UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

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

 

For the quarterly period ended September 30, 2014

 

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

 

For the transition period from ______________ to _______________

 

Commission file number 000-52408

 

LIFESTYLE MEDICAL NETWORK INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Nevada		13-1026995
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

 

201 South Orange Ave., Suite 1510, Orlando, FL		32810
(Address of principal executive offices)		(Zip Code)

 

(407) 514-1230

(Registrant's Telephone Number, Including Area Code)

 

 

(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 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  ☐  No

 

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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. (Check One):

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒

(Do not check if a smaller reporting company)

 

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

 

The number of shares outstanding of the issuer's common stock, $0.001 par value per share, was 25,835,101 as of April 24, 2015.

  

 

 

LIFESTYLE MEDICAL NETWORK, INC.

 

INDEX

 

		Page
Part I.	Financial Information	3
Item 1.	Financial Statements.	3
	Consolidated Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013	4
	Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited)	5
	Consolidated Statement of Stockholders’ Equity through September 30, 2014 (unaudited)	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	19
Item 4.	Controls and Procedures.	19
Part II.	Other Information	19
Item 6.	Exhibits.	19
Signatures		20

  

  

PART I — FINANCIAL INFORMATION

 

ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS.

 

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. The following unaudited consolidated financial statements should be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2013.

 

The results of operations for the three and nine months ended September 30, 2014 and 2013 are not necessarily indicative of the results for the entire fiscal year or for any other period.   

 

  

  

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

		September 30,				December 31,
		2014				2013
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	723			$	19,974
Loan receivable - net of allowance of $42,500			-				-
Prepaid expenses			16,000				3,750
Total Current Assets			16,723				23,724
Property, plant and equipment - net			1,992				2,667
Intangible assets - net			90,284				94,448
Deposit on acquisition			100,000				-
Other assets			6,000				6,000
TOTAL ASSETS		$	214,999			$	126,839
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Short-term debt to related parties		$	1,050,905			$	779,133
Short-term debt			251,000				176,000
Accounts payable and accrued expenses			91,811				88,310
Total Current Liabilities			1,393,716				1,043,443
Commitments and Contingencies			-				-
STOCKHOLDERS' DEFICIENCY:
Common stock, $.001 par value, 200,000,000 shares authorized; 26,085,101 and 25,835,101 shares issued and 26,084,983 and 25,834,983 shares outstanding at September 30, 2014 and December 31, 2013, respectively			26,085				25,835
Additional paid-in-capital			7,255,810				7,112,725
Accumulated deficit during the development stage			(8,451,375	)			(8,045,927	)
Less: Cost of common stock in treasury, 118 and 118 shares at September 30, 2014 and December 31, 2013, respectively			(9,237	)			(9,237	)
Total Stockholders' Deficiency			(1,178,717	)			(916,604	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY		$	214,999			$	126,839

 

See notes to unaudited consolidated financial statements

 

 

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended								For the Nine Months Ended
		September 30,								September 30,
		2014				2013				2014				2013
Revenues		$	-			$	-			$	-			$	-
Costs and expenses:
Selling, general and administrative expenses			125,010				95,830				348,448				283,455
Total Costs and expenses			125,010				95,830				348,448				283,455
Loss from operations			(125,010	)			(95,830	)			(348,448	)			(283,455	)
Other income (expense):
Interest expense			(12,375	)			(1,875	)			(57,000	)			(5,625	)
Total Other income (expense)			(12,375	)			(1,875	)			(57,000	)			(5,625	)
Loss from operations before provision for income taxes			(137,385	)			(97,705	)			(405,448	)			(289,080	)
Provision for income taxes			-				-				-				-
Net loss		$	(137,385	)		$	(97,705	)		$	(405,448	)		$	(289,080	)
Loss per common share		$	(0.00	)		$	(0.00	)		$	(0.01	)		$	(0.01	)
Weighted average common shares outstanding
- basic and diluted			26,085,101				25,280,753				26,053,965				25,236,420

 

See notes to unaudited consolidated financial statements

 

 

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

(Unaudited)

 

