U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2012

 

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

 

For the transition period from

 

Commission File No. 333-138251

 

 

MEDYTOX SOLUTIONS INC

 (Exact name of registrant as specified in its charter)

 

 

Issuer's Telephone Number: (561) 855-1626

 

 

(Former name, former address and former

Fiscal year, if changed since last report)

 

 

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 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.

 

[X] Yes      [   ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[  ] Yes      [X] No

 

 

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,” "non-accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[    ] Yes      [X] No

 

State the number of shares outstanding of each of the issuer's classes of common equity, as of the last practicable date:  As of May 1, 2012, there were 30,764,800 shares of common stock, par value $0.0001 per share, of the Registrant issued and outstanding. 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.      Consolidated financial statements.

 

MEDYTOX SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2012 AND DECEMBER 31, 2011

 

 

The notes are an integral part of these consolidated financial statements.

 

 

 

 

The notes are an integral part of these consolidated financial statements.

 

 

 

The notes are an integral part of these consolidated financial statements.

                                                                               

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

 

Organization and Consolidation

Casino Players, Inc. (the “Company” or “Medytox”) was organized July 20, 2005 under the laws of the State of Nevada.  The Company had a wholly owned subsidiary, Casino Rated Players, Inc. (“CRP”), a Nevada corporation that was a casino representative company offering complimentary rooms to rated players.  CRP’s revenues were a percentage of the amount of income the casino earned from the rated players.  The casino tracked the play of the rated player to determine its gross income, and the CRP was then paid its contractual percentage based on that income, realized at the time of play. 

 

During 2010 and 2011 the casino representative business was minimal. In the first half of  2011, the Company management decided to reorganize the operations of Casino Players, Inc. as a holding company to acquire and manage a number of companies in the medical services sector. 

 

On June 22, 2011 the Company organized Medytox Management Solutions Corp (MMMS), a Florida corporation, as a wholly owned subsidiary.  MMMS is a marketing company selling software to medical clinics, hospitals and physicians’ offices.  The software aids in the monitoring of drug testing and medication use in patients.  MMMS has offices in West Palm Beach, Florida.

 

On July 26, 2011 the Company organized Medytox Institute of Laboratory Medicine, Inc. (MILM), a Florida corporation, as a wholly owned subsidiary.  MILM was organized to acquire and manage medical testing laboratories.  MILM operates from the corporate offices in West Palm Beach, Florida.

 

On August 22, 2011, MILM acquired 49% of Trident Laboratories, Inc. (Trident), a privately owned Florida corporation, through a stock purchase agreement and the right to acquire an additional 32% interest, for a total ownership interest of 81%..  Trident operates a medical testing laboratory specializing in urine testing from a facility in Hollywood, Florida.  Trident sought to rescind the stock purchase agreement, and MILM filed an action in state court against Trident Laboratories, Inc. and its selling shareholders seeking, inter alia, specific performance of the agreement and for damages, including revenue generated by MILM.  The litigation is ongoing and could have negative results in earnings

 

Also, on August 22, 2011, the Company acquired 100% of Medical Billing Choices, Inc., (MBC) a privately held North Carolina corporation, through a stock purchase agreement for cash and an installment note.  MBC operates a medical billing service for a variety of medical providers throughout the southeastern United States from offices in Charlotte, North Carolina.  After the acquisition, MBC is the main billing company for the MILM laboratories. 

 

On September 16, 2011, the Board of Directors agreed to change the name of the Company to Medytox Solutions Inc. and file for a new trading symbol.  On October 27, 2011, FINRA approved the name change and the new symbol, “MMMS”. 

