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

FORM 10-K

 
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2011

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from

Commission file number 033-25126-D

MedeFile International, Inc.
(Exact name of registrant as specified in its charter)

Nevada
 
 85-0368333
(State or other jurisdiction of incorporation or organization)
 
 (I.R.S. Employer
 Identification No.)
 
301 Yamato Road, Suite 3155
Boca Raton, FL 33413
(Address of principal executive offices)
(973) 993-8001
(Issuer's telephone number)

Copies to:
Richard A. Friedman, Esq.
Jeff Cahlon, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32 nd Floor
New York, New York 10006
Phone: (212) 930-9700
Fax: (212) 930-9725

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

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

Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act.  Yes  o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  þ      No o

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ        No o
 
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   þ           No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of 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 .   þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x

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

As of June 30, 2011, the aggregate market value of the issued and outstanding common stock held by non-affiliates of the registrant, based upon the closing price of the common stock as quoted on the OTCQB of $0.0041 was approximately $10,541,523. For purposes of the above statement only, all directors, executive officers and 10% shareholders are assumed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

Number of shares of common stock outstanding as of April 5, 2012 was 4,019,830,281.
 

DOCUMENTS INCORPORATED BY REFERENCE – None

 

 

 
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FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011
INDEX
 
     
   
Page
 
PART I
 
Item 1
Business                                                                                                                   
3
Item 1A
Risk Factors                                                                                                                   
8
Item 1B
Unresolved Staff Comments                                                                                    
11
Item 2
Properties                                                                                                                   
11
Item 3
Legal Proceedings                                                                                                                   
11
Item 4
Mine Safety Disclosures 
11
 
PART II
 
Item 5
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
12
Item 6
Selected Financial Data                                                                                                                   
13
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
16
Item 8
Financial Statements and Supplementary Data 
F-1
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
17
Item 9A
Controls and Procedures                                                                                                                   
17
Item 9B
Other Information                                                                                                                   
18
 
PART III
 
Item 10
Directors, Executive Officers, and Corporate Governance
18
Item 11
Executive Compensation                                                                                                                   
19
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
25
Item 13
Certain Relationships and Related Transactions                                                      
25
Item 14
Principal Accountant Fees and Services                                                                                   
27
 
PART IV
 
Item 15
Exhibits and Financial Statement Schedules                                                                
27
 
Signatures                                                                                                                   
29
   


 
 
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PART I
 
ITEM 1. BUSINESS

Organizational History

On November 1, 2005, Bio-Solutions International, Inc. ("Bio-Solutions") entered into an Agreement and Plan of Merger (the "Agreement") with OmniMed Acquisition Corp., (the "Acquirer), a Nevada corporation and a wholly owned subsidiary of Bio-Solutions, OmniMed International, Inc., a Nevada corporation ("OmniMed"), and the shareholders of OmniMed (the "OmniMed Shareholders"). Pursuant to the Agreement, Bio-Solutions acquired all of the outstanding equity stock of OmniMed from the OmniMed Shareholders. As consideration for the acquisition of OmniMed, Bio-Solutions agreed to issue 9,894,900 shares of Bio-Solutions' common stock to the OmniMed Shareholders. These issuances were deemed to be exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended since, among other things, the transaction did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about the company and their investment, the investors took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

As a result of the Agreement, the OmniMed Shareholders assumed control of Bio-Solutions. Effective November 21, 2005, Bio-Solutions changed its name to OmniMed International, Inc. Effective January 17, 2006, OmniMed changed its name to MedeFile International, Inc. ("MedeFile" or "the Company").

Overview of Business

MedeFile International, Inc., through its MedeFile, Inc. subsidiary, has developed and globally markets a proprietary, patient-centric, Internet-enabled Personal Health Record (iPHR) system for gathering, digitizing, maintaining, accessing and sharing an individual’s actual medical records. Medefile's goal is to revolutionize the medical industry by bringing patient-centric digital technology to the business of medicine. MedeFile intends to accomplish its objective by providing individuals with a simple and secure way to access their lifetime of actual medical records in an efficient and cost-effective manner. MedeFile's products and services are designed to provide healthcare providers with the ability to reference their patient's actual past medical records, thereby ensuring the most accurate treatment and services possible while simultaneously reducing redundant procedures.

Interoperable with most electronic medical record systems utilized by physician practices, clinics, hospitals and other care providers, the highly secure, feature-rich MedeFile iPHR solution has been designed to gather all of its members’ actual medical records on behalf of each member, and create a single, comprehensive, electronic Personal Health Record (PHR).  The member can access his/her records 24-hours a day, seven days a week – or authorize a third party user – on any web-enabled device (PC, cell phone, PDA, e-reader, et al), as well as the portable MedeDrive flash drive/keychain or branded UBS-bracelet.
 
By subscribing to the MedeFile system, not only do members empower themselves to take control of their own health and well-being, they empower their healthcare providers to make sound and lifesaving decisions with the most accurate, up-to-date medical information available.  In addition, with MedeFile, members enjoy the peace of mind that comes from knowing that their medical records are protected from fire, natural disaster, document misplacement or the closing of a medical or dental practice.
 
MedeFile believes it enjoys a number of direct, competitive advantages over others in the medical records marketplace:
 
·
MedeFile has developed products and services geared to the patient, while containing the depth and breadth of information required by treating physicians and medical personnel.
·
MedeFile does all the work of collecting and updating medical information on an ongoing basis; its dependence on the patient taking action is minimal – particularly when compared to patient action required to support competing solutions.
·
MedeFile provides a complete medical record.  Other companies claim complete longitudinal records, but in reality only provide histories (usually completed by the member/patient), and are by no means complete or necessarily accurate records.
·
MedeFile provides a coherent mix of services and products that are intended to affect the quality of healthcare by enabling the patient to manage and access the information normally retained by doctors and other care providers.
 
Industry Overview

Since the beginning of modern medicine, information about a patient's history, testing, treatment and care have been key factors in the provision and delivery of quality healthcare. Medical record information takes many forms, such as the patient's diagnosis, treatments, surgeries, medications, allergies, x-rays, and test results. The usage of medical record information has dramatically increased over the past two decades due to factors such as the complex reimbursement structure in the United States healthcare system, an ever more litigious society, and increased patient awareness.
 
 
 
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Every patient visit generates a medical record. Today, this information is largely contained in a paper-based patient medical record. A patient's medical records are usually stored in physicians' offices as well as other healthcare facilities the patient has visited. A record that tracks a patient's medical treatment over time is called a “longitudinal record.”

In today's healthcare environment, access to hospital-based medical records by patients and other authorized parties (e.g., insurance companies, attorneys, etc.) is controlled by Release of Information (ROI) policies and procedures. ROI processes are based on the premise that patients have a right to access their medical records and that they must specifically designate any other party to whom their medical information can be released. ROI policies and procedures are based on the following laws and policies: the federal Health Insurance Portability and Accountability Act (HIPAA), various state laws, and the policies and professional practice guidelines set forth by the American Health Information Management Association (AHIMA).

Congress passed the Health Insurance Portability & Accountability Act (HIPAA) in 1996. The purpose of HIPAA is to prevent fraud in the healthcare industry and to protect confidential patient information. HIPAA standardizes and provides enforcement mechanisms for ROI rules and guidelines to protect personal healthcare information. HIPAA effects entities involved with electronic health care information--including health care providers, health plans, employers, public health authorities, life insurers, clearinghouses, billing agencies, information systems vendors, service organizations, universities, and even single-physician offices. The final version of the HIPAA Privacy regulations was issued in December 2000, and went into effect on April 14, 2001.  A two-year "grace" period was included; enforcement of the HIPAA Privacy Rules began on April 14, 2003.

In addition, in 2009, the Health Information Technology for Economic and Clinical Health Act (HITECH Act) legislation was created to stimulate the adoption of electronic health records (EHR) and supporting technology in the United States. President Obama signed HITECH into law on February 17, 2009 as part of the American Recovery and Reinvestment Act of 2009 (ARRA), an economic stimulus bill. The HITECH Act continues the effort of the Health Insurance Portability and Accountability Act (HIPAA) to encourage movement to electronic patient records and to deliver stricter data protection regulations for more secure patient privacy. The HITECH act stipulates that, beginning in 2011, healthcare providers will be offered financial incentives for demonstrating meaningful use of electronic health records (EHR). Incentives will be offered until 2015, after which time penalties may be levied for failing to demonstrate such use. The Act also establishes grants for training centers for the personnel required to support a health IT infrastructure.
 
Overview of Products and Services

MedeFile iPHR

MedeFile is a Business-to-Business and a Business-to-Consumer subscription service. MedeFile is designed to create a "cradle to grave" longitudinal record for each of its members by retrieving and consolidating copies of their medical records. When the records are received, the MedeFile system consolidates them into a single medically correct format. The records are then stored in Medefile's MedeVault, a secure repository that can be accessed by MedeFile members 24 hours a day, 7 days a week. Because of the unique security procedures incorporated into the MedeFile system through SecuroMed, the member is the only person to access or give permission to access their records.

A complete MedeFile iPHR is comprised of copies of the member's actual medical records as well as a Digital Health Profile (DHP), which is an overview of the patient's and his family's medical history. In addition, every Premium MedeFile member and MedeOne member receives a MedeDrive, an external USB drive which stores all of a patient's Emergency Medical Information as well as a copy of the member's MedeFile.

 
 
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MedeFile's Emergency Medical Information (EMI) Card

Upon becoming a MedeFile member, each individual will receive a Membership / Emergency Medical Information (EMI) Card which contains instructions on how to contact MedeFile in order to retrieve the member's medical records.

The Digital Health Profile (DHP)

A part of a member's MedeFile is their Digital Health Profile (DHP). This form is completed by the patient in order to provide a summary of the patient's healthcare history which assists healthcare providers in understanding the patient's course of medical treatment. This document, along with Advanced Directives and medical record copies, complete the documents contained in the patient's MedeFile.

MedeDrive

The MedeDrive is an external USB drive which stores all of a patient's Emergency Medical Information and their MedeFile which can be viewed on a personal computer. MedeDrive self loads its own viewer, so no special program or software is required. The MedeDrive easily plugs into any PC USB port on most Windows-based computers built in the last four years. (Macintosh version is currently unavailable). The MedeDrive USB key can be updated easily and as frequently as the member desires at no additional cost.
 
MedeVault

The MedeVault is designed to serve as an electronic data and document repository that incorporates state-of-the-art security features in order to prevent unauthorized access to a patient's records. Access to the MedeVault is provided through an encrypted connection to a web service run by MedeFile. This connection is provided by Secure Sockets Layer (SSL) technology.
 
MedeMinder

MedeMinder is MedeFile’s reminder service.  The member tells us when and where to call, and we automatically contact the member day or night with an appropriate reminder, spoken by real people. The member can even choose the voice they want to hear.  MedeMinder helps insure the member will not miss an appointment or forget to take their medication.
 
SecurMed

SecurMed is designed to serve as an authentication process that protects against any information being viewed by unauthorized persons.

Quality of Care Program

MedeFile’s Quality of Care Program is a unique marketing initiative providing for MedeFile to partner on a revenue-sharing basis with established medical practitioners, physician groups and hospitals to educate patients on the benefits and advantages of adopting the MedeFile system as their Personal Health Record solution.  Studies have shown that consumers are more interested in adopting a PHR offered by their healthcare provider than any other source.

MedeFile believes that its iPHR platform can serve as a highly effective patient portal and practice integration tool that addresses the need for practitioners to meet Stage 2 “meaningful use” standards required for qualifying for federal incentive payments pursuant to the HITECH Act.    Stage 2 of the HITECH Act, which begins October 2012, stipulates that 20% of the patient populations of eligible providers must have the ability to electronically view and download their health information – including diagnostic test results, physician’s notes, medication lists and medication allergies, via a web-based portal within 36 hours of being seen by the eligible providers.  With the Quality of Care Program, healthcare providers can establish an elevated patient-centric standard of care and economically benefit from increased clinical efficiencies, government “meaningful use” incentives and their financial stake in the successful marketing of MedeFile’s iPHR solution to their patient populations.
 