						Common Stock								Additional				Retained
						Number of								Paid				Earnings				Treasury
		Total				Shares				Amount				In Capital				(Deficit)				Stock
Balance, January 1, 2013		$	(672,709	)			25,205,101			$	25,205			$	6,934,025			$	(7,622,702	)		$	(9,237	)
Issuance of common stock as incentive for debt			10,000				500,000				500				9,500
Issuance of common stock for services			11,550				130,000				130				11,420
Amortization of warrants issued for services			157,780												157,780
Net loss for the year ended December 31, 2013			(423,225	)															(423,225	)
Balance, December 31, 2013			(916,604	)			25,835,101				25,835				7,112,725				(8,045,927	)			(9,237	)
Issuance of common stock as incentive for debt			25,000				250,000				250				24,750
Amortization of warrants issued for services			118,335												118,335
Net loss for the nine months ended September 30, 2014			(405,448	)															(405,448	)
Balance, September 30, 2014		$	(1,178,717	)			26,085,101			$	26,085			$	7,255,810			$	(8,451,375	)		$	(9,237	)

 

See notes to unaudited consolidated financial statements

 

 

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For The Nine Months Ended
		September 30,
		2014				2013
Cash flows from operating activities:
Net loss		$	(405,448	)		$	(289,080	)
Adjustments to reconcile net loss to net cash  used in operating activities:
Amortization			4,164				4,164
Depreciation			675				-
Non-cash compensation			143,335				129,885
Changes in operating assets and liabilities:
Increase in prepaid expenses			(12,250	)			453
Increase in other assets			-				-
Increase (decrease) in accrued expenses			3,501				82,715
Expenses paid on behalf of the company			-				21,833
Net Cash Used In Operating Activities			(266,023	)			(50,030	)
Cash flows from investing activities:
Deposit on acquisition			(100,000	)			-
Net Cash Used In Investing Activities			(100,000	)			-
Cash flows from financing activities:
Proceeds from related parties			271,772				20,000
Proceeds from short-term debt			75,000				30,000
Net Cash Provided by Financing Activities			346,772				50,000
Net increase (decrease) in cash			(19,251	)			(30	)
Cash and cash equivalents - Beginning of year			19,974				38
Cash and cash equivalents - End of period		$	723			$	8

 

See notes to unaudited consolidated financial statements

 

 

LIFESTYLE MEDICAL NETWORK INC. AND SUBSIDIARIES

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

 

1.

DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated balance sheet as of September 30, 2014 and the consolidated statements of operations, stockholders' deficiency and cash flows for the periods presented have been prepared by Lifestyle Medical Network, Inc. and Subsidiaries (the "Company" or "Lifestyle") and are unaudited. The consolidated financial statements are prepared in accordance with the requirements for unaudited interim periods, and consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments) necessary to present fairly the financial position, results of operations, changes in stockholders' deficiency and cash flows for all periods presented have been made. The information for the consolidated balance sheet as of December 31, 2013 was derived from audited financial statements of the Company.

 

Organization

 

Lifestyle Medical Network Inc. and Subsidiaries (the “Company” or “Lifestyle”) was incorporated in the State of Nevada. The Company directs its operations through its subsidiaries. During 2011, the Company sold its media business in Moldova in exchange for 730,000 of its common shares. In December 2011, the Company entered into an exchange agreement and purchased Lifestyle Medical Corp. ("LMC"). In connection with the acquisition, the operations of the Company are now the operations of LMC. LMC operates its business under a License related to patent rights used in connection with the operations of medical clinics that provide medical services related to men's health, with proprietary trade names and logo designs.

 

On July 11, 2012, through a merger with the Company's wholly-owned Nevada subsidiary, Lifestyle Medical Network Inc., the name of the Company was changed to Lifestyle Medical Network Inc.  This corporate action was permitted to be taken by the Company’s Board of Directors without stockholder approval under Nevada law. In the merger, which was for the sole purpose of changing the Company’s name, there were no other changes to the Articles of Incorporation or any changes to the capital stock of the Company, or to its By-Laws or its officers and directors. The change of the corporate name was approved by FINRA, effective for trading purposes July 31, 2012.