 

On January 16, 2012 Trident Laboratories, Inc. (Trident) requested in writing to rescind the stock purchase agreement and  is currently in a dispute with the Company’s  subsidiary Medytox Institute of Laboratory Medicine, Inc. (“MILM”) arising out of a stock purchase agreement granting MILM the right to acquire an additional 32 % interest in Trident.  MILM filed an action in state court against Trident Laboratories, Inc. and its selling shareholders seeking, inter alia, specific performance of the agreement and for damages, including revenue generated by MILM.  MILM filed a motion seeking to enjoin Trident from rescinding the stock purchase agreement, and the court has entered a standstill order maintaining the status quo pending the final adjudication of the dispute.  Due to difficulties in obtaining information during litigation, the results of operations through January 16, 2012 have been included in operating income.  An estimated loss in the amount of $496,096, from January 17, 2012 through March 31, 2012, has been included in other income.  This amount has been considered as part of the minority interest since realization by the Company is in doubt.

 

As of the date of these statements, the suit has not yet been resolved and MILM may not recover any of its sales proceeds from Trident.  This has caused a significant reduction in receivables due at a later date. The legal dispute has caused a disruption in our operations and business plan during the first three months of 2012.

 

Trident’s assertions include: (1) failure to pay $500,000 required by the stock purchase agreement.  Legal counsel has offered the court evidence indicating that this amount is payable on August 31, 2012 whereby breach could not occur until maturity date and; (2) practices of MILM are not in compliance with HIPPA.  Legal counsel has addressed claims to the court.  Management, on consultation with counsel, believes that the Company is in compliance with regulations and will prevail in defense of assertion. 

 

In February 2012, Bradley Ray filed an action claiming the ownership of the Company subsidiary Medytox Institute of Laboratory Medicine, Inc. (“MILM”).  At the time of incorporation of this subsidiary, Mr. Ray was a paid consultant to Medytox and was considered to be acting as an agent of Medytox.  Mr. Ray has asserted that he was the sole incorporator and named owner of MILM and therefore has legal rights to contracts and agreements with Trident.  Medytox has incurred all expenses in association with the selling and marketing expenses, for which the company was created.  Management disputes this claim and believes it is without merit. The litigation is ongoing and may not be resolved without a court hearing.

 

In February 2012 several claims have been made by prior employees and consultants for unpaid salaries and commissions.  The Company has accrued certain liabilities based on contractual obligations.  The Company acknowledges certain liabilities, however disputes amounts for certain claims.  The employee claims include other assertions of improper business practices by the Company, reiterating those claimed by Trident, above.  Legal counsel has addressed these claims and disputes the claims, finding several of them to be without legal merit. The Company has accrued $200,000 liabilities in regard to these other claims.

 

February 6, 2012 the Company formed Medytox Diagnostics Inc. as a wholly owned subsidiary that will acquire and build clinical Laboratories that will be owned by Medytox Solutions Inc.

 

On February 16, 2012, the Company entered into an agreement to acquire majority interest in Collectaway LLC (now known as PB Laboratories LLC) (PB Labs), a Florida limited liability company.  PB Labs will be the main testing facility. The Company has ordered and is in the process of installing new equipment that will enable PB Labs to facilitate the increased volume of urine toxicology and blood testing that the Company anticipates.  The total purchase price to be paid for the 50.5% interest in Collectaway shall be $201,000.  The purchase price shall be paid as follows: (i) $1,000 paid at closing; and (ii) Medytox shall deliver a secured promissory note (the "Note") to Seller in the amount of $200,000 at closing, the note is interest bearing at 5% with four (4) quarterly payments due of $50,000, commencing May 16, 2012 and ending February 15, 2013.  The operations of PB Labs have been included since the date of the agreement.

On February 27, 2012, Medytox appointed Jace Simmons the Chief Financial Officer, effective March 1, 2012, and entered into an Employment Agreement.  The term of the Agreement is for two years, renewable for additional one-year periods if neither party otherwise gives at least 90 days' notice.  Under the Agreement, Mr. Simmons will receive an annual salary of $150,000, subject to review each year.  He will participate in senior management bonus programs to be approved by the Board of Directors.  He will also receive annually options to purchase 200,000 shares of Medytox common stock exercisable at $3.00 a share.  When the common stock commences trading, Mr. Simmons will receive options to purchase an additional 400,000 shares, also exercisable at $3.00 a share.  Medytox will also reimburse Mr. Simmons for agreed-upon moving expenses and for his temporary housing expenses for up to 90 days.