 
 
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MedePro

Introduced in 2012, MedePro is a medical record retrieval and document management solution created specifically by MedeFile for legal and insurance professionals.

For Legal Professionals

Medical record retrieval and document management play critical roles in helping plaintiff or defense counsels build, support and win their cases, be them mass tort, malpractice, personal injury, product liability, workers’ compensation or other types of health- or medical-related litigation. However, the sheer cost, manpower and time required to request, retrieve and manage what is typically hundreds, if not thousands, of records can be overwhelming. Upon engagement, MedeFile’s highly competent MedePRO customer service agents and our proprietary electronic retrieval system go to work contacting case-related healthcare providers nationwide to collect copies of all actual medical records and files – including actual notes, EKGs, X-rays, MRIs, labs, et al. Then, using a secure, double encrypted process, MedeFile consolidates, digitizes, indexes, paginates, Bates stamps, stores and protects the records in the MedeVault,  MedeFile’s proprietary, highly secure, redundant electronic depository which can only be accessed by authorized individuals.

Retrieved medical records can be searched and viewed online through MedeFile’s secure online portal from anywhere on Earth using an Internet-enabled desktop computer or mobile computing device. In addition, individual and/or collective documents can also be downloaded, shared with co-counsels (essential for large mass tort cases), and copied to a MedeDrive, a proprietary USB thumb drive ideal for portability and convenient and economical long term storage.

The MedePRO solution may also be seamlessly integrated into a law firm’s case management system to facilitate real-time, one-click status checks of requested records, helping to expedite case discovery and complex trial preparation.

For Insurance Professionals

In collaboration with medical insurance providers and with proper authorization, MedePRO enables the expeditious, secure retrieval and management of all actual medical records and files from a patient’s current and former care providers. Records received are then digitized, indexed, coded and stored in the MedeVault, from which case managers can access, view, share and download a patient’s comprehensive, longitudinal personal health record from any web-enabled device. Further, MedePRO’s online record order tracking system allows case managers to view real-time status reports on a 24/7 basis.   Insurance professionals can also tap the power and convenience of MedePRO for the purpose of analyzing medical claims or investigating and adjudicating medical identity theft and fraud.

Members

As of December 31, 2011, MedeFile had approximately 20,000 members. The Company’s marketing strategy includes issuing trial memberships on several levels.

Sales and Marketing

MedeFile employs the following marketing strategies to generate awareness of MedeFile's products and services: direct sales, direct mail, public relations campaigns, speaking engagements by MedeFile's executive officers, participation in trade shows, and alliances and partnerships with third parties.

Medefile's marketing strategy will target the following types of organizations: Health Maintenance Organizations; Preferred Provider Organizations; law practices, managed care organizations; insurance companies; trade unions; large affinity groups, such as AARP; large and medium-sized self-insured corporations; nursing homes and assisted living facilities; and Internet users.

 
 
 
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In particular, the MedeFile service is designed to be sold in several distinct ways:

·  
MedeFile’s website - Through normal e-commerce mechanisms, patients may enroll in the service directly from the MedeFile website. Membership may be purchased on an annual basis and may be paid all at once or over time, at the patient's discretion.

·  
Physician referrals - Patients may enroll based on a doctor's referral. In the event that these physicians are also Medefile Quality of Care Program customers, they may easily transfer their patients' information into the MedeFile system.

·  
Large group offerings (e.g. AARP, trade unions, etc.) - Large, membership-driven organizations may offer the MedeFile system to their members at a discounted rate, which may be negotiated with Medefile based on the size of the expected enrollment. An additional promotional advantage may be derived from the use of MedeFile through the website of the client organization. Hence, MedeFile functionality may be accessed using each organization's site.

·  
Insurance companies - Similar to large group offerings identified above, insurance companies may offer the MedeFile service to their insured as a means to decrease the cost of medical care.

·  
Law firms and insurance companies – law firms and insurance companies may engage MedeFile’s MedePro service for the purpose of retrieving medical records and managing documents in association with case preparation and management.

Technology

MedeFile will use and continue to update the most advanced security measures available. Data transmitted between Web browsers and Web servers over the Internet using TCP/IP is generally susceptible to unauthorized interception. To protect sensitive data, the most common method of protection is data encryption. MedeFile will use the industry standard Secure Sockets Layer (SSL), which is a mechanism to secure Internet traffic so that it cannot be intercepted. SSL utilizes digital certificates to verify the identity and integrity of a web site (such as MedeFile) and to protect the security of transactions by certifying their source and destination. 

Competition

There are other companies working in the medical information technology arena such as GE Healthcare, Bio-Imaging Technologies, and Cyber Records. Some competing companies offer a USB key for medical record storage, but require the customer to provide or "self-populate" the information to be stored. The information in a self-populated record is limited and is only as accurate as the individual's memory and understanding of their health condition. Other companies expect each customer to obtain their own medical records from their various healthcare providers. Some offer a CD-Rom for record storage. Usually, the CD-Rom cannot be updated with any changes to an individual's medical status or treatment. Therefore, a new CD-Rom needs to be obtained from that company in order for the individual to have the most current, accurate information regarding their health. There are companies that are solely web-based that do not provide the customer the capability to have a copy of their records. In this case, an Internet connection is required to view stored documents. In addition, there are companies that do not concentrate on digitizing an individual's medical records but on converting medical facilities' records from paper to electronic format.

The advantage to being a MedeFile member is that MedeFile gathers, consolidates, organizes and securely stores each member's actual medical records on their behalf. The MedeFile membership includes a Digital Health Profile (DHP) which contains the member's general health history, emergency contacts, doctor contacts, family medical history, allergies, medications, and current conditions. A MedeFile membership also includes a MedeDrive which easily plugs into any PC USB port on most Windows-based computers built in the last four years. (Macintosh version is currently unavailable). The MedeDrive contains the member's emergency medical information that can be easily accessed by emergency care personnel, and the client's actual medical records which are stored in a secure area of the subscriber's MedeFile. The MedeDrive USB key can be updated easily and as frequently as the member desires at no additional cost.
 
 
 
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Employees
 
From our inception through the period ended December 31, 2011, we have primarily relied on the services of outside consultants.  As of December 31, 2011, MedeFile had a total of 4 full time employees and 4 consultants.

The employees are covered by employment agreements, and we believe our relations with our employees is favorable.
 
ITEM 1A.  RISK FACTORS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. SOME OF THE INFORMATION CONTAINED IN THIS DISCUSSION AND ANALYSIS OR SET FORTH ELSEWHERE IN THIS ANNUAL REPORT, INCLUDING INFORMATION WITH RESPECT TO OUR PLANS AND STRATEGIES FOR OUR BUSINESS, INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. YOU SHOULD REVIEW THE "RISK FACTORS" SECTION OF THIS REPORT FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS DESCRIBED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD SUFFER.

RISKS RELATED TO OUR BUSINESS

We have a history of operating losses, and we may not achieve or maintain profitability in the future.

We have experienced a net loss of $2,079,374, for the year ended December 31, 2011. The accompanying consolidated financial statements have been prepared contemplating a continuation of the Company as a going concern.

In the event that cash flow from operations is less than anticipated and we are unable to secure additional funding to cover our expenses, in order to preserve cash, we would be required to reduce expenditures and effect reductions in our corporate infrastructure, either of which could have a material adverse effect on our ability to continue our current level of operations. To the extent that operating expenses increase or we need additional funds to make acquisitions, develop new technologies or acquire strategic assets, the need for additional funding may be accelerated and there can be no assurances that any such additional funding can be obtained on terms acceptable to us, if at all. If we were not able to generate sufficient capital, either from operations or through additional debt or equity financing, to fund our current operations, we would be forced to significantly reduce or delay our plans for continued research and development and expansion. This could significantly reduce the value of our securities.
 
The commercial success of our products and services depends on the widespread market acceptance of digital technology in the healthcare industry.

The market for digitization of medical records is emerging. Our success will depend on acceptance of digital technology for use in and maintaining and accessing medical records by individuals and healthcare providers, as well as the success of the commercialization of the MedeFile products and services. Presently, it is difficult to assess or predict with any assurance the potential size, timing and viability of market opportunities for our technology in this market. The healthcare records market sector is well established with entrenched competitors with whom we must compete.
 
 
 
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We may be unable to effectively manage our growth or implement our expansion strategy.

Our growth strategy is subject to related risks, including pressure on our management and on our internal systems and controls. Our planned growth will require us to invest in new, and improve our existing, operational, technological and financial systems and to expand, train and retain our employee base. Our failure to effectively manage our growth could have a material adverse effect on our future financial condition. In addition, due to our lack of operating experience we may have difficulty in managing our growth.

We have limited marketing or sales capabilities, and if we are unable to develop sales and marketing capabilities, we may not be successful in commercializing our products.

We currently have limited sales, marketing and distribution capabilities. As a result, we may be forced to depend on collaborations or agreements with third parties that have established distribution systems and direct sales forces. To the extent that we enter into co-promotion or other licensing arrangements, our revenues will depend upon the efforts of third parties, over which we may have little or no control.

We may engage in future acquisitions, which may be expensive and time consuming and from which we may not realize anticipated benefits.

We may acquire additional businesses, technologies and products if we determine that these additional businesses, technologies and products complement our existing business or otherwise serve our strategic goals. If we do undertake transactions of this sort, the process of integrating an acquired business, technology or product may result in operating difficulties and expenditures and may absorb significant management attention which would otherwise be available for ongoing development of our business. Moreover, we may never realize the anticipated benefits of any acquisition. Future acquisitions could result in potentially dilutive issuances of our securities, the incurrence of debt and contingent liabilities and amortization expenses related to intangible assets, which could adversely affect our results of operations and financial condition.
 
RISKS RELATED TO OUR COMMON STOCK:
 
Because our common stock is not registered under the Exchange Act, we will not be subject to the federal proxy rules and our directors, executive offices and 10% beneficial holders will not be subject to Section 16 of the Exchange Act. In addition, our reporting obligations under Section 15(d) of the Exchange Act may be suspended automatically if we have fewer than 300 shareholders of record on the first day of our fiscal year..
 
Our common stock is not registered under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), and we do not intend to register our common stock under the Exchange Act for the foreseeable future (provided that, we will register our common stock under the Exchange Act if we have, after the last day of our fiscal year, more than 500 shareholders of record and $10 million in assets, in accordance with Section 12(g) of the Exchange Act). As a result, although we are required to file annual, quarterly, and current reports pursuant to Section 15(d) of the Exchange Act, as long as our Common Stock is not registered under the Exchange Act, we will not be subject to Section 14 of the Exchange Act, which, among other things, prohibits companies that have securities registered under the Exchange Act from soliciting proxies or consents from shareholders without furnishing to shareholders and filing with the Securities and Exchange Commission (“SEC”) a proxy statement and form of proxy complying with the proxy rules. In addition, so long as our Common Stock is not registered under the Exchange Act, our directors and executive officers and beneficial holders of 10% or more of our outstanding Common Stock will not be subject to Section 16 of the Exchange Act. Section 16(a) of the Exchange Act requires executive officers and directors, and persons who beneficially own more than 10% of a registered class of equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of common shares and other equity securities, on Forms 3, 4 and 5 respectively. Such information about our directors, executive officers, and beneficial holders will only be available through periodic reports we file under the Exchange Act or registration statements we file under the Securities Act.  Furthermore, so long as our Common Stock is not registered under the Exchange Act, our obligation to file reports under Section 15(d) of the Exchange Act will be automatically suspended if, on the first day of any fiscal year (other than a fiscal year in which a registration statement under the Securities Act has gone effective), we have fewer than 300 shareholders of record. This suspension is automatic and does not require any filing with the SEC. In such an event, we may cease providing periodic reports and current or periodic information, including operational and financial information, may not be available with respect to our results of operations. 
Our Common Stock is subject to the "Penny Stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.
 