 

Acquisition of Lifestyle Medical Corporation

 

On December 29, 2011, the Company closed an acquisition of 100% of the outstanding shares of Lifestyle Medical Corp., incorporated under the laws of Florida, pursuant to an Exchange Agreement, executed on that date, by and between the Company and Lifestyle Medical Corporation. The consideration paid by the Company for the acquisition of LMC was 5,000,000 shares of the Company's common stock paid to the holders of 100% of the outstanding shares of LMC, valued at $2,500,000, the fair market value at the date of issuance.

 

LMC was incorporated under the laws of the state of Florida on November 14, 2011, and on December 27, 2011 (immediately prior to LMC’s acquisition by the Company) acquired 100% of the membership interests in Elite Professional IP Licensing, LLC, a Delaware limited liability company formed on October 8, 2010 (“Elite”), and 100% of the outstanding shares of Regional Professional Alliance, Inc., a Florida corporation incorporated on October 11, 2010 (“RPA”). LMC, Elite and RPA are entities under common control and all three entities have the same ownership. At the time of its acquisition by LMC, Elite was the assignee, pursuant to an assignment effective May 9, 2011 (the “Assignment”), from Worldwide Medassets, Ltd. SAL (“WMA”) of WMA’s rights as licensee under an October 5, 2010, License Agreement (the “License” or "License Agreement") with Modular Properties Limited, Inc., as Licensor (“MPL”). The fee that was payable to WMA in connection with the Assignment of the MPL License was $6,000,000, represented by a secured promissory note dated May 7, 2011 the (“WMA Note”) in the principal amount of $6,000,000 issued by Saddleworth Ventures, LLC, a Florida limited liability company ("Saddleworth Ventures") to WMA. At that time the ownership of Saddleworth Ventures was identical to the ownership of Elite (now a wholly-owned subsidiary of the Company). Mr. Christopher Smith, the Company's Chief Executive Officer, had a 25.6% equity interest in Elite at the time of the assignment of the license and the same interest in Saddleworth Ventures. As of the December 27, 2011 acquisition of Elite by LMC, $3,000,000 of the amount owing under the WMA Note had been paid to WMA.

 

 

For accounting purposes only, the transactions between LMC with Elite and RPA and the transaction between EMH and LMC were treated as a recapitalization of LMC, as of December 29, 2011, with LMC as the acquirer. The financial statements prior to December 29, 2011, are those of LMC and reflect the assets and liabilities of LMC at historical carrying amounts. The financial statements show a retroactive restatement of LMC's historical stockholders' equity to reflect the equivalent number of shares issued to LMC.

 

Acquisition by the Company of the Rights to the License with MPL

 

As of January 5, 2012, Saddleworth Ventures, with the consent of WMA, assigned the WMA Note to Saddleworth Consulting, LLC, a Florida limited liability company (“Saddleworth Consulting”), and Saddleworth Consulting assumed all obligations under the WMA Note, $3,000,000 of the principal amount of which was outstanding as of the date of the assignment.

 

Pursuant to a Stock Purchase Agreement, dated as of February 8, 2012, between the Company and Saddleworth Consulting, the Company agreed to issue 19,000,000 shares of its common stock to Saddleworth Consulting in exchange for the satisfaction by Saddleworth Consulting of the outstanding $3,000,000 principal balance and accrued interest on the WMA Note. In consideration of the stock issuance, such outstanding principal balance and all obligations under the WMA note to WMA were satisfied by Saddleworth Consulting.

 

Going Concern

 

The consolidated financial statements for the nine months ended September 30, 2014 have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has a past history of recurring losses from operations and is a development stage company. The Company will require additional funding to execute its future strategic business plan. Successful business operations and its transition to attaining profitability are dependent upon obtaining additional financing and achieving a level of revenue to support its cost structure. These factors raise substantial doubt about the Company's ability to continue as a going concern.

 

Management has signed a letter of intent to purchase the assets and operations of a group of six primary care and specialty medical clinics in Houston, Texas, including the real estate properties of the clinics. Management intends to make further acquisitions of other medical clinics during 2014.