On March 9, 2012 the Company formed Medytox Medical Marketing & Sales Inc. as a wholly owned subsidiary that will provide the marketing for clinical Laboratories that are owned by Medytox Solutions Inc.

The management of the Company is considering options to divest the casino representative business (CRP) but has not approved a plan of disposition.  The results of the CRP are immaterial and do not constitute a significant segment for reporting purposes.  As of September 30, 2011, the Company operates in the medical service segment.

 

Basis of Accounting

We have prepared the accompanying consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, these consolidated financial statements give effect to all normal recurring adjustments necessary to present fairly the financial position and results of operations and cash flows of the Company.

 

Although we believe that the disclosures included in our consolidated financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted. Accordingly, the accompanying consolidated financial statements should be read in conjunction with the Company’s latest annual report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission (the “SEC”) on April 13, 2012.

 

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for the full 2012 year.

 

Certain prior period amounts have been reclassified to conform to current-period presentation. These reclassifications had no effect on net loss for the periods presented.

 

Use of Estimates 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.  The most significant estimates included in the preparation of the consolidated financial statements are related to asset lives and accruals.

 

Income taxes

We account for current income taxes using the federal and state statutory corporate tax rates in the jurisdictions in which we operate.  Deferred income taxes are determined by considering the estimated future tax effects of differences between the consolidated financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded if realization of the deferred tax assets do not meet the “more likely than not” criteria of current accounting standards.

 

We recognize the consolidated financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

Earnings Per Share

Basic earnings per share are computed based on the weighted average number of shares outstanding during the period.  Diluted earnings per share are computed using the weighted average common shares and all potentially dilutive common shares outstanding during the period.  At March 31, 2012 we did not have any potentially dilutive common shares outstanding.

 

 

NOTE 2: GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time. We have minimal history with our new operating plan and cannot predict if we will be successful.  The future of the company is dependent on its ability to execute its new business plan and to obtain funding though traditional sources. Although the Company plans to pursue funding through all means, there can be no assurance that the Company will be able raise sufficient working capital to maintain its operations. If the Company is unable to raise the necessary working capital though the traditional sources it will be forced to continue relying on cash from operations and loans from related parties to satisfy its working capital needs. There can be no assurance that the company will be able rely on these sources to maintain its operations.  The Company is in litigation with Trident Laboratories and the results of the litigation may have a negative effect with the profits of the Company.

 

Assets and liabilities of the disputed subsidiary as of  March 31, 2012 are as follows:

 

 

NOTE 3: NOTES PAYABLE

The Company and its subsidiaries are party to a number of loans with unrelated parties.  At March 31, 2012  long term debt consisted of the following:

 

Principal maturities of notes payables for the next five years and thereafter are as follows:

 

NOTE 4: INCOME TAXES

 

The Company recognizes the consolidated financial statement impact of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than–not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

The Company is subject to income taxes in the U.S. federal jurisdiction and the states of Florida and North Carolina. The tax regulations within each jurisdiction are subject to interpretation of related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local examinations by tax authorities for the years before 2009.

 

 

NOTE 5: STOCK BASED COMPENSATION

 

Employee and non-employee stock awards are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.

 

The company has 600,000 options outstanding to various officers and consultants with exercise prices of $2.50 and $3.00.  Since there is no market for the stock, no value has been assigned to the option. 

 

NOTE 6: RELATED PARTY TRANSACTIONS

 

A shareholder has advanced loans to the Company for the payment of certain operating expenses.  The loans are non-interest bearing and are due on demand. Loans from shareholders at March 31, 2012 amounted to $50,010.

 

At March 31, 2012, senior management had deferred compensation of $249,166.from the original Company and senior management of Medytox Solutions Inc. are owed $181,099 deferred compensation from the Company. 

