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EX-10 - Medytox Solutions, Inc.msi8k110411ex102.txt
EX-10 - Medytox Solutions, Inc.msi8k110411ex101.txt

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

                                   FORM 8-K

                                CURRENT REPORT
    Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

                               November 4, 2011
               Date of Report (Date of earliest event reported)

                            Medytox Solutions, Inc.
            (Exact name of registrant as specified in its charter)

                                    Nevada
                (State or Other Jurisdiction of Incorporation)

                                   000-54346
                           (Commission File Number)

                                  54-2156042
                       (IRS Employer Identification No.)

       400 S. Australian Ave., Suite 800, West Palm Beach, Florida 33401
             (Address of Principal Executive Offices and Zip Code)

                                (954) 684-8288
             (Registrant's Telephone Number, Including Area Code)


Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:

[__]	Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)

[__]	Soliciting material pursuant to Rule 14a-12 under the Exchange Act
	(17 CFR 240.14a-12)

[__]	Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))

[__]	Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c)

Section 1 - Registrant's Business and Operations
Item 1.01 Entry into a Material Definitive Agreement.


Acquisition of Trident Laboratories, Inc. As previously reported on October 26, 2011, Medytox Institute of Laboratory Medicine, Corp. ("Medytox"), a wholly owned subsidiary of registrant, Casino Players, Inc. (the "Company"), entered into an agreement (the "Agreement") for the purchase of up to eighty-one percent (81%) of the issued and outstanding equity ownership interests of Trident Laboratories, Inc. ("Trident") from its shareholders ("Shareholders"). Trident is a Florida corporation maintaining its principal place of business at 6011 Rodman Street, Suite 107, Hollywood, Florida 33032. As of the signing of the agreement, Trident assigned 49% of the stock to escrow for the benefit of Medytox and consented to perform testing on behalf of Medytox. Upon payment of the $500,000 note Medytox will receive the 49% of the stock plus an additional 32% from the shareholders of Trident and Medytox will own 81% of the Trident. Until the note is paid in full the former shareholders of Trident will be allowed to keep 100% of the profits of their existing and future non-Medytox testing after a fair allocation of operating costs. Medytox offers to purchase the remaining 19% from the shareholders of Trident, after 24 months of combined operations, for consideration equal to three (3) times the annual profits as determined from audited financial statements. This offer expires after 36 months. The Company filed audited financial statements for the years ended December 31, 2010 via Form 8-K on November 4, 2011. Trident was organized in December 2009 and started operations in March 2010. Only the 2010 statements were audited. The balances at August 22, 2011 are as yet unaudited. Medytox. accounted for the assets, liabilities and ownership interests in accordance with the provisions of ASC 805, Business Combinations for acquisitions occurring in years beginning after December 15, 2008 (formerly SFAS No. 141R, Business Combinations). As such, the recorded assets and liabilities acquired have been recorded at fair value and any difference in the net asset values and the consideration given has been recorded as a gain on acquisition or as goodwill. The unaudited values as of the date of agreement are as follows: 2
August 22, 2011 (Unaudited) Cash $848 Accounts receivable 119,477 Other current assets 24,596 Fixed assets 131,714 Goodwill 500,000 - Total assets purchased $776,636 Account Payables $44,861 Accrued liabilities 11,287 Related party loans 72,091 LT Liabilities 50,799 Equity 97,598 Note 500,000 Total liabilities assumed and consideration given $776,636 Pro forma results of operations for the years ended December 31, 2010 and 2009 as though this acquisition had taken place at January 1, 2009 are as follows: Year ended December 31, 2009 Year ended December 31, 2010 Revenues $11,082 $415,823 Net Income (loss) $(54,500) $(225,643) Earnings per share $(0.00) $(0.01) The unaudited balance sheet and pro forma results disclosed in the tables above are based on various assumptions and are not necessarily indicative of the results of the financial position or operations that would have occurred had the Company completed this acquisition on January 1, 2009 or 2010. The acquired balance sheet above is subject to revision during the year end audit. Acquisition of Medical Billing Choices, Inc. As previously reported, on October 27, 2011, Medytox Solutions, Inc. (OTCBB: "MMMS"), f/k/a Casino Players, Inc. (the "Company",), entered into an agreement (the "Agreement") for the purchase of all issued and outstanding equity ownership interests of Medical Billing Choices, Inc. a/k/a TA ARC Medical Billing ("MBC") from its shareholders ("Shareholders"). MBC is a corporation maintaining its principal place of business at 814 Tyvola Road, Suite 116, Charlotte, North Carolina 28217. As of the signing of the agreement, MBC assigned 49% of the stock to escrow for the benefit of the Company and assumed the duties of billing the medical services provided by any subsidiary of the Company. Upon payment of the $750,000 note the Company will receive the 49% of the stock and the remaining 51% from the shareholders of MBC and the Company will own 100% of the MBC. Until the note is paid in full the former shareholders of MBC will be allowed to keep 100% of the profits of their existing and future non- Company billings. The Company filed audited financial statements for the years ended December 31, 2010 and December 31, 2009 via Form 8-K on November 4, 2011. The balances at August 22, 2011 are as yet unaudited. The Company accounted for the assets, liabilities and ownership interests in accordance with the provisions of ASC 805, Business Combinations for acquisitions occurring in years beginning after December 15, 2008 (formerly SFAS No. 141R, Business Combinations). As such, the recorded assets and liabilities acquired have been recorded at fair value and any difference in the net asset values and the consideration given has been recorded as a gain on acquisition or as goodwill. The unaudited values as of the date of agreement are as follows: 3
August 22, 2011 (Unaudited) Cash $80,073 Accounts receivable 15,550 Fixed assets 51,897 Goodwill 812,688 - Total assets purchased $960,208 Accrued liabilities $58,160 LT Liabilities 52,048 Cash paid 100,000 Installment note given 750,000 - Total liabilities assumed and consideration given $960,208 Pro forma results of operations for the years ended December 31, 2010 and 2009 as though this acquisition had taken place at January 1, 2009 are as follows: Year ended December 31, 2009 Year ended December 31, 2010 Revenues $501,092 $422,810 Net Income (loss) $(42,374) $(358,350) Earnings per share $(0.00) $(0.01) The unaudited balance sheet and pro forma results disclosed in the tables above are based on various assumptions and are not necessarily indicative of the results of the financial position or operations that would have occurred had the Company completed this acquisition on January 1, 2009 or 2010. The acquired balance sheet above is subject to revision during the year end audit. Pro-forma results of the acquisitions of Medical Billing Choices, Inc and Trident Laboratories, Inc by Medytox Solutions, Inc and Subsidiary Pro forma results of operations for the years ended December 31, 2010 and 2009 as though both acquisition had taken place at January 1, 2009 are as follows: Year ended December 31, 2009 Year ended December 31, 2010 Revenues $501,092 $761,042 Net Income (loss) $(42,374) $(256,952) Earnings per share $(0.00) $(0.01) Shares outstanding 30,456,700 32,465,300 Section 2 - Financial Information Item 2.01 Completion of Acquisition of Disposition of Assets. See above. 4
The Trident Laboratories, Inc. Acquisition Shareholders involved in the transaction include Michele M. Steegstra, Christopher K. Hawley, Donnette W. Hawley, Skyler V. Lukas and Michael J. Falestra. There are no material relationships between the Company, Medytox or their respective affiliates and any of the parties to the Agreement, other than with respect to the Agreement. The Medical Billing Choices, Inc. Transaction The sole Shareholder of Medical Billing Choices, Inc. who entered into the agreement to sell his shares of common stock is Mike Nicholson. There are no material relationships between the Company, or its affiliates and any of the parties to the Agreement, other than with respect to the Agreement. The funds utilized to date in effectuating the purchase were derived from operating revenue of Company subsidiary, Medytox Institute of Laboratory Medicine, Inc. and a loan received from an unaffiliated entity known as Valley View Drive Associates, LLC, a New Jersey limited liability company. Section 9 - Financial Statements and Exhibits Item 9.01 Financial Statements and Exhibits. (a) Exhibit 10.1 - Agreement between Trident Laboratories, Inc., et al. and Medytox Institute of Laboratory Medicine, Corp. dated August 22, 2011. (b) Exhibit 10.2 - Agreement between Medical Billing Choices, Inc., et al. and Casino Players, Inc. n/k/a Medytox Solutions, Inc. dated August 22, 2011. (c) Financial Statements of Trident Laboratories, Inc. (d) Financial Statements of Medical Billing Choices, Inc. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. MEDYTOX SOLUTIONS, INC. DATED: November 4, 2011. By: /s/: William G. Forhan William G. Forhan, CEO, CFO and Chairman, (Principal Executive Officer) (Principal Financial and Accounting Officer) 5
Trident Laboratories, Inc. Financial Statements December 31, 2010 F-1