 

Management believes these acquisitions will be profitable and the cash flows from these operations will enable the Company to fund the operations of the consolidated group over the next twelve months. Therefore, the annual financial statements continue to be prepared on a going concern basis.

 

Significant Accounting Policies

 

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  There were no significant changes to these accounting policies during the nine months ended September 30, 2014 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

 

2.

RECENTLY ENACTED ACCOUNTING STANDARDS

 

In June 2014, the FASB issued ASC 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consideration”. The guidance eliminates the definition of a development stage entity thereby remaining the incremental financial reporting requirements from U.S. GAAP for development stage entities, primarily presentation of inception to date financial information. The provisions of the amendments are effective for annual reporting periods beginning after December 15, 2014, and the interim periods therein. However, early adoption is permitted. Accordingly, the Company has adopted this standard as of September 30, 2014.

 

3.

INTANGIBLES

 

The MPL License Agreement

 

The MPL License Agreement, under which the Company's wholly-owned subsidiary, Elite, is the licensee pursuant to the Assignment from WMA, provides for the license of medical services, operational systems, manuals, certain names and logo designs and other intellectual property in connection with the operation of medical clinics that provide services related to men’s health within the territory of the continental United States (the “Licensed Rights”). The License Agreement provides for a fee of 6% of gross receipts of Licensee, payable quarterly. The term of the License Agreement is for twenty (20) years from the effective date, May 9, 2011. The Company plans to establish new medical clinics or acquire existing clinics, as well as to provide consulting services to medical clinics utilizing the Licensed Rights.

 

 

Intangibles are the value of the MPL license. Amounts assigned to this intangible were determined by management. Management considered a number of factors in determining the allocations, including valuations and independent appraisals. The intangibles are being amortized over 19.5 years, the life of the license.

 

As of December 31, 2012, management concluded the fair value of the license should be reduced to $100,000 based on a market analysis and the failure of the Company to open any clinics during 2012 and no contracts for the use of the license in the foreseeable future. The Company recorded an impairment charge of $5,392,308 which is included in the Company’s consolidated statement of operations for the year ended December 31, 2012.

 

The components of intangible assets are as follows:

 

	License Agreements
	Balance January 1, 2011		$	-
	Acquisition of license			6,000,000
	Amortization for the period May 8, 2011 through December 31, 2011			(200,000	)
	Balance December 31, 2011			5,800,000
	Amortization for the year ended December 31, 2012			(307,692	)
	Impairment charge			(5,392,308	)
	Balance December 31, 2012			100,000
	Amortization for the year ended  December 31, 2013			(5,552	)
	Balance December 31, 2013			94,448
	Amortization for the nine months ended September 30, 2014			(4,164	)
	Balance September 30, 2014		$	90,284

 

Amortization expense for the nine months ended September 30, 2014 and 2013 amounted to $4,164 and $4,164, respectively.

 

 

Estimated amortization expense for intangible assets for the next five years is as follows:

 

	Year Ending		Amortization
	December 31,		Expense
	2014		$	1,391
	2015			5,555
	2016			5,555
	2017			5,555
	2018			5,555

 

4.

LOAN RECEIVABLE

 

On February 3, 2012, LMC loaned $32,000 to Health Clinics of Florida, LLC. On April 9, 2012 and August 10, 2012, LMC advanced an additional $10,500. The unsecured notes are interest free and due June 15, 2013. In the event of default, interest on the outstanding balance shall accrue at a rate of ten percent (10%) per annum from the date of the default. The manager of Health Clinics of Florida, LLC is a shareholder of the Company. As of December 31, 2012, the Company recorded a reserve for the full amount of the receivable reducing the balance to $-0-. The bad debt expense of $42,500 is included in the Company’s consolidated statement of operations for the year ended December 31, 2012.

 

 

5.