 

NOTE 7: STOCKHOLDERS EQUITY

 

On June 20, 2011 the Company issued 1,300,000 shares of common stock for consulting fees totaling $13,000.

 

The Company has offered promissory notes in the total amount of $263,800 to a number of shareholders in exchange for retiring a total of 2,898,500 shares of common shares.  These shares had not been returned by March 31, 2012 and were still outstanding. 

 

NOTE 8: RECENT ACCOUNTING PRONOUNCEMENTS

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). This newly issued accounting standard requires an entity to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions executed under a master netting or similar arrangement and was issued to enable users of financial statements to understand the effects or potential effects of those arrangements on its financial position. This ASU is required to be applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. As this accounting standard only requires enhanced disclosure, the adoption of this standard is not expected to have an impact our financial position or results of operations.

 

NOTE 9: SIGNIFICANT ACQUISTIONS

 

Acquisition of Collectaway LLC (now known as PB Laboratories LLC).

On February 16, 2012, the Company, through its subsidiary, Medytox Diagnostics Inc., agreed to purchase 50.5% of PB Laboratories, LLC. (PB Labs) from an  unrelated party for cash and an installment note in a total amount of $201,000.  The note will be paid in $50,000 quarterly payments over the next 12 months.

PB Labs was organized in October 2005.  The Company was not required to file audited consolidated financial statements for the years ended December 31, 2011 and 2011 via Form 8-K. 

Medytox accounted for the assets, liabilities and ownership interests in accordance with the provisions of ASC 805, "Business Combinations".  As such, the recorded assets and liabilities acquired have been recorded at fair value and any difference in the net asset values and the consideration given has been recorded as a gain on acquisition or as goodwill. The unaudited values as of the date of agreement are as follows:

 

as though this acquisition had taken place at January 1, 2012 are as follows:

 

 

Acquisition of Trident Laboratories, Inc.

On August 22, 2011 the Company, through its subsidiary, MILM, agreed to purchase 81% of Trident Laboratories, Inc. (Trident) from unrelated parties for an installment note in a total amount of $500,000.  MILM will pay the $500,000 note,  payments from the revenue generated by MILM business brought to Trident. 

 

 

Acquisition of Medical Billing Choices, Inc.

On August 22, 2011 the Company agreed to purchase 100% of Medical Billing Choices, Inc. (MBC) from an unrelated party for cash and a note for a total amount of $850,000.  Medytox paid $100,000 down in cash and will pay the $750,000 note in monthly payments from the collections in MBC on Medytox billings.  The $750,000 must be paid off within 24 months or the shareholders of MBC have the right to rescind the agreement. 

 

Combined results

 

Pro forma results of operations for the three months ended March 31, 2012 and 2011 as though both acquisitions had taken place at January 1, 2011 are as follows:

 

 

Note 10.  Subsequent Events.

 

On May 14, 2012, Medytox Solutions, Inc. ("Medytox") borrowed $550,000 from TCA Global Credit Master Fund, LP (the "Lender") pursuant to the terms of the Senior Secured Revolving Credit Facility Agreement, dated as of Aril 30, 2012 (the "Credit Agreement"), among Medytox, Medytox Medical Marketing & Sales, Inc. ("Medytox Medical"), Medytox Diagnostics, Inc. ("Diagnostics"), PB Laboratories, LLC ("PC Labs") and the Lender.  The funds will be used for general corporate purposes,  Under the Credit Agreement, Medytox may borrow up to an amount equal to the lesser of 80% of its Eligible Accounts (as defined in the Credit Agreement) and the revolving loan commitment, which initially is $550,000.  Medytox may request that the revolving loan commitment be raised by various specified amounts at specified times, up to a maximum of $4,000,000.  In each case, whether to agree to any such increase in the revolving loan commitment is in the Lender's sole discretion.  The loan matures on November 30, 2012, subject to a six-month extension at the request of Medytox, or upon 60 days written notice by the Lender.  The maturity date mat also be extended, in the Lender's sole discretion, in connection with an increase in the revolving loan commitment. Further details are available in the Company’s  8-K filing dated May 21, 2012.