Table of Contents Report of Independent Registered Public Accounting Firm 2 Balance Sheet as of December 31, 2010 3 Statements of Operations and Changes in Stockholders' Equity For the year ended December 31, 2010 4 Statements of Cash Flows for the year ended December 31, 2010 5 Notes to the Financial statements 6 - 11 F-2
Peter Messineo Certified Public Accountant 1982 Otter Way Palm Harbor FL 34685 peter@pm-cpa.com T 727.421.6268 F 727.674.0511 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Trident Laboratories, Inc.: I have audited the accompanying balance sheet of Trident Laboratories, Inc. as of December 31, 2010 and the related statements of operations and changes in stockholders' equity and cash flows for the year 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 audit. I conducted my audit 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. The Company is not required at this time, to have, nor was I engaged to perform an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal controls over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provided 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 Trident Laboratories, Inc. as of December 31, 2010 and the results of its operations for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Peter Messineo, CPA Peter Messineo, CPA Clearwater, Florida November 4, 2011 F-3
Trident Laboratories, Inc. Balance Sheet December 31, 2010 Assets Current assets Cash $69 Accounts receivable 119,476 Other current assets 4,000 Total current assets 123,545 Property & equipment, net of accumulated depreciation of $1,278 76,661 Total Assets $200,206 Liabilities and Stockholders' Equity Current liabilities Accounts payable $24,878 Accrued expenses 10,230 Notes payable 19,544 Total current liabilities 54,652 Notes payable, net of current portion 44,156 Total liabilities 98,808 Stockholders' Equity Common stock, no par value, 1,000 shares authorized; 1,000 issued and outstanding 1,000 Subscriptions receivable (1,000) Retained earnings 101,398 Total stockholders' equity 101,398 Total Liabilities and Stockholders' Equity $200,206 The accompanying notes are an integral part of these financial statements. F-4
Trident Laboratories, Inc. Statement of Operations For the Year Ended December 31, 2010 Revenues $338,232 Operating expenses: Compensation 105,159 Consulting 29,070 Professional fees 1,000 General and administrative 100,327 Amortization and depreciation 1,278 Total operating expenses 236,834 Net income from operations before income taxes 101,398 Provision for income taxes - Net income $101,398 The accompanying notes are an integral part of these financial statements. F-5
Trident Laboratories, Inc. Statement of Stockholders' Equity Stock- Common Subscription Retained Holders' shares Value Receivable Earnings Equity Balance at December 31, 2009 - $- $- $- $- Initial capitalization 1,000 1,000 (1,000) - Net income 101,398 101,398 Balance at December 31, 2010 1,000 $1,000 $(1,000) $101,398 $101,398 The accompanying notes are an integral part of these financial statements. F-6
Trident Laboratories, Inc. Statement of Cash Flows For the Year Ended December 31, 2010 Cash Flows from Operating Activities: Net income $ 101,398 Adjustment to reconcile net income to net cash provided by operations: Depreciation 1,278 Changes in assets and liabilities: Accounts receivable (119,477) Other current assets (4,000) Accounts payable 24,878 Accrued expenses 10,231 Net Cash Provided by Operating Activities 14,308 Cash Flows from Investing Activities: Purchase of property and equipment (14,239) Net Cash (Used) in Operating Activities (14,239) Net increase in Cash 69 Cash at beginning of period - Cash at end of period $69 Supplemental cash flow information: Interest paid $- Taxes paid $- Non-cash transactions: Purchase of vehicle through direct financing $63,700 The accompanying notes are an integral part of these financial statements. F-7
TRIDENT LABORATORIES, INC NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2010 and 2009 1. Description of Business Trident Laboratories, Inc., ("Trident" or the "Company") was organized under the laws of Florida in December 2009, with an effective date of January 1, 2010. The Company started operations in May 2010 as a medical testing laboratory. The Company performs testing on a contract basis for medical and business entities through-out Florida. The Company operates as an S- Corporation for corporate tax purposes. 2. Accounting Policies and Basis of Presentation Basis of Presentation The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States. Use of Estimates The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Financial Instruments The carrying amounts of cash, receivables and current liabilities approximated fair value due to the short-term maturity of the instruments. Debt obligations, when present, are carried at cost, which approximate fair value due to the prevailing market rate for similar instruments. Fair Value Measurement All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements. This value was evaluated on a recurring basis (at least annually). Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs were used to measure fair value. * Level 1: Quotes market prices in active markets for identical assets or liabilities. * Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data. * Level 3: Unobservable inputs that were not corroborated by market data. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash deposits in major financial institutions in the United States. At times deposits within a bank may exceed the amount of insurance provided on such deposits. Generally, these deposits are redeemed upon demand and, therefore, are considered by management to bear minimal risk. F-8