DEBT

 

Short-term debt as of September 30, 2014 and December 31, 2013 were as follows:

 

			September 30,				December 31,
			2014				2013
	Short-term Debt to Related Parties
	Unsecured promissory note, interest free, due April 15, 2015 (1)		$	200,000			$	200,000
	Unsecured promissory note, interest free, due April 15, 2015 (2)			75,000				75,000
	Unsecured promissory note, interest free, due April 15, 2015 (2)			60,000				60,000
	Unsecured promissory notes, interest @ 10% per annum, due April 15, 2015 (3)			75,000				75,000
	Unsecured promissory notes, interest free due April 15, 2015 (4)			347,200				347,200
	Unsecured promissory note, interest free, due on demand (5)			193,705				21,933
	Unsecured promissory note, interest free, due January 15, 2015 (9)			100,000				-
				1,050,905				779,133
	Less: Current portion			1,050,905				779,133
			$	-			$	-

 

			September 30,				December 31,
			2014				2013
	Short-term Debt
	Unsecured promissory note, interest free, due on demand (6)		$	26,000			$	26,000
	Secured promissory note, interest @ 12% per annum, due December 15, 2014 (7)			150,000				150,000
	Unsecured promissory note, interest @ 10%, due December 15, 2014 (8)			75,000				-
			$	251,000			$	176,000
	Less: Current portion			251,000				176,000
			$	-			$	-

 

(1) On January 5, 2012, LMC borrowed $200,000 from the Dellinger Fund, a shareholder of the Company. The note is interest free and has been extended to April 15, 2015. In the event of default, the Dellinger Fund has the right to request and will be granted the issuance of two million shares of the Company's common stock.

 

 

(2) On February 3, 2012 and March 1, 2012, LMC borrowed $75,000 and $60,000, respectively, from the Dellinger Fund, a shareholder of the Company. The unsecured notes are interest free and are due April 15, 2015. In the event of default, interest on the outstanding balance shall accrue at a rate of ten percent (10%) per annum from the date of the default.

 

(3) On April 3, 2012, LMC borrowed $75,000 from the Dellinger Fund, a shareholder of the Company. The unsecured note bears interest @ 10% per anum and is due April 15, 2015. In the event of default, interest on the outstanding balance shall continue to accrue at a rate of ten percent (10%) per annum from the date of the default.

 

(4) On various dates from March 23, 2012 through November 26, 2012, LMC borrowed $327,200 from the Dellinger Fund, a shareholder of the Company. In February 2013, LMC borrowed an additional $20,000. The unsecured notes are interest free and are due April 15, 2015. In the event of a default, interest on the outstanding balance shall accrue at a rate of ten percent (10%) per annum from the date of the default.

 

(5) During the year ended December 31, 2013 and the nine months ended September 30, 2014, Saddleworth Ventures LLC, a related party, paid expenses amounting to $21,933 and $171,772, respectively, on behalf of the Company. These advances are unsecured, interest free and are due on demand.

 

(6) On May 13, 2013, LMC borrowed $30,000 from Forbes Investment, LLP. The unsecured note is interest free and payable upon demand. In December 2013, LMC repaid $4,000 against the outstanding balance.

 

(7) On October 16, 2013, LMC borrowed $150,000 from Edmund Malits, a shareholder of the Company. The secured note bears interest @ 12% per annum and interest and principal are payable in full on or before February 16, 2014. LMC provided the Corporation’s shell on the OTCBB as collateral for the loan. In addition, LMC issued Edmund Malits 500,000 shares of the Company’s common stock with a fair value of $10,000. The note has been extended to December 15, 2014.

 

(8) On February 4, 2014, the Company executed an unsecured promissory note with Curt Maes and received $75,000. The promissory note bears interest @ 10% per annum and both principal and interest are payable on or before December 15, 2014. As additional consideration, the Company issued Curt Maes 250,000 shares of the Company’s common stock valued @ $25,000.

 

(9)  In February 2014, the Company received from Saddleworth Ventures an advance of $100,000 that was used as an initial down payment for an acquisition. The advance is interest free and due January 15, 2015.  Saddleworth Ventures has the option to convert the note representing the advance, in whole or in part, into shares of the Company’s common stock at a price of $0.10 per share.

 

Interest expense for the nine months ended September 30, 2014 and amounted to $57,000 and $5,625, respectively.