Note 11.  Contingencies

Legal Matters

During the course of business, litigation commonly occurs.  From time to time the Company may be a party to litigation matters involving claims against the Company.  The Company operates in a highly regulated industry and employees personnel which may inherently lend itself to legal matters.  Management is aware that litigation has associated costs and that results of adverse litigation verdicts could have a material effect on the Company’s financial position or results of operations. Management, in consultation with legal counsel, has addressed known assertions and predicted unasserted claims below. 

Legal Matters – Trident Labs

As described in Note 1, Disputed Segment, one subsidiary, Trident Laboratories, Inc. (Trident) is currently in a contract dispute with the Company.  The Company has filed suit against Trident Laboratories, Inc. and its selling shareholders.  The judge has denied the rescission and ordered a Stand Still Agreement, which currently is in force. The suit is not yet resolved and Medytox may not recover any of its sales proceeds from Trident which will cause a significant reduction in receivables due at a later date. The legal dispute has caused a disruption in our operations during 2012.

Trident’s assertions include: (1) failure to pay $500,000 note.  Legal counsel has offered the courts evidence of original promissory notes, which indicate that loan is payable on August 31, 2012 whereby breach could not occur until maturity date; (2) practices of Medytox are not in compliance with HIPPA.  Legal counsel has addressed claims to the court.  Management, on consultation with counsel, believes that the Company is in compliance with regulations and will prevail in defense of assertion.

Legal Matters – Prior Consultant, Bradley T. Ray

In February 2012, interference and ownership claims on the Company subsidiary Medytox Institute of Laboratory Medicine, Inc. (“MILM”), has been filed by Bradley Ray.  At the time of incorporation of this subsidiary, Mr. Ray was a paid consultant to Medytox and was considered to be acting as an agent of Medytox while filing incorporation documents.  Mr. Ray’s has asserted claim that he was the sole incorporator and named owner of MILM and therefore has legal rights to contracts and agreements with Trident Labs.  Medytox has incurred all expenses in association with the selling and marketing expenses, for which the company was created.  Management disputes this claim and legal counsel is currently litigating these claims as it believes the substance of the entities activities is to prevail over the form of incorporation.  Management and counsel believe these claims are without merit and will be dismissed.

Legal Matters – Prior Employees and Consultants

Several claims have been made by prior employees and consultants for unpaid salaries and commissions.  The Company has accrued  liabilities of $200,000 based on contractual obligations.  The Company acknowledges certain liabilities, however disputes amounts for certain claims.  The employee claims include other assertions of improper business practices by the Company, reiterating those claimed by Trident, above.  Legal counsel has addressed these claims and disputes the claims, finding them to be without legal merit. The Company has not accrued any liabilities in regard to these other claims.  Item 2.       Management's Discussion and Analysis of Financial Condition and Results of Operations.

 

Forward-Looking Statements

 

This Report contains statements that we believe are, or may be considered to be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact included in this Report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “foresee,” “project,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC or press releases or oral statements made by or with the approval of one of our authorized executive officers. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements contained herein, which reflect management’s opinions only as of the date hereof. Except as required by law, we undertake no obligation to revise or publicly release the results of any revision to any forward-looking statements. You are advised, however, to consult any additional disclosures we make in our reports to the SEC. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Report.

 

 

 

Unless stated otherwise, the words “we,” “us,” “our,” the “Company,” or “Medytox Solutions, Inc.” in this section collectively refer to Medytox Solutions, Inc., Medytox Medical Management Solutions, Inc., Medytox Institute of Laboratory Medicine, Corp, Medytox Diagnostics Inc, Trident Laboratories, Inc., Medical Billing Choices, Inc. and Casino Rated Players, Inc.