Accounts Receivable Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities in each of the Company's market segments. The Company considers accounts more than 90 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable. The Company considers all accounts receivable to be collectable and consequently has provided no allowance for doubtful accounts. A portion of the receivables are with governmental payers and subject to periodic review and adjustment. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by applying the straight-line method to the estimated useful lives of the related assets. Useful lives range from 3 to 7 years for office equipment medical equipment, furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company's balance sheet and the net gain or loss is included in the determination of operating income. Property, plant and equipment acquired as part of a business acquisition is valued at fair value. Impairment of Long-Lived Assets The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted future cash flows estimated to be generated by those assets were less than the assets' carrying amount. If such assets were impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying value or fair value, less costs to sell. Revenue Recognition The Company performs medical testing of samples supplied by medical and corporate customers. Services are billed when the results are presented. The company uses an outside billing agency to process the invoices. The services are billed at the estimated reimbursement rates published by the various payers. A portion of the services are with billed governmental payers and subject to periodic review and retroactive adjustment. Retroactive adjustment due to a Medicare or Medicaid review are considered to be a change in the estimate and recorded in the period that the adjustment is communicated to the Company. Adjustments are normal and recurring, and generally communicated within reasonable time or within the billing period. Adjustments are considered immaterial. Advertising Costs The costs of advertising are expensed as incurred. Advertising expenses are included in the Company's operating expenses. Advertising costs for the year ended December 31, 2010 was $458. Income Taxes A. For the year ended December 31, 2010 the Company had elected to be taxes as an S-Corporation. As such, the taxable income is passed-through to the owners and taxed on their return. Therefore no provision or benefit for income taxes is provided in these statements. The Company follows the guidance provided by FIN 48, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions. F-9
Effect of Recent Accounting Pronouncements The Company reviews new accounting standards as issued. No new standards had any material effect on the financial statements. Accounting pronouncements issued subsequent to the date of these financial statements were considered significant by management and evaluated for the potential effect on these financial statements. Management does not believe any subsequent pronouncements will have a material effect on these financial statements as presented and does not anticipate the need for any future restatement of these financial statements because of the retro-active application of any accounting pronouncements issued subsequent to December 31, 2010 through the date these financial statements were issued. 3. Notes Payable The Company is party a vehicle loan. At December 31, 2010 notes payable consisted of the following: December 31, 2011 Commercial loan with a finance company, dated December 10, 2010, in the original amount of $63,700 and bearing interest at 8%. Principle and interest payments in the amount of $2,000 are payable for 36 months ending on December 10, 2013. This note is secured by a lien on a vehicle with a carrying value of $63,700 at December 31, 2010 63,700 63,700 Less current portion (19,544) $44,156 Principal maturities of notes payables for the next five years and thereafter are as follows: Period ended December 31, 2012 $19,544 2013 21,167 2014 22,989 2015 - 2016 - Thereafter - $63,700 4. Related Party Transactions The Company issued stock to organizing stockholders on a subscription receivable. The subscription receivable is reported in the equity section as a contra-account to the common stock. The subscription receivable for the stockholders at December 31, 2010 was $1,000. The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties. 5. Commitments and Contingencies From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company's financial position or results of operations. A portion of the services are to billed governmental payers at published rates and subject to periodic review and retroactive adjustment. Retroactive adjustment due to a Medicare or Medicaid review are considered to be a change in the estimate and recorded in the period that the adjustment is communicated to the Company. F-10