 

6.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

			September 30,				December 31,
			2014				2013
	Interest		$	44,900			$	16,650
	Salaries - Officer			5,000				13,250
	Rent			-				22,418
	Other			41,911				35,992
			$	91,811			$	88,310

 

7.	INCOME TAXES

 

The Company adopted the provisions of ASC 740, "Income Taxes", ("ASC 740").  As a result of the implementation of ASC 740, the Company recognized no adjustment in the net liability for unrecognized income tax benefits.  The Company believes there are no potential uncertain tax positions and all tax returns are correct as filed.  Should the Company recognize a liability for uncertain tax positions, the Company will separately recognize the liability for uncertain tax positions on its balance sheet.  Included in any liability for uncertain tax positions, the Company will also setup a liability for interest and penalties.  The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of the current provision for income taxes.

 

There is no U.S. tax provision due to losses from U.S. operations during the nine months ended September 30, 2014 and 2013.  Deferred income taxes are provided for the temporary differences between the financial reporting and tax basis of the Company's assets and liabilities. The principal item giving rise to deferred taxes is the net operating loss carryforward in the U.S.  Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.  The Company has set up a valuation allowance for losses for certain carryforwards that it believes may not be realized.

 

 

Section 382 of the U.S. Internal Revenue Code imposes an annual limitation on the availability of NOL carryforwards to offset taxable income when an ownership change occurs.  The Company's reverse capitalization meets the definition of an ownership change and some of the NOL's will be limited.

 

8.

STOCKHOLDERS' EQUITY

 

Pursuant to a Stock Purchase Agreement, dated as of February 8, 2012, between the Company and Saddleworth Consulting, the Company agreed to issue 19,000,000 shares of its common stock to Saddleworth Consulting in exchange for the satisfaction by Saddleworth Consulting of the outstanding $3,000,000 principal balance and $165,000 of accrued interest on the WMA Note. In consideration of the stock issuance, such outstanding principal balance and all obligations under the WMA note to WMA, a shareholder of the Company, were satisfied by Saddleworth Consulting.

 

The fair value of the common shares issued amounted to $3,800,000. The Company recorded a loss of $654,657 upon the extinguishment of debt which is included in the Company’s consolidated statement of operations for the year ended December 31, 2012.

 

9.

STOCK-BASED COMPENSATION

 

For the nine months ended September 30, 2014 and 2013 the Company issued -0- and 130,000 shares and recorded compensation expense of $-0- and $11,550, respectively.

 

On February 4, 2014, the Company issued Curt Maes 250,000 shares of the Company’s common stock with a fair value of $25,000 as incentive for debt financing.

 

In October 2013, the Company issued Edmund Malits 500,000 shares of the Company’s common stock with a fair value of $10,000 as incentive for debt financing.

 

10.

WARRANTS

 

On February 6, 2012, the Company issued warrants as compensation to a third party to purchase 2,400,000 shares of the Company's common stock for services performed. The warrants expire February 6, 2017. The estimated value of the compensatory warrants was determined using the Black Scholes pricing model using the following assumptions: Expected term of 3 years, a risk free interest rate of 0.32%, a dividend yield of -0-% and volatility of 432%. The fair value of the warrant amounted to $479,912 to be amortized over 3 years. The Company recorded an expense of $118,335 and $118,335 on the Company’s consolidated statement of operations for the nine months ended September 30, 2014 and 2013, respectively.

 

The following table summarizes the changes in warrants outstanding and the related price of the shares of the Company's common stock issued to non-employees of the Company. The warrants were granted in lieu of cash compensation for services performed.

 

			Shares				Exercise Price
	Outstanding, January 1, 2014			2,400,000			$	0.20
	Granted			-				-
	Expired/Cancelled			-				-
	Exercised			-				-
	Outstanding - period ending September 30, 2014			2,400,000			$	0.20
	Exercisable - period ending September 30, 2014			2,400,000			$	0.20

 

 

11.

RELATED PARTY TRANSACTIONS

 

a)

During the year ended December 31, 2011, Elite had activities with Saddleworth Ventures LLC, a related party.  The ownership of Saddleworth Ventures is identical to the ownership of Elite.  Saddleworth Ventures assigned the rights to Elite as licensee under the License Agreement with MPL.  In connection with the purchase of the license, $3 million of the $6 million purchase price was paid by the members of Elite on the amount owing under the WMA note.