 

 

Overview

 

Medytox Solutions, Inc. (the “Company” or “Medytox”) was organized July 20, 2005 under the laws of the State of Nevada.  The Company had a wholly owned subsidiary, Casino Rated Players, Inc. (“CRP”), a Nevada corporation that was a casino representative company offering complementary rooms to rated players.  CRP’s revenues were a percentage of the amount of income the casino earned from the rated players.  The casino tracked the play of the rated player to determine its gross income, and the CRP was then paid its contractual percentage based on that income, realized at the time of play. 

 

During 2010 and 2011 the casino representative business was minimal.  As of June 30, 2011, the Company management decided to reorganize the operations of Medytox Solutions, Inc. as a holding company, under the name “Medytox Solutions, Inc.”, to acquire and manage a number of companies in the medical services sector.  The Company organized two subsidiaries in the first quarter and acquired two others through stock purchases. 

 

As of September 30, 2011, we operate a medical testing laboratory, a medical billing service, a marketing firm for medical monitoring software and services and corporate offices.  The operations of the casino representative business are immaterial and do not constitute a separate segment. 

 

Our main offices are located at 400 S. Australian Ave, Suite 800, West Palm Beach, Florida; our telephone number is (561) 855-1626.  We operate other facilities in Hollywood, Florida; Lake Worth, Florida and Charlotte North Carolina. 

Going Concern

 

At March 31, 2012, we had $318,794 in cash on hand and a stockholders ‘deficit of $(2,158,045).  Our new business model has resulted in a loss for the three months ended March 31, 2012.  Our auditors included a going concern paragraph in their audit report for December 31, 2011.

 

Results of Operations

 

For the Three Months Ended March 31, 2012 and 2011

 

The Company has a new business model as of September 30, 2011 and comparison of financials is not relative; the Company has entered the medical service industry versus the casino hosting business.

 

Our new business model has resulted in significant revenue increases for the three months ended March 31, 2012.

 

Revenues were $1,238,981 vs. revenues for the three months ended March 31, 2011 were $4,656..  The increase is due to the addition of our marketing company that is feeding business to our acquired medical laboratories.

 

Operating expenses have increased for the three months ended March 31, 2012 to $1,939,869 vs. $44,233 for the same period 2011. The increase is due to a new business model that increases both  revenues and expenses. In addition, the Company incurred legal expenses regarding the Trident litigation totaling $126,013, and recorded accrued sales commissions totaling $260,290 relating to Trident collections.

 

Our losses for the three months ended March 31, 2012 were  $(691,017) compared to a loss of  $(39,577) for the three months ended March 31, 2011. 

 

The Company’s cash position has increased to $318,794 vs. $97,103, March 31, 2012 and December 31, 2011, respectively.  Accounts receivables on March 31, 2012 were $1,247,540 vs. $1,619,727 on December 31 , 2011.

 

Liquidity and Capital Resources

 

As reflected in the financial statements we have an accumulated deficit of  $(1,773,302) and have a positive cash flow from operations of $345,907 for the three months ended March 31, 2012. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional capital and execution of its business plan.  We note that we have significant current accounts receivable income for the three months ended March 30, 2012.  As we continue to execute our business plan, we expect that our liquidity numbers will improve, although there is no guarantee that will occur.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Deferred Compensation

 

At March 31, 2012, senior management had deferred compensation of $430,265.

 

Critical Accounting Policies

 

Our discussion and analysis of financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and disclosures on the date of the consolidated financial statements.

 

On an on-going basis, we evaluate our estimates, including, but not limited to, those related to revenue recognition.

 

We use authoritative pronouncements, historical experience and other assumptions as the basis for making judgments. Actual results could differ from those estimates. Critical accounting policies identified are as follows:

 

Revenue Recognition

 

The Company follows the guidance of ASC Topic 605, “Revenue Recognition”.   In general, the Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable and collect ability is reasonably assured.

The Company performs medical testing of samples supplied by medical and corporate customers.  Services are billed when the results are presented.  The Company uses our subsidiary  billing agency to process the invoices.  The services are billed at the estimated reimbursement rates published by the various payers.  A portion of the services are with billed governmental payers and subject to periodic review and retroactive adjustment. 