 
 
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The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

●  that a broker or dealer approve a person's account for transactions in penny stocks; and
 
●  the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

●  obtain financial information and investment experience objectives of the person; and
 
●  make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

●  sets forth the basis on which the broker or dealer made the suitability determination; and
 
●  that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
 
We do not expect to pay dividends for some time, if at all.

No cash dividends have been paid on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors.

Our future capital needs could result in dilution to investors; additional financing could be unavailable or have unfavorable terms.

 Our future capital requirements will depend on many factors, including cash flow from operations, progress in our present operations, competing market developments, and our ability to market our products successfully. It may be necessary to raise additional funds through equity or debt financings. Any equity financings could result in dilution to our then-existing stockholders. Sources of debt financing may result in higher interest expense. Any financing, if available, may be on terms unfavorable to us. If adequate funds are not obtained, we may be required to reduce or curtail operations.
 
 
 
10

 

 
The rights of the holders of common stock may be impaired by the potential issuance of preferred stock.

Our board of directors has the right, without stockholder approval, to issue preferred stock with voting, dividend, conversion, liquidation or other rights which could adversely affect the voting power and equity interest of the holders of common stock, which could be issued with the right to more than one vote per share, and could be utilized as a method of discouraging, delaying or preventing a change of control. The possible negative impact on takeover attempts could adversely affect the price of our common stock.

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management's beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the headings "Risk Factors" and "Management Discussion and Analysis and Plan of Operation."

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this annual report which would cause actual results to differ before making an investment decision. We are under no duty to update any of the forward-looking statements after the date of this annual report or to conform these statements to actual results.  

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

MedeFile leases its main office, which is located at 301 Yamato Rd, Boca Raton, FL  33431, commencing March 01, 2009.  MedeFile’s previous location was 240 Cedar Knolls Rd, Cedar Knolls, NJ 07927, commencing September 2007 and expiring in August 2012. By mutual agreement the lease was cancelled and MedeFile chose Florida for its main office location.  The current lease is for a term of 24 months.

   
2011
   
2010
 
12 Months ended 12/31
  $ 42,228     $ 23,921  

Due to increased business, the Company leased a larger suite in April 2011.  The location of the new office space is within the building the Company is currently leasing

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company may become involved in litigation relating to claims arising out of it operations in the normal course of business. We are not currently involved in any legal proceedings or litigation and, to the best of knowledge, no governmental authority is contemplating any proceeding in which we are a party or to which any of our properties is subject, which would reasonable be likely to have a material adverse effect on the Company,

 ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.


 
11

 

 
 
 PART II

 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted on the OTCQB under the symbol MDFI. Prior to February 23, 2011, our common stock was quoted on the OTC Bulletin Board under the symbol MDFI.

The following table sets forth, for the periods indicated, the range of high and low intraday closing bid information per share of our common stock.

   
High
   
Low
 
Quarter ended 03/31/10
 
$
0.0148
   
$
0.0046
 
Quarter ended 06/30/10
 
$
0.0093
   
$
0.0041
 
Quarter ended 09/30/10
 
$
0.0068
   
$
0.0036
 
Quarter ended 12/31/10
 
$
0.0075
   
$
0.0037
 
Quarter ended 03/31/11
 
$
0.005
   
$
0.0029
 
Quarter ended 06/30/11
 
$
0.0075
   
$
0.0037
 
Quarter ended 09/30/11
 
$
0.0044
   
$
0.0014
 
Quarter ended 12/31/11
 
$
0.0015
   
$
0.0001
 


The above prices are believed to reflect representative inter-dealer quotations, without retail markup, markdown or other fees or commissions, and may not represent actual transactions.

As of March 30, 2012, there were approximately 1065 holders of record of the Company's common stock.

DIVIDEND POLICY

We do not currently pay any cash dividends on our common stock, and we currently intend to retain any future earnings for use in our business. Any future determination as to the payment of cash dividends on our common stock will be at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our Board of Directors. There are no restrictions in the Company's articles of incorporation or bylaws that prevent the Company from declaring dividends. The Nevada Revised Statutes, however, do prohibit the Company from declaring dividends where, after giving effect to the distribution of the dividend:

1. The Company would not be able to pay its debts as they become due in the usual course of business; or

2. The Company's total assets would be less than the sum of its total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

The declaration of dividends on our common stock also may be restricted by the provisions of credit agreements that we may enter into from time to time.


 
12

 
 
 
SALES OF UNREGISTERED SECURITIES

On November 1, 2011, the Company issued 46,875,000 shares of common stock for amounts due to consultants.

On March 1, 2012, the Company issued 53,571,429 shares of common stock for amounts due to a consultant.
In connection with the foregoing, the Company relied on the exemption from registration provided by Section 4(2) of the Securities Act for transactions not involving a public offering.

ISSUER PURCHASES OF EQUITY SECURITIES

None.

ITEM 6.  SELECTED FINANCIAL DATA

Not Applicable. 
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

It should be noted that this Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain "forward-looking statements." The terms "believe," "anticipate," "intend," "goal," "expect," and similar expressions may identify forward-looking statements. These forward-looking statements represent the Company's current expectations or beliefs concerning future events. The matters covered by these statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements, including customer acceptance of new products, the impact of competition and price erosion, as well as other risks and uncertainties. The foregoing list should not be construed as exhaustive, and the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements, or to reflect the occurrence of anticipated or unanticipated events. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation that the strategy, objectives or other plans of the Company will be achieved. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as may be required under applicable securities laws, we undertake no duty to update this information. More information about potential factors that could affect our business and financial results is included in the section entitled "Risk Factors"

OVERVIEW

Organizational History

On November 1, 2005, Bio-Solutions International, Inc. ("Bio-Solutions") entered into an Agreement and Plan of Merger (the "Agreement") with OmniMed Acquisition Corp., (the "Acquirer), a Nevada corporation and a wholly owned subsidiary of Bio-Solutions, OmniMed International, Inc., a Nevada corporation ("OmniMed"), and the shareholders of OmniMed (the "OmniMed Shareholders"). Pursuant to the Agreement, Bio-Solutions acquired all of the outstanding equity stock of OmniMed from the OmniMed Shareholders. As consideration for the acquisition of OmniMed, Bio-Solutions agreed to issue 9,894,900 shares of Bio-Solutions' common stock to the OmniMed Shareholders. These issuances were deemed to be exempt under rule 506 of Regulation D and Section 4(2) of the Securities Act of 1933, as amended since, among other things, the transaction did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about the company and their investment, the investors took the securities for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.
 
 
 
13

 

 
As a result of the Agreement, the OmniMed Shareholders assumed control of Bio-Solutions. Effective November 21, 2005 Bio-Solutions changed its name to OmniMed International, Inc.  Effective January 17, 2006 OmniMed changed its name to MedeFile International, Inc. ("MedeFile" or the "Company").

Overview of Business

MedeFile International, Inc., through its MedeFile, Inc. subsidiary, has developed and globally markets a proprietary, patient-centric, Internet-enabled Personal Health Record (iPHR) system for gathering, digitizing, maintaining, accessing and sharing an individual’s actual medical records. Our goal is to revolutionize the medical industry by bringing patient-centric digital technology to the business of medicine. We intend to accomplish its objective by providing individuals with a simple and secure way to access their lifetime of actual medical records in an efficient and cost-effective manner. Our products and services are designed to provide healthcare providers with the ability to reference their patient's actual past medical records, thereby ensuring the most accurate treatment and services possible while simultaneously reducing redundant procedures.

Interoperable with most electronic medical record systems utilized by physician practices, clinics, hospitals and other care providers, the highly secure, feature-rich MedeFile iPHR solution has been designed to gather all of its members’ actual medical records on behalf of each member, and create a single, comprehensive electronic Personal Health Record (PHR).  The member can access his/her records 24-hours a day, seven days a week – or authorize a third party user – on any web-enabled device (PC, cell phone, PDA, e-reader, et al), as well as the portable MedeDrive flash drive/keychain or branded UBS-bracelet.
 
By subscribing to the MedeFile system, not only do members empower themselves to take control of their own health and well-being, they empower their healthcare providers to make sound and lifesaving decisions with the most accurate, up-to-date medical information available.  In addition, with MedeFile, members enjoy the peace of mind that comes from knowing that their medical records are protected from fire, natural disaster, document misplacement or the closing of a medical or dental practice.
 
We enjoy a number of direct, competitive advantages over others in the medical records marketplace:
 

We have developed products and services geared to the patient, while containing the depth and breadth of information required by treating physicians and medical personnel.
   
 
We do all the work of collecting and updating medical information on an ongoing basis; its dependence on the patient taking action is minimal – particularly when compared to patient action required to support competing solutions.

 
We provide a complete medical record.  Other companies claim complete longitudinal records, but in reality only provide histories (usually completed by the member/patient), and are by no means complete or necessarily accurate records.
   
 
We provide a coherent mix of services and products that are intended to affect the quality of healthcare by enabling the patient to manage and access the information normally retained by doctors and other care providers.
 
RESULTS OF OPERATIONS

YEAR ENDING DECEMBER 31, 2011 COMPARED TO YEAR ENDING DECEMBER 31, 2010
 
 
 
14

 

 
Revenues

Revenues for the year ended December 31, 2011 totaled $495,451 compared to revenues of $133,869 for the year ended December 31, 2010.   The increase in membership revenue is primarily related to an increase in the amount of members and medical record reimbursement revenue received from members. Medical record reimbursement revenue is a dollar for dollar reimbursement for charges from member’s doctors for sending updated medical records to MedeFile. The off-setting expense is charged to selling general and administrative expense.  In 2010, the Company increased its marketing and advertising efforts, as a result, there has been a substantial increase in memberships over the previous period.  Revenues received from memberships are recognized through the period of the membership, and, therefore, revenue recognized represents a fraction of the membership in the quarter being reported.   

Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for the year ended December 31, 2011 totaled $1,855,825, an increase of $721,454, or approximately 63.6%, compared to selling, general and administrative expenses of $1,134,371 for the year ended December 31, 2010. The overall increase in the total selling, general and administrative is primarily due to increased costs associated with attracting new members, sales and business development expenses.
 
Marketing Expense

Marketing expense for the year ended December 31, 2011 totaled $524,301, an increase of $353,813, or approximately 207.5% compared to $170,488 for the year ending December 31.  The increased marketing expense was due to more aggressive lead generation for new members.  In the first six months of 2011, the Company largely relied on one source for generation of leads through the Company’s telemarketing efforts to increase revenues through heavily discounted trial memberships; however, in July 2011, MedeFile terminated its telemarketing effort in favor of redirecting its marketing emphasis on the pursuit of major wholesale sales opportunities with large medical institutions, trade unions, affinity groups and insurance companies, among others.

Depreciation Expense
 
Depreciation expense totaled $10,086 for the year ended December 31 2011, compared to depreciation expense of $14,174 during the year ended December 31, 2010. The decrease in depreciation was due to some assets being fully depreciated.    

Amortization Expense

Amortization expense for the year ended December 31, 2011 totaled $20,983, compared to $15,735 for the year ended December 31, 2010.  Amortization expense is the expensing of the website development through May 2013.  Amortization began in the second quarter of 2010 and is expensed at $5,245 per quarter over a three-year period.

Interest Expense
 
Net interest expense for the year ended December 31, 2011 was $0, compared to interest expense of $1,229,799 during the year ended December 31, 2010. The reason for the decrease of interest expense is the expensing of interest from conversion of a note payable through a stock issuance in 2010.

Net Loss

For the reasons stated above, our net loss for year ended December 31, 2011 was $2,079,374, or $0.00 per share, a decrease of $383,352, compared to a net loss of $2,492,310, or $0.00 per share, during the year ended December 31, 2010.
 