The Company leases office space in Hollywood, Florida under an annually renewable lease ending each February 2011. The Company was also leasing medical office equipment under a short-term lease. Rent expense for the office for year ended December 31, 2010 was $31,896. Leasing costs for the equipment for the year ended December 31, 2010 was $2,422. The minimum future lease payments on the office and equipment are as follows: Year ended December 31, 2011 $5,673 2012 $- 2013 $- 2014 $- 2015 $- 6. Subsequent Events Subsequent to December 31, 2010, the stockholder elected to sell 81% of the stock to an unrelated corporation on an installment plan. As of August 22, 2011 the stockholders have assigned 49% of the outstanding stock and hold those shares in escrow pending full payment of the installment note. Upon payment of the note the 49% and the additional 32% of the stock will be transferred to the purchasers. Management has evaluated subsequent events and is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing with the Securities and Exchange Commission ("SEC") that would have a material impact on our financial statements. F-11
Medical Billing Choices, Inc. Financial Statements December 31, 2010 and 2009 F-12
Table of Contents Report of Independent Registered Public Accounting Firm 2 Balance Sheets as of December 31, 2010 and 2009 3 Statements of Operations and Changes in Member's Equity For the years ended December 31, 2010 and 2009 4 Statements of Cash Flows for the years ended December 31, 2010 and 2009 5 Notes to the Financial statements 6 - 11 F-13
Peter Messineo Certified Public Accountant 1982 Otter Way Palm Harbor FL 34685 peter@pm-cpa.com T 727.421.6268 F 727.674.0511 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Medical Billing Choices, Inc.: I have audited the accompanying balance sheets of Medical Billing Choices, Inc. as of December 31, 2010 and 2009 and the related statements of operations and changes in stockholders' equity 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 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. The Company is not required at this time, to have, nor was I engaged to perform an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal controls over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provided 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 Medical Billing Choices, Inc. as of December 31, 2010 and 2009and the results of its operations for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Peter Messineo, CPA Peter Messineo, CPA Clearwater, Florida November 3, 2011 F-14
Medical Billing Choice Inc. Balance Sheets 12/31/10 12/31/09 Assets Current assets Cash $329 $734 Accounts receivable, net of allowance for doubtful accounts of $28,000 and $15,000, respectively. 42,954 51,596 Total current assets 43,283 52,330 Property and equipment, net of accumulated depreciation of $80,334 and $62,275, respectively 63,861 81,921 Total Assets $107,144 $134,251 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued expenses $30,707 $12,521 Notes payable, current portion 15,427 13,985 Total current liabilities 46,134 26,506 Notes payable, net of current portion 46,583 62,009 Total liabilities 92,717 88,515 Stockholders' Equity Common Stock, $0.01 par value, 1,000 shares authorized; 1,000 and 1,000 shares issued and outstanding, respectively 10 10 Additional paid-in capital 33,596 33,596 Retained earnings (19,179) 12,130 Total stockholders' equity 14,427 45,736 Total Liabilities and Stockholders' Equity $107,144 $134,251 The accompanying notes are an integral part of these financial statements. F-15
Medical Billing Choice Inc. Statements of Operations For the Years Ended December 31, 2010 2009 Revenues $345,219 $490,010 Operating expenses: Compensation 133,117 184,288 Consulting - 56,012 Professional fees 55,335 16,890 General and administrative 164,350 210,175 Amortization and depreciation 18,059 7,872 Total operating expenses 370,861 475,236 (Loss) income from operations before income taxes (25,642) 14,774 Other (income) expense Interest expense 5,667 2,644 Provision for income taxes - - Net (loss) income $(31,309) $12,130 The accompanying notes are an integral part of these financial statements. F-16