Retroactive adjustment due to a Medicare or Medicaid review are considered to be a change in the estimate and recorded in the period that the adjustment is communicated to the Company.  Adjustments are normal and recurring, and generally communicated within reasonable time or within the billing period.  Adjustments are considered immaterial.

The Company also provides consulting services on billing and collecting processes to medical providers on fee for services basis.  These services are billed as services are providing according the contract.

 

Use of Estimates

 

The Company’s significant estimates include allowance for doubtful accounts and accrued expenses. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. While the Company believes that such estimates are fair when considered in conjunction with the consolidated financial statements taken as a whole, the actual amounts of such estimates, when known, will vary from these estimates. If actual results significantly differ from the Company’s estimates, the Company’s financial condition and results of operations could be materially impacted.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include all interest-bearing deposits or investments with original maturities of three months or less.

 

Fair Value Measurement

All financial and nonfinancial assets and liabilities were recognized or disclosed at fair value in the financial statements.  This value was evaluated on a recurring basis (at least annually).  Generally accepted accounting principles in the United States define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on a measurement date. The accounting principles also established a fair value hierarchy which required an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  Three levels of inputs were used to measure fair value.

·         Level 1: Quotes market prices in active markets for identical assets or liabilities.

·         Level 2: Observable market based inputs or unobservable inputs that were corroborated by market data.

·         Level 3: Unobservable inputs that were not corroborated by market data.

 

Fair value of financial instruments

 

The carrying amounts reported in the balance sheet for cash, accounts receivable, accounts payable and accrued expenses, debenture and loans payable approximate their fair market value based on the short-term maturity of these instruments.

Accounts Receivable

Accounts receivable represent amounts due from customers in the ordinary course of business from sales activities in each of the Company’s market segments.  The Company considers accounts more than 90 days old to be past due. The Company uses the allowance method for recognizing bad debts. When an account is deemed uncollectible, it is written off against the allowance.  A portion of the receivables are with governmental payers and are subject to periodic review and adjustment. 

 

Property and Equipment

 

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Machinery and equipment are depreciated over 3 to 10 years. Furniture and fixtures are depreciated over 7 years. Accelerated methods of depreciation are generally used for income tax purposes. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease.

 

 The Company performs ongoing evaluations of the estimated useful lives of the property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset. Maintenance and repairs are expensed as incurred.

 

Impairment of Long-Lived Assets

 

In accordance with ASC 360-10-35, “Property, Plant, and Equipment – Subsequent Measurement”,  the Company periodically reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Other Intangible Assets

 

Acquired intangible assets are separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the Company’s intent to do so.

 

Earnings per Share

 

The Company presents “basic” and, if applicable, “diluted” earnings (loss) per common share pursuant to the provisions of  ASC 360, “Earnings per Share”.  Basic earnings (loss) per common share are calculated by dividing net income (loss) by the weighted average number of common shares outstanding during each period. The calculation of diluted earnings (loss) per common share is similar to that of basic earnings (loss) per common share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the conversion of debentures, were issued during the period.

 

Fair Value of Financial Instruments

 

The carrying amounts reported in the balance sheet for cash and cash equivalents, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.

Stock Based Compensation

 

The Company accounts for employee and non-employee stock awards under  ASC 718, “Compensation – Stock Compensation”, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable.

 

Accounting for Warrants  Options and Freestanding Derivative Financial Instruments

 

The Company evaluates its warrants, options and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for.    If the warrant r option is determined to be a derivative, the fair value of the warrants and options is marked-to-market each balance sheet date and recorded as a liability. The change in fair value of the warrants is recorded in the Statement of Operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

 

Equity instruments that are initially classified as equity then become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. In the event that the warrants are determined to be equity, no value is assigned for financial reporting purposes.

Intangible Assets and Related Impairment of Long-lived Assets

 

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of shall be classified as held for sale and are reported at the lower of the carrying amount or fair value less costs to sell.