FINANCIAL CONDITION

Liquidity and Capital Resources

As of December 31, 2011, we had cash and cash equivalents of $198,173, inventory of $53,925, merchant services reserve of $62,530, accounts receivable of $617 and prepaid insurance of $1,055.  Net cash used in operating activities for the year ended December 31, 2011 was approximately $1,563,479. Current liabilities of $190,099 consisted of $180,244 for accounts payable and accrued liabilities and deferred revenues of $9,855. We have net working capital of $126,201.
 
 
 
15

 

 
The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. The Company has reported a net loss of $2,079,374 for the year ended December 31, 2011 and $2,492,310 for the year ended December 31, 2010, and had an accumulated deficit of $18,241,930 as of December 31, 2011.  The Company had a net working capital of $126,201 as of December 31, 2011.

Off-Balance Sheet Arrangements
 
We do not have any off balance sheet arrangements as of December 31, 2011 or as of the date of this report.
 
Critical Accounting Policies
 
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities.
 
We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policy involves the most complex, difficult and subjective estimates and judgments:

Revenue Recognition

The Company generates revenue from licensing the right to utilize its proprietary software for the storage and distribution of healthcare information to individuals and affinity groups. For revenue from product sales, the Company recognizes revenue on four basic criteria which must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

Stock-based Compensation
 
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.
 
Recent Accounting Pronouncements
 
In May 2011, FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this update to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. For public entities, the new guideline is effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The Company does not expect that the guidance effective in future periods will have a material impact on the financial statements.
 
In May 2011, the FASB issued ASC Update No. 2011-05, Comprehensive Income (Topic 820): Presentation of Comprehensive Income. Update No. 2011-05 requires that net income, items of other comprehensive income and total comprehensive income be presented in one continuous statement or two separate consecutive statements. The amendments in this Update also require that reclassifications from other comprehensive income to net income be presented on the face of the financial statements. We are required to adopt Update No. 2011-05 for our first quarter ending March 31, 2012, with the exception of the presentation of reclassifications on the face of the financial statements, which has been deferred by the FASB under ASC Update No. 2011-12, Comprehensive Income (Topic 820): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income. The adoption of Update No. 2011-05 is not expected have a material impact the financial statements.
 
In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-10 (“ASU 2011-10”), Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate—a Scope Clarification (a consensus of the FASB Emerging Issues Task Force). ASU 2011-10 clarifies when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance for Real Estate Sale (Subtopic 360-20). The provisions of ASU 2011-10 are effective for public companies for fiscal years and interim periods within those years, beginning on or after June 15, 2012. When adopted, ASU 2011-10 is not expected to have a material impact on the financial statements.

 ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide information under this item.

 
 
16

 
 
ITEM 8. FINANCIAL STATEMENTS
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and
 
Stockholders of MedeFile International, Inc.
 
We have audited the accompanying consolidated balance sheets of MedeFile International, Inc. as of December 31, 2011 and 2010, and the related statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2011. MedeFile International, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our 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 control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MedeFile International, Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations with a significant accumulated deficit, all of which raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ L.L. Bradford & Company, LLC
Las Vegas, Nevada
April 16, 2012

 
 
F-1

 
 
 
Medefile International, Inc.
Consolidated Balance Sheets

   
December 31,
   
December 31,
 
Assets
 
2011
   
2010
 
Current assets
           
Cash
  $ 198,173     $ 499,652  
Accounts receivable, net
    617       2,468  
Inventory
    53,925       22,184  
Merchant services reserve
    62,530       6,173  
Prepaid insurance
    1,055       -  
Total current assets
    316,300       530,477  
Website development, net of accumulated amortization
    26,227       47,210  
Furniture and equipment, net of accumulated depreciation
    10,278       20,364  
Intangibles
    1,339       1,339  
Total assets
  $ 354,144     $ 599,390  
                 
Liabilities and Stockholders' Equity
               
Accounts payable and accrued liabilities
  $ 180,244     $ 310,325  
Cash overdraft
    -       6,928  
Deferred revenues
    9,855       9,575  
Total Current Liabilities
    190,099       326,828  
                 
                 
Stockholders' Equity
               
Preferred stock, $.0001 par value: 10,000 authorized,
               
no shares issued and outstanding
    -       -  
Common stock, $.0001 par value: 5,000,000,000 authorized;
               
3,958,258,852 and 3,450,021,410 shares issued and outstanding on
               
December 31, 2011 and 2010, respectively
    395,826       345,002  
Common stock payable
    24,000       -  
Additional paid in capital
    17,986,149       16,090,116  
Accumulated deficit
    (18,241,930 )     (16,162,556 )
Total stockholders' equity
    164,045       272,562  
Total liability and stockholders' equity
  $ 354,144     $ 599,390  
                 
 
 
The accompanying notes are an integral part of these consolidated financial statements

 
 
F-2

 
 
Medefile International, Inc.
Consolidated Statements of Operations
For the Years Ended December 31, 2011 and 2010
 
 
             
   
2011
   
2010
 
Revenue
  $ 495,451     $ 133,869  
                 
Cost of goods sold
    163,630       61,610  
Gross profit
    331,821       72,259  
                 
Operating expenses
               
Selling, general and administrative expenses
    1,855,825       1,134,371  
Marketing expense
    524,301       170,488  
Depreciation and amortization expense
    31,069       29,911  
Total operating expenses
    2,411,195       1,334,770  
                 
Loss from operations
    (2,079,374 )     (1,262,511 )
                 
Other income (expenses)
               
Interest expense  - note payable
    -       (10,166 )
Interest expense - related party note payable
    -       (1,219,633 )
Total other income (expense)
    -       (1,229,799 )
                 
Loss before income tax
    (2,079,374 )     (2,492,310 )
Provision for income tax
    -       -  
Net loss
  $ (2,079,374 )   $ (2,492,310 )
                 
Net loss per share: basic and diluted
  $ (0.00 )   $ (0.00 )
                 
Weighted average share outstanding
    3,715,587,476       2,346,081,850  
basic and diluted
               
                 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
 
F-3

 
 
Medefile International, Inc.
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2011 and 2010
 
                                     
   
Shares
               
Common Stock
   
Accumulated
       
   
Outstanding
   
Amount
   
APIC
   
Payable
   
Deficit
   
Total
 
December 31, 2009
    1,463,021,410     $ 146,302     $ 12,923,998     $ -     $ (13,670,246 )   $ (599,946 )
                                                 
Common stock issued
                                         
for consultants and
                                         
employees
    47,000,000       4,700       245,300                       250,000  
                                                 
Common stock issued
                                         
for note payable
    450,000,000       45,000       2,070,000                       2,115,000  
                                                 
Common stock sale
    1,490,000,000       149,000       850,818                       999,818  
                                                 
Net loss
                                    (2,492,310 )     (2,492,310 )
December 31, 2010
    3,450,021,410     $ 345,002     $ 16,090,116     $ -     $ (16,162,556 )   $ 272,562  
                                                 
                                                 
Common stock issued
                                         
for consultants
    84,932,482       8,493       206,426                       214,919  
                                                 
Common stock sale
    423,304,960       42,331       1,195,669                       1,238,000  
                                                 
Cancellation of
                                               
    payroll liability
                    116,000                       116,000  
                                                 
Common stock payable
                      24,000               24,000  
                                                 
Issuance of warrants
              377,938                       377,938  
                                                 
Net Loss
                                    (2,079,374 )     (2,079,374 )
      3,958,258,852       395,826       17,986,149       24,000       (18,241,930 )     164,045  
                                                 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
F-4

 
 
 
Medefile International, Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2011 and 2010
 
 
             
   
2011
   
2010
 
Cash flows from operating activities
           
Net loss
  $ (2,079,374 )   $ (2,492,310 )
Adjustments to reconcile net loss to net
               
cash used in operating activities
               
Depreciation
    10,086       14,174  
Amortization
    20,983       15,737  
Stock based services
    214,919       250,000  
Warrant expense
    377,938       -  
Interest expense
    -       10,166  
Interest expense - related party
    -       1,219,815  
                 
Changes in operating assets and liabilities
               
Accounts receivable
    1,851       (2,468 )
Inventory
    (31,741 )     (22,184 )
Prepaid insurance
    (1,055 )     -  
Deposits and other assets
    -       14,475  
Accounts payable and accrued liabilities
    (14,081 )     163,769  
Merchant services reserve
    (56,357 )     (6,173 )
Cash overdraft
    (6,928 )     6,066  
Deferred revenue
    280       8,213  
Net Cash used in operating activities
    (1,563,479 )     (820,720 )
Cash flows from investing activities
               
Website development
    -       (21,801 )
Net cash used in investing activities
    -       (21,801 )
Cash flow from financing activities
               
Proceeds from common stock subscription
    24,000       999,818  
Proceeds from common stock sales
    1,238,000       -  
Proceeds from note payable
    -       340,842  
Net cash provided by financing activities
    1,262,000       1,340,660  
Net increase (decrease) in cash and cash equivalents
    (301,479 )     498,139  
Cash and cash equivalents at beginning of period
    499,652       1,513  
Cash and cash equivalents at end of period
  $ 198,173     $ 499,652  
                 
Supplemental disclosure of cash flow information
               
Cash paid during period for
               
Cash paid for interest
  $ -     $ -  
Cash paid for income taxes
  $ -     $ -  
Cancellation of payroll liability to CEO
  $ 116,000     $ -  
                 
 
 
The accompanying notes are an integral part of these consolidated financial statements
 
 
 
F-5

 
 
Medefile International, Inc.
Notes to Consolidated Financial Statements
 
 
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS OPERATIONS

Basis of Presentation
 
The accompanying financial statements present on a consolidated basis the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Nature of Business Operations
 
Medefile International, Inc., has developed and globally markets a proprietary, patient-centric, Internet-enabled Personal Health Record (iPHR) system for gathering, digitizing, maintaining, accessing and sharing an individual’s actual medical records. Medefile's goal is to revolutionize the medical industry by bringing patient-centric digital technology to the business of medicine. Medefile intends to accomplish its objective by providing individuals with a simple and secure way to access their lifetime of actual medical records in an efficient and cost-effective manner. Medefile's products and services are designed to provide healthcare providers with the ability to reference their patient's actual past medical records, thereby ensuring the most accurate treatment and services possible while simultaneously reducing redundant procedures.

Interoperable with most electronic medical record systems utilized by physician practices, clinics, hospitals and other care providers, the highly secure, feature-rich MedeFile iPHR solution has been designed to gather all of its members’ actual medical records on behalf of each member, and create a single, comprehensive Electronic Health Record (EHR). The member can access his/her records 24-hours a day, seven days a week – or authorize a third party user – on any web-enabled device (PC, cell phone, PDA, e-reader, et al), as well as the portable MedeFile flash drive/keychain or branded UBS-bracelet.

By subscribing to the MedeFile system, not only do members empower themselves to take control of their own health and well-being, they empower their healthcare providers to make sound and lifesaving decisions with the most accurate, up-to-date medical information available.  In addition, with MedeFile, members enjoy the peace of mind that comes from knowing that their medical records are protected from fire, natural disaster, document misplacement or the closing of a medical or dental practice.

MedeFile believes it enjoys a number of  competitive advantages over other firms within the medical records marketplace, including:

·
MedeFile has developed products and services geared to the patient, while containing the depth and breadth of information required by treating physicians and medical personnel.
·
MedeFile does all the work of collecting and updating medical information on an ongoing basis; its dependence on the  patient taking action is minimal – particularly when compared to patient action required to support competing solutions.

·
MedeFile provides a complete medical record. Other companies claim complete longitudinal records, but in reality only provide histories (usually completed by the member/patient), and are by no means complete or necessarily accurate records.
·
MedeFile provides a coherent mix of services and products that are intended to affect the quality of healthcare by enabling the patient to manage and access the information normally retained by doctors and other care providers.

