share of Series A Preferred Stock can be automatically converted into Common Stock at the Conversion Rate then in effect.

The liquidation preference amount of each share of Series A Preferred Stock is $1,000, or a total of $1,896,730 for the 1,896.73 shares issued and outstanding as of December 31, 2009 and December 31, 2008.

 
F-17

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

As part of its private placement of the Units (including the Series A Preferred Stock) which closed May 31, 2007, the Company granted a financial advisor a five-year option to purchase up to 635 units (comprised of 635 shares of Series A Preferred Stock and warrants to purchase up to 1,270,000 shares of common stock at an exercise price of $0.75 per share to August 13, 2012) at a price of $1,000 per Unit.

Dividends accrue on the Series A Preferred Stock at the rate of 6% per annum and are cumulative.  If and when declared, the Company may pay such dividends in cash or common stock.   The cumulative undeclared and unpaid dividends are $295,831 and $182,027 at December 31, 2009 and December 31, 2008, respectively.

NOTE J – ISSUANCE OF COMMON STOCK

In the first quarter of 2009, the Board of Directors authorized the issuance of a total of 850,000 shares of common stock to Board Members and key employees valued at a price of $0.03 per share, or $25,500 total. In the fourth quarter of 2009, the Board of Directors authorized the issuance of 2,139,937 shares of common stock to Board Members valued at prices ranging from $0.04 per share to $0.76 per share, or $148,352 total.  The Company included the $173,582 estimated fair value of the shares in selling, general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2009 and increased common stock and additional paid-in capital by the same amount.

NOTE K – STOCK OPTIONS AND COMMON STOCK PURCHASE WARRANTS

A summary of stock options and warrants activity for the years ended December 31, 2009 and 2008 follows:

   
Common Shares Equivalent
 
   
Stock
       
   
Options
   
Warrants
 
Outstanding at December 31, 2007
    600,000       8,418,780  
Granted and issued
    -       -  
Exercised
    -       -  
Forfeited/expired/cancelled
    -       -  
                 
Outstanding at December 31, 2008
    600,000       8,418,780  
Granted and issued
    -       -  
Exercised
            -  
Forfeited/expired/cancelled
    -       -  
                 
Outstanding at December 31, 2009
    600,000       8,418,780  
 
 
F-18

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

Stock options outstanding at December 31, 2009 and 2008 are:

Date Granted
 
Number
Outstanding
   
Number
Exercisable
   
Exercise
Price
 
Expiration
Date
                           
May 2, 2007
    600,000       600,000     $ 0.50  
May 2, 2012
                           
Totals
    600,000       600,000            

Common stock purchase warrants outstanding at December 31, 2009 and December 31, 2008 are:

Date Granted
 
Number Outstanding
   
Exercise Price
 
Expiration Date
May 31, 2007
    8,168,780     $ 0.75  
August 13, 2012
July 30, 2007
    250,000     $ 2.20  
July 30, 2012
                   
Total:
    8,418,780            

NOTE L – INCOME TAXES

Expected income tax expense (benefit) computed by applying the United States statutory income tax rate of 34% to pretax income (loss) differs from the Company’s provision for (benefit from) income taxes, as follows:
   
Year Ended
   
Year Ended
 
   
December 31, 2009
   
December 31, 2008
 
                 
Expected income tax expense (benefit) at 34%
  $ (422,846 )   $ (1,443,333 )
Non-deductible stock-based compensation
    59,110       -  
Non-taxable income from revaluation of equity-based  financial instruments with characteristics of liabilities at fair values
    (53,292 )     -  
Change in valuation allowance
    417,028       1,443,333  
                 
Provision for income taxes
  $ -     $ -  
 
 
F-19

 

MIT HOLDING, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009
 

The components of net deferred income tax assets are as follows:

   
December 31, 2009
   
December 31, 2008