 

Income taxes

 

The Company accounts for income taxes using the liability method.  This method provides that deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purpose, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.  A valuation allowance may be applied against the net deferred tax due to the uncertainty of its ultimate realization.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

N/A

 

Item 4. Controls and Procedures.

 

 

Evaluation of Disclosure Controls and Procedures

 

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

 

With respect to the period ending March 31, 2012, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934. 

 

Based upon our evaluation regarding the period ending March 31, 2012, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, has concluded that its disclosure controls and procedures were effective.  Through the use of external consultants and the review process, management believes that the financial statements and other information presented herewith are materially correct. 

 

The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives.  However, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that its disclosure controls and procedures will prevent all error 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 benefit 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.

 

Changes in Internal Controls.

 

With the acquisition of significant subsidiaries, the Company is in the process of aligning the controls in the various companies and formulating the various controls and reporting processes necessary for accurate reporting.  Numerous changes in internal controls are anticipated as the Company grows.  The Company employs competent management in all subsidiaries and is developing a system of strong corporate oversight.  Currently, the Company has hired various internal and outside accounting personnel to oversee the consolidation and reporting of the Company results.  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.

 

 

PART II

PART II - OTHER INFORMATION

 

Item 1.  Legal Proceedings.

.

Legal Matters – Trident Labs

 

Trident Laboratories, Inc. (Trident) is currently in a dispute with the Company’s subsidiary Medytox Institute of Laboratory Medicine, Inc. (“MILM”) arising out of a stock purchase agreement granting MILM the right to acquire an additional 32 % interest in Trident. Trident sought to rescind the stock purchase agreement, and MILM filed an action in state court against Trident Laboratories, Inc. and its selling shareholders seeking, inter alia, specific performance of the agreement and for damages, including revenue generated by MILM.

 

MILM filed a motion seeking to enjoin Trident from rescinding the stock purchase agreement, and the court has entered a standstill order maintaining the status quo pending the final adjudication of the dispute.

 

The suit is not yet resolved and MILM may not recover any of its sales proceeds from Trident which will cause a significant reduction in receivables due at a later date. The legal dispute has caused a disruption in our operations during 2012. Trident’s assertions include: (1) failure to pay $500,000 required by the stock purchase agreement. Legal counsel has offered the court evidence indicating that this amount is payable on August 31, 2012 whereby breach could not occur until maturity date; (2) practices of MILM are not in compliance with HIPPA. Legal counsel has addressed claims to the court. Management, on consultation with counsel, believes that the Company is in compliance with regulations and will prevail in defense of assertion.

 

Legal Matters – Prior Consultant, Bradley T. Ray

In February 2012, ownership claims on the Company subsidiary Medytox Institute of Laboratory Medicine, Inc. (“MILM”), were filed by Bradley Ray. At the time of incorporation of this subsidiary, Mr. Ray was a paid consultant to Medytox and was considered to be acting as an agent of Medytox. Mr. Ray has asserted claim that he was the sole incorporator and named owner of MILM and therefore has legal rights to contracts and agreements with Trident Labs. Medytox has incurred all expenses in association with the selling and marketing expenses, for which the company was created. Management disputes this claim and believes it is without merit.

 

Legal Matters – Prior Employees and Consultants

Several claims have been made by prior employees and consultants for unpaid salaries and commissions. The Company has accrued certain liabilities based on contractual obligations. The Company acknowledges certain liabilities, however disputes amounts for certain claims. The employee claims include other assertions of improper business practices by the Company, reiterating those claimed by Trident, above. Legal counsel has addressed these claims and disputes the claims, finding them to be without legal merit. The Company accrued $200,000 in regard to these other claims.

 

 

Item 1A. Risk Factors.

 

Litigation results could be harmful to the revenues and profits to the Company.

 

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3.   Defaults upon Senior Securities.

 

None.

 

Item 4.  Mine Safety Disclosures

 

N/A.

 

Item 5.  Other Information.

 

None.

 

Item 6.   Exhibits.

 

 

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.