Going Concern

The accompanying financial statements have been prepared contemplating a continuation of the Company as a going concern. However, the Company has reported a net loss of $2,079,374 for the year ended December 31, 2011 and $2,492,310 for the year ended December 31, 2010 and had an accumulated deficit of $18,241,930 as of December 31, 2011.  The Company has net working capital of $126,201 as of December 31, 2011.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The operating losses raise substantial doubt about the Company's ability to continue as a going concern. The Company's ability to obtain additional financing depends on the availability of its borrowing capacity, the success of its growth strategy and its future performance, each of which is subject to general economic, financial, competitive, legislative, regulatory, and other factors beyond the Company's control.
 
 
 
F-6

 
 
 
We will need additional investments in order to continue operations to cash flow break even. Additional investments are being sought, but we cannot guarantee that we will be able to obtain such investments. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms.

However, the trading price of our common stock could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail our operations.

Cash and Cash Equivalents

For purposes of these financial statements, cash and cash equivalents includes highly liquid debt instruments with maturity of less than three months.
 
Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.  Currently our operating account is not above the FDIC limit.

Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred. The Company incurred advertising costs for the year ended December 31, 2011 and 2010 of approximately $6,500 and $2,568 respectively.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
 
The Company records net deferred tax assets to the extent the Company believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. A valuation allowance is established against deferred tax assets that do not meet the criteria for recognition. In the event the Company were to determine that it would be able to realize deferred income tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the valuation allowance which would reduce the provision for income taxes.
 
The Company follows the accounting guidance which provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized initially and in subsequent periods. Also included is guidance on measurement, recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Property and Equipment

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. Minor additions and renewals are expensed in the year incurred. Major additions and renewals are capitalized and depreciated over their estimated useful lives being 3 years up to 10 years.

Trademark Costs

Trademark costs incurred in the registration and acquisition of trademarks and trademark rights are capitalized. These costs will be amortized over the legal life of the related trademark once the trademark is awarded. The Company performs an annual review of its identified intangible assets to determine if facts and circumstances exist which indicate that the useful life is shorter than originally estimated or that the carrying amount of the assets may not be recoverable.
 
 
 
 
F-7

 

 
The Company expenses all software costs associated with the conceptual formulation and evaluation of alternatives until the application development stage has been reached. Costs to improve or support the technology are expensed as these costs are incurred.

Website Development

The Company's policy is to capitalize website development costs at original cost and amortize the balance over the life of the product.  The life of website is determined at completion of the project. The Company reviews the amounts capitalized for impairment whenever events or circumstances indicate that the carrying amounts of the assets may not be recoverable.

The Company expenses all development costs associated with the conceptual formulation and evaluation of alternatives until the application development stage has been reached. Costs to improve or support the technology are expensed as these costs are incurred.

Revenue Recognition

The Company generates revenue from licensing the right to utilize its proprietary software for the storage and distribution of healthcare information to individuals and affinity groups. For revenue from product sales, the Company recognizes revenue on four basic criteria which must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.

Deferred Revenue

The Company generally receives subscription fees for its services. From time to time, the Company will receive quarterly or annual subscriptions paid in advance and deferred revenue is recorded at that time. The deferred revenue is amortized into revenue on a pro- rata basis each month. Customers with quarterly or annual subscriptions may cancel their subscriptions and request a refund for future months' revenues at any time. Therefore, a liability is recorded to reflect the amounts that are potentially refundable.  At December 31, 2011 and 2010, deferred revenue totaled $9,855 and $9,575, respectively.

Reclassifications

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

Recent Accounting Pronouncements

In May 2011, FASB issued ASU 2011-04 “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The amendments in this update result in common fair value measurement and disclosure requirements in U.S. GAAP and IFRSs. Consequently, the amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. For many of the requirements, the Board does not intend for the amendments in this update to result in a change in the application of the requirements in Topic 820. Some of the amendments clarify the Board’s intent about the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. For public entities, the new guideline is effective for interim and annual periods beginning after December 15, 2011 and should be applied prospectively. The Company does not expect that the guidance effective in future periods will have a material impact on the financial statements.

In May 2011, the FASB issued ASC Update No. 2011-05, Comprehensive Income (Topic 820): Presentation of Comprehensive Income. Update No. 2011-05 requires that net income, items of other comprehensive income and total comprehensive income be presented in one continuous statement or two separate consecutive statements. The amendments in this Update also require that reclassifications from other comprehensive income to net income be presented on the face of the financial statements. We are required to adopt Update No. 2011-05 for our first quarter ending March 31, 2012, with the exception of the presentation of reclassifications on the face of the financial statements, which has been deferred by the FASB under ASC Update No. 2011-12, Comprehensive Income (Topic 820): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income. The adoption of Update No. 2011-05 is not expected have a material impact the financial statements.

In December 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-10 (“ASU 2011-10”), Property, Plant and Equipment (Topic 360): Derecognition of in Substance Real Estate—a Scope Clarification (a consensus of the FASB Emerging Issues Task Force). ASU 2011-10 clarifies when a parent (reporting entity) ceases to have a controlling financial interest in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance for Real Estate Sale (Subtopic 360-20). The provisions of ASU 2011-10 are effective for public companies for fiscal years and interim periods within those years, beginning on or after June 15, 2012. When adopted, ASU 2011-10 is not expected to have a material impact on the financial statements.
 
 
 
F-8

 

 

Net Loss per Share
 
Basic and diluted loss per share amounts are computed based on net loss divided by the weighted average number of common shares outstanding. Warrants to purchase 145,175,000 common shares were not included in the computation of diluted loss per share because the assumed conversion and exercise would be anti-dilutive for the year ending December 31, 2011.   Warrants to purchase 8,175,000 common shares and options to purchase 5,640,000 common shares were not included in the computation of diluted loss per share because the assumed conversion and exercise would be anti-dilutive for the year ended December 31, 2010.

Management Estimates
 
The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.
 
Stock Based Compensation
 
The Company accounts for all compensation related to stock, options or warrants using a fair value based method whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. The Company uses the Black-Scholes pricing model to calculate the fair value of options and warrants issued to both employees and non-employees. Stock issued for compensation is valued using the market price of the stock on the date of the related agreement.

2.  ACCOUNTS RECEIVABLE

Due to the collection history of the Company, an allowance for doubtful accounts is not maintained.  Recognition of a specific uncollectible account is written directly against the invoice in accounts receivable and expensed in the current period.

3.   WEBSITE DEVELOPMENT

Website development consists of the following:

   
December 31, 2011
   
December 31, 2010
 
Website development
  $ 62,946     $ 62,946  
Accumulated amortization
    (36,719 )     (15,736 )
         Net website development
  $ 26,227     $ 47,210  

Amortization is calculated over a three-year period beginning in the second quarter of 2010.  Amortization expense for the years ending December 31, 2011 and 2010 is $20,983 and $15,735, respectively.

4. FURNITURE AND EQUIPMENT

Furniture and equipment consists of the following:
 
   
December 31, 2011
   
December 31,
2010
 
Computers and equipment
  $ 169,286     $ 169,286  
Furniture and fixtures
    38,618       38,618  
Subtotal
    207,904       207,904  
Less: accumulated depreciation
    (197,626 )     (187,540  
Net furniture and equipment
  $ 10,278     $ 20,364  
 
Depreciation is calculated by using the straight-line method over the estimated useful life.   Depreciation expense totaled $10,086 and $14,174 for the year ended December 31, 2011 and 2010, respectively.
 
 
 
F-9

 

 
5. EQUITY

Common Stock

On May 24, 2010, Lyle Hauser, the son of the Company's then Chief Executive Officer, agreed to convert notes in the aggregate principal amount of $900,000 into an aggregate of 450,000,000 shares of the Company's common stock.    The shares were issued on July 20, 2010.

In June 2010, the Company accepted an agreement for an aggregate of 1,000,000,000 shares of its common stock for a per share purchase price of $0.001 per share (the “June Private Placement”).  The Company received aggregate proceeds of $1,000,000 from its June Private Placement Agreement.  The shares were issued July 20, 2010.

During the first quarter 2011, the Company entered into a Securities Purchase Agreement pursuant to which it sold 201,000,000 shares of common stock at a purchase price of $0.003 per share.  Total proceeds from the sale of the stock totaled $603,000.

On March 31, 2011, the Company issued 9,375,000 shares of common stock for amounts due to consultant.  The shares had a market value of $37,500.

On April 29, 2011, the Company issued 7,653,061 shares of common stock for amounts due to a consultant.  The shares had a market value of $32,143.

On May 11, 2011, the Company issued 10,000,000 shares of common stock for amounts due to consultants.  The shares had a market value of $70,000.

During the first quarter 2011, the Company entered into a Securities Purchase Agreement pursuant to which it sold 45,000,000 shares of common stock at a purchase price of $0.003 per share.   The funds were received during the first quarter of 2011 and recorded as a stock payable in the amount of $135,000 as of June 30, 2011.  On July 8, 2011, 45,000,000 shares of common stock were issued.

On June 3, 2011, the Company received $24,000 in proceeds f for the purchase of 8,000,000 shares of common stock.  The stock is currently unissued and $24,000 is recorded as a stock payable.

During the third quarter of 2011, the Company entered into a Securities Purchase Agreement pursuant to which it sold 177,304,960 shares of common stock at a purchase price of $0.00282

On August 1, 2011, the Company issued 11,029,421 shares of common stock for amounts due to consultant.  The shares had a market value of $33,088.

On November 1, 2011, the Company issued 46,875,000 shares of common stock for amounts due to consultants.  The shares had a market value of $42,187.50.

Stock Options

2006 Incentive Stock Plan

In January 2006, the Board of Directors of the Company approved an Incentive Stock Plan, pursuant to which they have initially reserved 10,000,000 shares of common Stock for issuance. Under the 2006 Incentive Stock, the Board has granted an aggregate of 5,640,000 options to employees pursuant to certain employment agreement that are more fully described below:  As of December 31, 2011 all options have expired.

2008 Amended and Restated Incentive Stock Plan

In November 2008, our Board of Directors adopted the 2008 Equity Incentive Plan and subsequently amended it in January 2009, June 2009 and July 2009 (the “2008 Plan”). The purpose of the 2008 Plan was to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. Under the 2008 Plan, the Company is authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2008 Plan will be administered by our Board of Directors until such time as such authority has been delegated to a committee of the board of directors.
 
 
 
F-10

 

 
2010 Incentive Stock Plan

In December 2009, our Board of Directors adopted the 2010 Equity Incentive Plan (the “2010 Plan”). The purpose of the 2010 Plan was to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success. Under the 2010 Plan, we are authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2010 Plan will be administered by our Board of Directors until such time as such authority has been delegated to a committee of the Board of Directors.

A summary of option activity under all Plans as of December 31, 2011, and changes during the period then ended are presented below:

   
 
Options
   
Weighted-Average Exercise Price
 
Outstanding at December 31, 2009
    5,640,000     $ 0.80  
Issued
    -       -  
Exercised
    -       -  
Forfeited or expired
    -       -  
Outstanding at December 31, 2010
    5,640,000     $ 0.80  
Issued
    -       -  
Expired
    5,640,000       0.80  
Forfeited
    -       -  
Outstanding at December 31, 2011
    -       -  
Non-vested at December 31, 2011
    -       -  
Exercisable at December 31, 2011
    -     $ 0.00  
  

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period.  For the years ended December 31, 2011 and 2010, the Company recorded no compensation expense related to options.