Medical Billing Choice Inc. Statement of Stockholders' Equity Stock- Common Subscription Retained Holders' shares Value Receivable Earnings Equity Balance at December 31, 2008 100 $1 $99 $(57,694) $(57,594) Recapitalization of ARC, change of control to minority shareholder (related party), includes transfer of ownership of existing assets and conversion of debt to equity: Sale of ARC, share cancellation (100) (1) 33,507 57,694 91,200 Issuance of shares 1,000 10 (10) - - Net loss 12,130 12,130 Balance at December 31, 2009 1,000 10 33,596 12,130 45,736 Net loss (31,309) (31,309) Balance at December 31, 2010 1,000 $10 $33,596 $(19,179) $14,427 The accompanying notes are an integral part of these financial statements. F-17
Medical Billing Choice Inc. Consolidated Statement of Cash Flows For the Year Ended December 31, 2010 2009 Cash Flows from Operating Activities: Net (loss) income $(31,309) $12,130 Adjustment to reconcile net income to net cash provided by operations: Depreciation 18,059 7,872 Changes in assets and liabilities: Accounts receivable 8,642 (6,663) Accounts payable and accrued expenses 18,187 9,107 Net Cash Provided by Operating Activities 13,579 22,446 Cash Flows from Investing Activities: Purchase of assets (2,065) Net Cash (Used) in Operating Activities - (2,065) Cash Flows from Financing Activities: Repayments of notes payable (13,984) (5,606) Net Cash (Used) in Operating Activities (13,985) (5,606) Net increase/decrease in Cash (406) 14,775 Cash at beginning of period 734 (14,041) Cash at end of period $329 $734 Supplemental cash flow information: Interest paid $5,667 $2,644 Taxes paid $- $- Non-cash transactions: Restructuring charges to equity, net of debt exchange $- $91,200 The accompanying notes are an integral part of these financial statements. F-18
MEDICAL BILLING CHOICES, INC NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2010 and 2009 1. Description of Business Medical Billing Choices, Inc. ("MBC" or the "Company") was started in 1996 and organized as ARC Medical Billing Inc., (a North Carolina corporation) headquartered in Charlotte NC in 2002. ARC Medical Billing Inc. was reorganized as Medical Billing Choices Inc., (a North Carolina corporation) dba ARC Medical Billing in May of 2009 and became a full service medical billing outsourcing firm. We specialize in complete accounts receivable outsourcing, from insurance billing to self-pay collections, for small to mid- level medical practices of all specialties. We service clients nationwide but major focus is in the southeastern US. The Company operates as an S- Corporation for corporate tax purposes. 2. Accounting Policies and Basis of Presentation Basis of Presentation The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States. Use of Estimates The preparation of the Company's financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Actual results could differ from those estimates. Financial Instruments The carrying amounts of cash, receivables and current liabilities approximated fair value due to the short-term maturity of the instruments. Debt obligations, when present, are carried at cost, which approximate fair value due to the prevailing market rate for similar instruments. Fair Value Measurement All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements. This value was evaluated on a recurring basis (at least annually). Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Three levels of inputs were used to measure fair value. * Level 1: Quotes market prices in active markets for identical assets or liabilities. * Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data. * Level 3: Unobservable inputs that were not corroborated by market data. Cash and Cash Equivalents For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its cash deposits in major financial institutions in the United States. At times deposits within a bank may exceed the amount of insurance provided on such deposits. Generally, these deposits are redeemed upon demand and, therefore, are considered by management to bear minimal risk. F-19
Accounts Receivable Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities in each of the Company's business segments. The Company considers accounts more than 90 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance. The Company generally does not require collateral for its accounts receivable. The Company considers all accounts receivable to be collectable and consequently has provided no allowance for doubtful accounts. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed by applying the straight-line method to the estimated useful lives of the related assets. Useful lives range from 3 to 7 years for office equipment, furniture and fixtures. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the improvements. When property or equipment is retired or otherwise disposed of, the net book value of the asset is removed from the Company's balance sheet and the net gain or loss is included in the determination of operating income. Property, plant and equipment acquired as part of a business acquisition is valued at fair value. Impairment of Long-Lived Assets The Company evaluates the carrying value of its long-lived assets at least annually. Impairment losses were recorded on long-lived assets used in operations when indicators of impairment were present and the undiscounted future cash flows estimated to be generated by those assets were less than the assets' carrying amount. If such assets were impaired, the impairment to be recognized was measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of were reported at the lower of the carrying value or fair value, less costs to sell. Revenue Recognition The Company contracts with various medical providers to process the invoices for services and bill the various government and private third party payers or the patient for the services. The Company receives payment for these services on a percentage of collections rate basis on short-term contracts. The providers are billed when payment for the medical charges are collected. The Company also provides consulting services on billing and collecting processes to medical providers on fee for services basis. These services are billed as services are providing according the contract. Advertising Costs The costs of advertising are expensed as incurred. Advertising expenses are included in the Company's operating expenses. Income Taxes B. For the years ended December 31, 2010 and 2009, the Company had elected to be taxes as an S-Corporation. As such, the taxable income is passed- through to the owners and taxed on their personal returns. Therefore no provision or benefit for income taxes is provided in these statements. The Company follows the guidance provided by FIN 48, Accounting for Uncertainty in Income Taxes, for reporting uncertain tax provisions. Effect of Recent Accounting Pronouncements The Company reviews new accounting standards as issued. No new standards had any material effect on the financial statements. Accounting pronouncements issued subsequent to the date of these financial statements were considered significant by management and evaluated for the potential effect on these financial statements. Management does not believe any subsequent pronouncements will have a material effect on these financial statements as presented and does not anticipate the need for any future restatement of these financial statements because of the retro-active application of any accounting pronouncements issued subsequent to December 31, 2010 through the date these financial statements were issued. F-20
3. Notes Payable The Company is party to vehicle loans. At December 31, 2010 and 2009 long term debt consisted of the following: December 31, 2011 2009 Commercial loan with a finance company, dated September 1, 2009, in the original amount of $38,800 and bearing interest at 8%. Principle and interest payments in the amount of $775.47 are payable for 60 months ending on August 31, 2014. This note is secured by a lien on a vehicle with a carrying value of $28,453 at December 31, 2010. $29,530 $36,181 Commercial loan with a finance company, dated September 1, 2009, in the original amount of $42,700 and bearing interest at 8%. Principle and interest payments in the amount of $854.41 are payable for 60 months ending on August 31, 2014. This note is secured by a lien on a vehicle with a carrying value of $31,313 at December 31, 2010 32,480 39,813 62,010 75,994 Less current portion (15,427) (13,985) $46,583 $62,009 Principal maturities of notes payables for the next five years and thereafter are as follows: Period ended December 31, 2011 $15,427 2012 16,706 2013 18,094 2014 11,783 2015 and thereafter - $62,010 4. Related Party Transactions From time to time, certain employees were paid consulting fees for services outside their normal duties. Total amounts paid to related parties for the years ended December 31, 2010 and 2009 were $25,200 and $21,000 respectively The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties. F-21
5. Commitments and Contingencies From time to time the Company may be a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company's financial position or results of operations. The Company leases office space in Charlotte, North Carolina under a lease ending March 31, 2011. The Company also leases a vehicle under a lease ending August 31, 2011. Rent expense for the office for the years ended December 31, 2010 and 2009 was $29,804 and $25,153, respectively. The minimum future lease payments on the office and vehicle are as follows: Year ended December 31, 2011 $21,500 2012 $2,860 2013 $- 2014 $- 2015 and thereafter $- 6. Subsequent Events Subsequent to December 31, 2010, the shareholder entered into an agreement to sell 100% of the shares in the Company under an installment agreement. The Company then entered in to a significant contract with a party related to the prospective buyers to process the billings for Trident Laboratories, Inc. Management has evaluated subsequent events and is not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing with the Securities and Exchange Commission ("SEC") that would have a material impact on our financial statements. F-22