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

Risk-free interest rate at grant date
   
4.75
%
Expected stock price volatility
   
155
%
Expected dividend payout
   
--
 
Expected option in life-years
   
5
 
 
On June 22, 2011, the Company awarded 10,000,000 Common Stock warrants, at an exercise price of $0.01 per share, to consultants for services at the quoted stock price on the effective date of the awards. The warrants have an expiration date of four years from the issue date and contain provisions for a cash exercise. The estimated value of the compensatory warrants granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions listed below:

On July 28, 2011, the Company awarded 135,000,000 Common Stock Warrants, at an exercise price of $0.005 per share to consultants for services at the quoted stock price on the effective date of the awards.  The warrants have an expiration date of three years from the issue date and contain provisions for a cash exercise.  The estimated value of the compensatory warrants granted to non-employees in exchange for services was determined using the Black-Scholes pricing model and the assumptions listed below.


Risk-free interest rate at grant date
   
0.39
%
Expected stock price volatility
   
172.1
%
Expected dividend payout
   
--
 
Expected option in life-years
   
4
 
 
 
 
F-11

 

 
Warrant expense recognized for the years ending December 31, 2011 and 2010 was $314,589 and $0.00 respectively.

Transactions involving warrants are summarized as follows:
 
   
Number of Warrants
   
Weighted-Average Price Per Share
 
Outstanding at December 31, 2009
    8,175,000       .73  
Granted
    -          
Exercised
    -          
Canceled or expired
    -          
Outstanding at December 31, 2010
    8,175,000     $ .73  
Granted
    145,000,000       .01  
Exercised
    -       -  
Canceled or expired
    8,000,000       -  
Outstanding at December 31, 2011
    145,175,000     $ 0.019  


Warrants Outstanding
   
Warrants Exercisable
 
           
Weighted
               
Weighted
 
           
Average
   
Weighted
         
Average
 
           
Remaining
   
Average
         
Remaining
 
Exercise
   
Number
   
Contractual
   
Exercise
   
Number
   
Contractual
 
Prices
   
Outstanding
   
Life (years)
   
Price
   
Exercisable
   
Life (years)
 
 
$
0.56
     
175,000
     
1.5
   
$
0.56
     
175,000
     
1.5
 
   
0.005
     
135,000,000
     
2.75
     
0.005
     
135,000,000
     
2.75
 
   
0.01
     
10,000,000
     
3.75
     
0.01
     
10,000,000
     
3.75
 
           
145,175,000
     
2.85
   
$
0.56
     
145,175,000
     
2.85
 

6. RELATED PARTY TRANSACTIONS

On May 10, 2011, Medefile International, Inc. (the “Company”) and the Company’s Chief Executive Officer, Kevin Hauser, executed an amendment, effective as of March 26, 2011, to the employment agreement dated December 10, 2008, by and between Mr. Hauser and the Company.  Mr. Hauser agreed to reduce the base salary payable to him pursuant to the Employment Agreement to $100,000 for the year ending December 31, 2010.  As a result, the Company recorded a cancellation of payroll expense due to Mr. Hauser during the first quarter of 2011 through additional paid in capital in the amount of $116,000.

7.  SUBSEQUENT EVENTS

On March 1, 2012, the Company issued 53,571,429 shares of common stock to a consultant. The market value of the shares was $42,859,

On March 15, 2012 the Company issued 8,000,000 shares of common stock in accordance with a Security Purchase Agreement.  The funds were received previously and the shares of common stock were issued against the remaining balance in Stock Payable.


 
 
F-12

 
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.
 
ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Annual Report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer (Principal Executive, Financial and Accounting Officer), of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer (Principal Executive, Financial and Accounting Officer) concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and which also are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer (Principal Executive, Financial and Accounting Officer), to allow timely decisions regarding required disclosure.
 
Management's Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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 of compliance with the policies and procedures may deteriorate.

Management, with the participation of our principal executive officer, financial and accounting officer, have evaluated the effectiveness of our internal control over financial reporting as of December 31, 2011 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, because of the Company’s limited resources and limited number of employees, management concluded that, as of December 31, 2011, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to permanent rules of the SEC that permit the Company to provide only management’s report in this annual report.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer (Principal Executive, Financial and Accounting Officer), does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 
Changes in internal controls

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
 
17

 
 
ITEM 9B. OTHER INFORMATION

None

   
 
 PART III

 ITEM 10. DIRECTORS, OFFICERS AND CORPORATE GOVERNANCE.

The following tables set forth certain information with respect to our directors and officers. The following persons serve as our directors and executive officers:
 
Name
 
Age
 
Position
         
Kevin Hauser
 
39
 
President, Chief Executive Officer, Acting Chief Financial Officer, Director
Michael S. Delin
 
47
 
Director
 
Our executive officers are appointed by and serve at the discretion of our Board of Directors. There are no family relationships between any director and/or any executive officer.

Background of Executive Officers and Directors
 
Kevin Hauser, President, Chief Executive Officer and Acting Chief Financial Officer. On August 15, 2010, Mr. Hauser was appointed MedeFile’s new Chief Executive Officer, the post formerly held by his father and Company founder, Milton Hauser, who stepped down due to a personal health crisis.  Prior to assuming the helm of the Company, Mr. Hauswer was a key member of the executive management team, serving as MedeFile’s Vice President of Sales, Marketing and New Business Development since 2005.  In this capacity, he helped to design, develop and implement strategies and programs aimed at establishing the MedeFile brand on a global basis.  Among his many diverse responsibilities, he led a three-year series of consumer focus groups and conducted several in-depth industry market studies, helping to define “must-have” features and functionality of the MedeFile iPHR platform.  In addition, Mr. Hauser was charged with pursuing strategic business partnerships capable of enhancing the Company’s brand-building and marketing efforts, which has since resulted in several important teaming arrangements being secured by the Company.

Mr. Hauser was also instrumental in the conception and commencement of MedeFile’s Quality of Care program, a strategic physician-focused initiative designed to educate patients on the benefits of MedeFile’s iPHR solution, promote new annual subscribers and generate a profitable new revenue channel for care providers.  Since becoming CEO, Mr. Hausewr has remained largely focused on executing a broad range of commercialization strategies to drive MedeFile subscription growth and build enduring long term value for the Company’s stockholders.

Prior to joining MedeFile, Mr. Hauser earned distinction in the securities industry, working primarily at Raymond James Financial Services.  In 1996, he established a branch office for Raymond James in New York City’s Wall Street district, which rapidly became one of the firm’s top producing branches in the country.  Earning placement in Raymond James’ President Club, he was the youngest Independent Sales Associate to receive that honor at that time.

Michael Delin, Director. Mr. Delin has served on our board of directors since December 2008.  After providing specialty consulting services to the management team, he joined MedeFile’s Board of Directors in December 2008.  Mr. Delin is the sole proprietor and operator of an accounting and tax preparation service.  He also currently serves as the Chief Financial Officer of a construction company that is based in Southwest Florida.  He is a graduate of the University of South Florida where he earned a Bachelor of Arts degree in Accounting.
 

 
18

 
 
COMMITTEES

We currently do not maintain any committees of the Board of Directors. Given our size and the development of our business to date, we believe that the board through its meetings can perform all of the duties and responsibilities which might be contemplated by a committee.  Our board of directors is expected to appoint an audit committee, nominating committee and compensation committee, and to adopt charters relative to each such committee, in the near future. We intend to appoint such persons to the committees of the board of directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek listing on a national securities exchange, and we are under no obligation to do so.
 
Except as may be provided in our bylaws, we do not currently have specified procedures in place pursuant to which whereby security holders may recommend nominees to the Board of Directors.
 
Board Leadership Structure and Role in Risk Oversight
 
Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles.  Kevin Hauser has served as our Chairman and Chief Executive Officer since August 2010. We believe it is in the best interest of the Company to have the Chairman and Chief Executive Officer roles combined due to our small size and limited resources.
 
Our Board of Directors is primarily responsible for overseeing our risk management processes.  The Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensure that risks undertaken by our company are consistent with the Board’s appetite for risk. While the Board oversees our company, our company’s management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.

CODE OF ETHICS

We have adopted a Code of Ethics and Business Conduct that applies to our officers, directors and employees. The Code of Ethics is available on our website found at www.medefile.com.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Because we do not have a class of equity securities registered pursuant to Section 12 of the Exchange Act, we are not subject to Section 16(a) of the Exchange Act.

 ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation for services in all capacities rendered to us for the two fiscal years ended December 31, 2011 and 2010, of our Chief Executive Officer. There were no other executive officers whose total annual compensation exceeded $100,000 during the years ended December 31, 2011 and 2010.


 
19

 

SUMMARY COMPENSATION TABLE
 
 
Name and
Principal
Position
 
 
 
Year
   
 
 
Salary
($)
 
 
 
Bonus
($)
 
Stock
Awards
($)
 
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings
($)
 
All Other
Compensation
($)
 
 
 
Total
($)
 
Kevin Hauser (1)
   
2011
     
125,000
 
   
             
125,000
 
President, CEO, CFO and Director    
2010
     
216,000
(1)
               
216,000 
 

(1)  
Represents amount unpaid but accrued
 
Outstanding Equity Awards at Fiscal Year-End as of December 31, 2011
 
   
Option Awards
   
Stock Awards
 
Name
 
Number of Securities Underlying Unexercised Options
(#)
Exercisable
   
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
   
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
   
Option Exercise Price
($)
   
Option Expiration Date
   
Number of Shares or Units of Stock That Have Not Vested
(#)
   
Market Value of Shares or Units of Stock That Have Not Vested
($)
   
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
   
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
 
Kevin Hauser
President, CEO, Acting CFO and Director
   
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
     
--
 
 

  Director Compensation for Year Ending December 31, 2011

Name
 
Fees Earned
or Paid in
Cash
($)(1)
   
Stock
Awards
($)
   
Option
Awards
($)
   
Non-Equity
Incentive Plan
Compensation
($)
   
Nonqualified
Deferred
Compensation
Earnings
($)
   
All Other
Compensation
($)
   
Total
($)
 
Kevin  Hauser
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
Michael Delin
   
--
     
--
     
--
     
--
     
--
     
--
     
--
 
                                                         
 
EMPLOYMENT AGREEMENTS

On December 10, 2008, Medefile entered into an employment agreement with Kevin Hauser pursuant to which Mr. Hauser agreed to continue to serve as the Company’s Vice President of Sales and New Business Development for a term of three years. The term of his agreement automatically extended for successive one year periods unless otherwise terminated by the parties in accordance with the terms of the agreement.  Pursuant to his agreement, Mr. Hauser was entitled to receive an annual salary of $216,000.  He was also entitled to a discretionary bonus from time to time during the term of the agreement in an amount determined by the sole discretion of the Company’s Board of Directors. For the year ended December 31, 2010, the amount of $216,000 due under the employment agreement was accrued but unpaid.
 
 
 
20

 

 
On May 10, 2011, the Company and Mr. Hauser executed an amendment, effective as of March 26, 2011, to the employment agreement dated December 10, 2008, by and between Mr. Hauser and the Company (the “Employment Agreement”). The amendment memorialized the agreement of Mr. Hauser to reduce the base salary payable to him pursuant to the Employment Agreement to $100,000 for the year ending December 31, 2010, and to $125,000 commencing January 1, 2011. The amendment further provides for a performance bonus which may be awarded to Mr. Hauser, at the discretion of the Board, at such time as the Company becomes cash flow positive (defined as a quarterly net income in excess of $75,000) and has a positive Quick Ratio (Cash less current liabilities in excess of $100,000). The performance bonus may be paid in either cash or through the issuance of shares of the Company’s common stock at the discretion of the Board.

Risk Management
 
The Company does not believe risks arising from its compensation policies and practices for its employees are reasonably likely to have a material adverse effect on the Company.

LONG TERM INCENTIVES

STOCK OPTIONS AND RESTRICTED STOCK. Executive officers, together with our other employees, are eligible to receive grants of awards under our 2006 Stock Option Plan. These awards may be in the form of stock options and/or restricted stock grants. The number of shares underlying options or shares, together with all other terms of the options and shares, are established by the Board of Directors.
 
STOCK INCENTIVE PLANS

2006 Incentive Stock Plan

The 2006 Incentive Stock Plan has initially reserved 10,000,000 shares of common Stock for issuance. Under the 2006 Incentive Stock Plan, options may be granted which are intended to qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as Incentive Stock Options thereunder. In addition, direct grants of stock or restricted stock may be awarded.

Purpose. The primary purpose of the 2006 Incentive Stock Plan is to attract and retain the best available personnel in order to promote the success of our business and to facilitate the ownership of our stock by employees and others who provide services to us.

Administration. The 2006 Incentive Stock Plan is administered by our Board of Directors, as the Board of Directors may be composed from time to time. Notwithstanding the foregoing, the Board of Directors may at any time, or from time to time, appoint a committee of at least two members of the Board of Directors, and delegate to the committee the authority of the Board of Directors to administer the 2006 Incentive Stock Plan. Upon such appointment and delegation, the committee shall have all the powers, privileges and duties of the Board of Directors, and shall be substituted for the Board of Directors, in the administration of the 2006 Incentive Stock Plan, subject to certain limitations.

Eligibility. Under the 2006 Stock Incentive Plan, options may be granted to key employees, officers, directors or consultants of the Company.

Terms of Options. The term of each option granted under the 2006 Incentive Stock Plan shall be contained in a stock option agreement between the optionee and the Company and such terms shall be determined by the Board of Directors consistent with the provisions of the 2006 Incentive Stock Plan, including the following:

(a) Purchase Price. The purchase price of the common stock subject to each incentive stock option shall not be less than the fair market value (as set forth in the 2006 Incentive Stock Plan), or in the case of the grant of an incentive stock option to a principal stockholder, not less that 110% of fair market value of such common stock at the time such option is granted. The purchase price of the common stock subject to each non-incentive stock option shall be determined at the time such option is granted, but in no case less than 85% of the fair market value of such common stock at the time such option is granted;
 
 
 
21

 
 
(b) Vesting. The dates on which each option (or portion thereof) shall be exercisable and the conditions precedent to such exercise, if any, shall be fixed by the Board of Directors, in its discretion, at the time such option is granted. All options or grants which include a vesting schedule will vest in their entirety upon a change of control transaction as described in the 2006 Incentive Stock Plan;

(c) Expiration. The expiration of each option shall be fixed by the Board of Directors, in its discretion, at the time such option is granted; however, unless otherwise determined by the Board of Directors at the time such option is granted, an option shall be exercisable for ten years after the date on which it was granted, or five years for grants to certain executive officers. Each option shall be subject to earlier termination or repurchase as expressly provided in the 2006 Incentive Stock Plan or as determined by the Board of Directors, in its discretion, at the time such option is granted;

(d) Transferability. No option shall be transferable, except by will or the laws of descent and distribution, and any option may be exercised during the lifetime of the optionee only by such optionee. No option granted under the 2006 Incentive Stock Plan shall be subject to execution, attachment or other process;

(e) Option Adjustments. The aggregate number and class of shares as to which options may be granted under the 2006 Incentive Stock Plan, the number and class shares covered by each outstanding option and the exercise price per share thereof (but not the total price), and all such options, shall each be proportionately adjusted for any increase decrease in the number of issued common stock resulting from split-up spin-off or consolidation of shares or any like Capital adjustment or the payment of any stock dividend; and

(f) Termination, Modification And Amendment. The 2006 Incentive Stock Plan (but not options previously granted under the plan) shall terminate ten years from the date of its adoption by the Board of Directors, and no option or shares shall be granted after termination of the 2006 Incentive Stock Plan. Subject to certain restrictions, the 2006 Incentive Stock Plan may at any time be terminated and from time to time be modified or amended by the affirmative vote of the holders of a majority of the outstanding shares of the capital stock of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the State of Nevada.

2008 Amended and Restated Incentive Stock Plan

The 2008 Plan, as amended, reserved 750,000,000 shares of common Stock for issuance. Under the 2008 Plan, options may be granted which are intended to qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as Incentive Stock Options thereunder. In addition, direct grants of stock or restricted stock may be awarded.

Purpose. The primary purpose of the 2008 Plan is to attract and retain the best available personnel in order to promote the success of our business and to facilitate the ownership of our stock by employees and others who provide services to us.

Administration. The 2008 Plan is administered by our Board of Directors, as the Board of Directors may be composed from time to time. Notwithstanding the foregoing, the Board of Directors may at any time, or from time to time, appoint a committee of at least two members of the Board of Directors, and delegate to the committee the authority of the Board of Directors to administer the 2008 Plan. Upon such appointment and delegation, the committee shall have all the powers, privileges and duties of the Board of Directors, and shall be substituted for the Board of Directors, in the administration of the 2008 Plan, subject to certain limitations.
 
 
 
22

 

 
Eligibility.  Under the 2008 Plan, options may be granted to key employees, officers, directors or consultants of the Company.

Terms of Options. The term of each option granted under the 2008 Plan shall be contained in a stock option agreement between the optionee and the Company and such terms shall be determined by the Board of Directors consistent with the provisions of the 2008 Stock Plan, including the following:

(a) Purchase Price. The purchase price of the common stock subject to each incentive stock option shall not be less than the fair market value (as set forth in the 2008 Plan), or in the case of the grant of an incentive stock option to a principal stockholder, not less that 110% of fair market value of such common stock at the time such option is granted. The purchase price of the common stock subject to each non-incentive stock option shall be determined at the time such option is granted, but in no case less than 85% of the fair market value of such common stock at the time such option is granted;

(b) Vesting. The dates on which each option (or portion thereof) shall be exercisable and the conditions precedent to such exercise, if any, shall be fixed by the Board of Directors, in its discretion, at the time such option is granted. All options or grants which include a vesting schedule will vest in their entirety upon a change of control transaction as described in the 2008 Plan; 

(c) Expiration. The expiration of each option shall be fixed by the Board of Directors, in its discretion, at the time such option is granted; however, unless otherwise determined by the Board of Directors at the time such option is granted, an option shall be exercisable for ten years after the date on which it was granted, or five years for grants to certain executive officers. Each option shall be subject to earlier termination or repurchase as expressly provided in the 2008 Plan or as determined by the Board of Directors, in its discretion, at the time such option is granted;

(d) Transferability. No option shall be transferable, except by will or the laws of descent and distribution, and any option may be exercised during the lifetime of the optionee only by such optionee. No option granted under the 2008 Plan shall be subject to execution, attachment or other process;

(e) Option Adjustments. The aggregate number and class of shares as to which options may be granted under the 2008 Plan, the number and class shares covered by each outstanding option and the exercise price per share thereof (but not the total price), and all such options, shall each be proportionately adjusted for any increase decrease in the number of issued common stock resulting from split-up spin-off or consolidation of shares or any like Capital adjustment or the payment of any stock dividend; and

(f) Termination, Modification and Amendment. The 2008 Plan (but not options previously granted under the plan) shall terminate ten years from the date of its adoption by the Board of Directors, and no option or shares shall be granted after termination of the 2006 Incentive Stock Plan. Subject to certain restrictions, the 2008 Plan may at any time be terminated and from time to time be modified or amended by the affirmative vote of the holders of a majority of the outstanding shares of the capital stock of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the State of Nevada.

2010 Incentive Stock Plan

The 2010 Plan has initially reserved 330,000,000 shares of common Stock for issuance. Under the 2010 Plan, options may be granted which are intended to qualify as Incentive Stock Options ("ISOs") under Section 422 of the Internal Revenue Code of 1986 (the "Code") or which are not ("Non-ISOs") intended to qualify as Incentive Stock Options thereunder. In addition, direct grants of stock or restricted stock may be awarded.

Purpose. The primary purpose of the 2010 Plan is to attract and retain the best available personnel in order to promote the success of our business and to facilitate the ownership of our stock by employees and others who provide services to us.

Administration. The 2010 Plan is administered by our Board of Directors, as the Board of Directors may be composed from time to time. Notwithstanding the foregoing, the Board of Directors may at any time, or from time to time, appoint a committee of at least two members of the Board of Directors, and delegate to the committee the authority of the Board of Directors to administer the 2010 Plan. Upon such appointment and delegation, the committee shall have all the powers, privileges and duties of the Board of Directors, and shall be substituted for the Board of Directors, in the administration of the 2010 Plan, subject to certain limitations.
 
 
 
23

 

 
Eligibility. Under the 2010 Plan, options may be granted to key employees, officers, directors or consultants of the Company.

Terms of Options. The term of each option granted under the 2010 Plan shall be contained in a stock option agreement between the optionee and the Company and such terms shall be determined by the Board of Directors consistent with the provisions of the 2008 Stock Plan, including the following:

(a) Purchase Price. The purchase price of the common stock subject to each incentive stock option shall not be less than the fair market value (as set forth in the 2010 Plan), or in the case of the grant of an incentive stock option to a principal stockholder, not less that 110% of fair market value of such common stock at the time such option is granted. The purchase price of the common stock subject to each non-incentive stock option shall be determined at the time such option is granted, but in no case less than 85% of the fair market value of such common stock at the time such option is granted;

(b) Vesting. The dates on which each option (or portion thereof) shall be exercisable and the conditions precedent to such exercise, if any, shall be fixed by the Board of Directors, in its discretion, at the time such option is granted. All options or grants which include a vesting schedule will vest in their entirety upon a change of control transaction as described in the 2010 Plan;

(c) Expiration. The expiration of each option shall be fixed by the Board of Directors, in its discretion, at the time such option is granted; however, unless otherwise determined by the Board of Directors at the time such option is granted, an option shall be exercisable for ten years after the date on which it was granted, or five years for grants to certain executive officers. Each option shall be subject to earlier termination or repurchase as expressly provided in the 2010 Plan or as determined by the Board of Directors, in its discretion, at the time such option is granted;

(d) Transferability. No option shall be transferable, except by will or the laws of descent and distribution, and any option may be exercised during the lifetime of the optionee only by such optionee. No option granted under the 2010 Plan shall be subject to execution, attachment or other process;
 
(e) Option Adjustments. The aggregate number and class of shares as to which options may be granted under the 2010 Plan, the number and class shares covered by each outstanding option and the exercise price per share thereof (but not the total price), and all such options, shall each be proportionately adjusted for any increse decrease in the number of issued common stock resulting from split-up spin-off or consolidation of shares or any like Capital adjustment or the payment of any stock dividend; and

(f) Termination, Modification and Amendment. The 2010 Plan (but not options previously granted under the plan) shall terminate ten years from the date of its adoption by the Board of Directors, and no option or shares shall be granted after termination of the 2006 Incentive Stock Plan. Subject to certain restrictions, the 2010 Plan may at any time be terminated and from time to time be modified or amended by the affirmative vote of the holders of a majority of the outstanding shares of the capital stock of the Company present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the State of Nevada
 
 
 
24

 
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following table sets forth certain information relating to the ownership of common stock by (i) each person known by us be the beneficial owner of more than five percent of the outstanding shares of our common stock, (ii) each of our directors, (iii) each of our named executive officers, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, the information relates to these persons, beneficial ownership as of March 31, 2012.  Except as may be indicated in the footnotes to the table and subject to applicable community property laws, each person has the sole voting and investment power with respect to the shares owned.

  
Name of Beneficial Owner (1)
 
Common Stock
Beneficially Owned(2)(3)
   
Percentage of Common Stock (2)
 
             
Lyle Hauser(3)
   
989,631,250
     
24.6
%
Kevin Hauser (4)
   
327,758,500
     
8.2
%
Michael S. Delin
   
-
         
All officers and directors as a group (2 persons)
   
327,758,500
     
            8.2
%

(1) Except as otherwise indicated, the address of each beneficial owner is c/o Medefile International, Inc., 301 Yamato Rd, Ste 3155, Boca Raton, FL  33413.

(2) Applicable percentage ownership is based on 4,019,830,281 shares of common stock outstanding as of March 31, 2012, together with securities exercisable or convertible into shares of common stock within 60 days of March 31, 2012 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of March 31, 2012 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(3) Lyle Hauser owns 896,312,500 shares in his individual capacity and 93,318,750 shares through Vantage Holding Ltd. Lyle Hauser is the owner of The Vantage Group Ltd. and Vantage Holding Ltd. Lyle Hauser is the brother of Kevin Hauser.

The information as to shares beneficially owned has been individually furnished by our respective directors, named executive officers and other stockholders, or taken from documents filed with the SEC.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transaction

Medefile has been able to continue operations due to the payment of Company obligations by The Vantage Group Ltd., a company owned and controlled by Lyle Hauser.  Lyle Hauser is the control person of Vantage Holding Ltd., the majority stockholder of the Company.

During the period July 16, 1997 (inception) to December 31, 2007, The Vantage Group Ltd., has (i) paid an aggregate of $905,318 of the Company's obligations, (ii) contributed $275,000 of assets to the capital of the Company, and (iii) made loans of approximately $3,192,466 to the Company.

On April 11 2007, Medefile issued two promissory notes to The Vantage Group as evidence of this indebtedness. One of the notes, in the principal amount of $700,000, was payable on demand. The other note, with a principal amount of $1,115,379, was payable no later than July 1, 2008. On November 15, 2007, the Company and Vantage, the Company’s largest stockholder and primary source of funding, entered into a debt conversion agreement. Pursuant to the debt conversion agreement, Vantage agreed to convert the aggregate principal amount of $2,100,000 of its indebtedness into an aggregate of 14,000,000 restricted shares of common stock of the Company. In addition, the Company issued to Vantage 8,400,000 three year warrants to purchase an aggregate of 8,400,000 restricted shares of the Company’s common stock at an exercise price of $0.60 per share. During the twelve months ended December 31, 2007, the Company borrowed a total of $1,245,000 against the note. During the twelve months ended December 31, 2007 and 2006, and the Company charged related party interest expense of $161,504 and $95,670, respectively.
 
 
 
25

 

 
On September 23, 2008. the Company received a Cancellation of Debt from Vantage Group Ltd., canceling the remaining balance of the Loan Payable, including all outstanding interest as of that date.  In addition, Vantage Group Ltd. surrendered 14,000,000 shares of common stock and 8,400,000 warrants at $0.60.
 
On December 10, 2008, the Company entered into an employment agreement with Rachel Hauser, the daughter-in-law of the Company’s Chief Executive Officer, Milton Hauser, pursuant to which Mrs. Hauser agreed to serve as the Company’s Director of Marketing and Public Relations for a term of three years.  The term of his agreement shall automatically extend for successive one year periods unless otherwise terminated by the parties in accordance with the terms of the agreement.  Pursuant to his agreement, Mrs. Hauser shall be entitled to receive an annual salary of $216,000.  She shall also be entitled to a discretionary bonus from time to time during the term of the agreement in an amount determined by the sole discretion of the Company’s board of directors.
 
Prior to his appointment as a director, Michael Delin performed certain accounting services for the Company.  Mr. Delin received an aggregate of 3,200,000 shares of the Company’s common stock as consideration for such services, which shares were valued at approximately $4,500 at the time of grant.

On July 31, 2008, the Company issued an unsecured Demand Note to Cybervault LLC, a company wholly owned by Medefile’s former CEO.  The Note bears interest at a rate of seven percent per annum.  As of December 31, 2009 the Company had received a total of $93,301 in principal payments, with the additiona of accrued interest of $8,423 the total owed amounts to $101,724.

On April 26, 2010, Lyle Hauser, the brother of the Company’s current Chief Executive Officer and the son of the former Chief Executive Officer and control person for Vantage Group Ltd., purchased the demand notes, including principle and interest from Cybervault and a note payable from an unrelated party.  On May 3, 2010, Lyle Hauser purchased the note payable from another related party.  On May 14, 2010, Lyle Hauser purchased a note held by Digital Health.

On May 24, 2010, Lyle Hauser, the brother of the Company's current Chief Executive Officer and the son of the former Chief Executive Officer and control person for Vantage Group Ltd.,  agreed to convert notes in the aggregate principal amount of $900,000 into an aggregate of 450,000,000 shares of the Company's common stock.  

On July 6, 2011, Kevin Hauser (the Company’s chief executive officer) (with respect to 300,000,000 shares of common stock) and Lyle Hauser (the Company’s largest shareholder) (with respect to 989,631,250 shares of common stock) entered into six month lock-up agreements with the Company. Under their respective lock-up agreements, Kevin Hauser was granted anti-dilution protection for a period of six months under the same terms as the investors under the securities purchase agreement entered into on July 6, 2011, and Lyle Hauser were granted anti-dilution protection for a period of four years under the same terms as the investors. In January 2012, Kevin Hauser’s lock-up agreement such that the lock-up period was extended to July 20, 2012, and anti-dilution protection was extended to July 20, 2014. In April 2012, Kevin Hauser’s lock-up agreement was further amended such that the anti-dilution protection will terminate following the Company’s next capital raise.

Director Independence

None of our directors is independent as term is defined under the Nasdaq Marketplace Rules.
 
 
 
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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
AUDIT FEES

The aggregate fees billed by L.L. Bradford for the audit and review of the Company's annual financial statements and services that are normally provided by an accountant in connection with statutory and regulatory filings or engagements for the fiscal year ended December 31, 2011 and 2010 were as follows [update for 2011.

 
       
     
2011
     
2010
 
                 
Audit Fees
 
$
40,500
   
$
41,000
 
Audit Related Fees
   
 -
     
-
 
Tax Fees
   
 -
     
-
 
All Other Fees
   
 -
     
-
 
Total Fees
 
$
40,500
   
$
41,000
 

TAX FEES

No tax fees were billed by L.L. Bradford for professional services rendered for tax compliance; tax advice and tax planning for the fiscal year ended December 31, 2011 and 2010.   
 
ALL OTHER FEES

No other fees were billed by L.L. Bradford for the fiscal year ended December 31, 2011 and 2010.
 
ITEM 13. EXHIBITS
 
2.1
 Agreement and Plan of Merger made as of November 1, 2005 among Bio-Solutions International, Inc., OmniMed Acquisition Corp., OmniMed International, Inc., and the shareholders of OmniMed International, Inc. (as incorporated by reference to the Company's Current Report on Form 8-K filed on November 3, 2005).
   
3.1
Articles of Incorporation (as incorporated by reference to the Company's Annual Report on Form 10-KSB filed on April 17, 2006).
   
3.2
Bylaws of the Issuer (as incorporated by reference to the Company's Annual Report on Form 10-KSB filed on April 17, 2006).
   
3.3
Certificate of Amendment to Articles of Incorporation filed on August 31, 2004 (as incorporated by reference to the Company's Annual Report on Form 10-KSB filed on April 17, 2006).
   
3.4
Articles of Merger changing the Registrant's name to OmniMed International, Inc. (as incorporated by reference to the Company's Current Report on Form 8-K filed on November 22, 2005).
   
3.5
Articles of Merger changing the Registrant's name to Medefile International, Inc. (as incorporated by reference to the Company's Current Report on Form 8-K filed on January 18, 2006).
   
3.6
Certificate of Designation of Series A Preferred (as incorporated by reference to the Company's Current Report on Form 8-K filed on January 16, 2009).
   
3.7
Certificate of Amendment to Articles of Incorporation, filed January 21, 2009 (incorporation be referenced to the Company’s Form 8-K filed on January 23, 2009)
   
3.8
Certificate of Amendment to Articles of Incorporation filed April 13, 2010 (incorporated by reference to10-K/A filed July 15, 2011)
   
3.9
Certificate of Amendment to Articles of Incorporation filed July 20, 2010(incorporated by reference to10-K/A filed July 15, 2011)
 
 
 
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10.6
2006 Stock Incentive Plan (as incorporated by reference to the Company's Annual Report on Form 10-KSB filed on April 17, 2006).
   
10.7
HSA Bank Marketing Agreement (as incorporated by reference to the Company's Annual Report on Firm 10-KSB/A filed on April 17, 2007).
   
10.8
Promissory Note dated April 11, 2007 (as incorporated by reference to the Company's Annual Report on Firm 10-KSB/A filed on April 17, 2007).
   
10.9
Promissory Note dated April 11, 2007 (as incorporated by reference to the Company's Annual Report on Firm 10-KSB/A filed on April 17, 2007).
   
10.10
Demand Promissory Note dated July 31, 2008 - Cybervault (as incorporated by reference to the Company's Annual Report on Form 10-K/A filed on February 11, 2011).
   
10.11
Demand Promissory Note dated July 31, 2008 – Roth (as incorporated by reference to the Company's Annual Report on Form 10-K/A filed on February 11, 2011).
   
10.12
Demand Promissory Note dated March 31, 2009 – Digital Health (as incorporated by reference to the Company's Annual Report on Form 10-K/A filed on February 11, 2011).
   
10.13
Form of Subscription Agreement (as incorporated by reference to the Company's Current Report on Form 8-K filed on July 13, 2010).
   
10.14
Executive Employment Agreement, dated December 10, 2008, between the Company and Milton Hauser (incorporated by reference to the Company's 8-K filed on January 16, 2009).
   
10.15
Executive Employment Agreement, dated December 10, 2008, between the Company and Kevin Hauser (incorporated by reference to the Company's 8-K filed on January 16, 2009).
   
10.16
Executive Employment Agreement, dated December 10, 2008, between the Company and Rachel Hauser (incorporated by reference to the Company's 8-K filed on January 16, 2009).
   
10.17
Amendment to Employment Agreement, dated effective March 26, 2011, between the Company and Kevin Hauser (incorporated by reference to the Company's 8-K filed on May 16, 2011).
   
10.18
Letter Agreement, dated January 15, 2010, between the Company and Rachel Hauser (incorporated by reference to10-K/A filed July 15, 2011)
   
10.19
Promissory Note amendment, dated June 30, 2009 (incorporated by reference to10-K/A filed July 15, 2011)
   
10.20
Promissory Note amendment, dated September 30, 2009 (incorporated by reference to10-K/A filed July 15, 2011)
   
10.21
Promissory Note amendment, dated December 31, 2009 (incorporated by reference to10-K/A filed July 15, 2011)
   
10.22
Form of Securities Purchase Agreement (incorporated by reference to 8-K filed July 20, 2011)
   
10.23
Form of Warrant (incorporated by reference to 8-K filed July 20, 2011)
   
10.24
Lock-Up Agreement between the Company Kevin Hauser (incorporated by reference to 8-K filed July 20, 2011)
   
10.25
Lock-Up Agreement between the Company and Lyle Hauser (incorporated by reference to 8-K filed July 20, 2011)
   
 16.1
Letter from Former Accountant (as incorporated by reference to Form 8-K filed with the Securities and Exchange Commission on March 7, 2006)
   
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
EX-101.INS
XBRL INSTANCE DOCUMENT
   
EX-101.SCH
XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
   
EX-101.CAL
XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
   
EX-101.DEF
XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
   
EX-101.LAB
XBRL TAXONOMY EXTENSION LABELS LINKBASE
   
EX-101.PRE
XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
 
                      

 

 
 
28

 

 
    

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
MEDEFILE INTERNATIONAL, INC.
 
       
Date: April 16, 2012
By:
/s/ Kevin Hauser
 
   
Kevin Hauser
 
   
President, Chief Executive Officer, Acting Chief Financial
Officer and Director
 
       



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
 
 SIGNATURE
 
TITLE
 
DATE
         
/s/ Kevin Hauser
 
President, Chief Executive Officer and Chairman of
 
April 16, 2012
Kevin Hauser
 
the Board of Directors
(Principal Executive, Financial and Accounting Officer)
   
         
/s/ Michael S. Delin
 
Director
 
April 16, 2012
Michael S. Delin
       
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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