 

b)

The Company entered into a consulting agreement with Saddleworth Ventures LLC.  Consulting fees for the nine months ended September 30, 2014 and 2013 were $-0- and $-0-, respectively.  See Note 12 (a) for further information.

 

c)

During the years ended December 31, 2013 and nine months ended September 30, 2014, Saddleworth Ventures LLC paid expenses amounting to $21,933 and $171,772, respectively, on behalf of the Company. These advance are unsecured, interest free and due on demand. As of September 30, 2014, no repayments have been made.

 

	d)	During the year ended December 31, 2012, the Company received $737,200 in advances from the Dellinger Fund, a shareholder of the Company. During the year ended December 31, 2013, the Dellinger Fund advanced an additional $20,000.  The majority of these advances are interest free.  The Company recorded interest expense for the nine months ended September 30, 2014 and 2013 in the amount of $11,250 and $5,625, respectively, on the advances that were not interest free.  See Note 4 for further information.

e)

In February 2014, the Company received from Saddleworth Ventures an advance of $100,000 that was used as an initial down payment for an acquisition. The advance is interest free and due January 15, 2015.  Saddleworth Ventures has the option to convert the note representing the advance, in whole or in part, into shares of the Company’s common stock at a price of $0.10 per share.

 

12.

COMMITMENTS AND CONTINGENCIES

 

Consulting Agreements

 

a)

In January 2012, Lifestyle entered into a consulting agreement with Saddleworth Ventures LLC ("Consultant"). The Consultant will provide services for management consulting, business advisory, shareholder information and public relations. The term of the agreement is for three years. Upon execution of the agreement, Lifestyle issued a payment to the Consultant in the amount of $25,000. Additional cash fees or reimbursement of expenses shall be agreed upon by Lifestyle and the Consultant from time to time during the term of the agreement. Consulting fees for the nine months ended September 30, 2014 and 2013 amounted to $-0- and $-0-, respectively.

 

b)

During 2014, 2013 and 2012, Lifestyle entered into various consulting agreements with third parties in connection with business advisory services. For the nine months ended September 30, 2014 and 2013, consulting services amounted to $67,500 and $5,666, respectively.

 

c)

On July 1, 2012, Lifestyle entered into an employment agreement with Christopher Smith ("Smith"), the Company's Chief Executive Officer. The term of the agreement is for five years. Lifestyle will pay Smith minimum compensation of $60K per year. Smith will also receive a performance bonus based on a percentage of the Company's net operating profit before income taxes. For the nine months ended September 30, 2014, and 2013, payroll-officer amounted to $45,000 and $45,000, respectively.

 

13.

SUBSEQUENT EVENTS

 

Material Agreements

 

Dr. Ronald Moomaw, a director of the Company and a licensed physician in the State of Texas, who had been assisting the Company in evaluating the acquisition by the Company of two medical practices in Houston, Texas, has purchased the two medical professional associations, MED-CURE Primary Care Physicians, P.A. and MED-CURE Anti-Aging and Skin Care, P.A. (the “MED-CURE Companies”), effective April 1, 2015. The MED-CURE Companies were purchased by Dr. Moomaw directly from the owner, Dr. Nazmudin Keshwani, for a purchase price of $2,500,000, utilizing local bank financing.

 

 

The MED-CURE Companies between them operate six medical clinics in Houston, of which four are primary care clinics and two are skin care clinics. Dr. Keshwani has entered into employment contracts extending through December 31, 2015, with the MED-CURE Companies as a “physician employee”, pursuant to which he will perform medical services as are required for operations of the clinics. The MED-CURE Companies have agreed to enter into management agreements with the Company which will be effective as of April 1, 2015, pursuant to which the Company, through its subsidiary Lifestyle Texas Medical Management, LLC (“Lifestyle Management”), will provide organizational development, accounting, human resources, computer technical support compliance, scheduling, marketing and advertising, office space, equipment supplies and other management services and will receive an agreed percentage of the gross revenues of the practice group, with adjustments designed to ensure that management fees do not exceed an agreed cap, or that the remaining amounts distributed to the doctors are no less than a specified floor percentage of gross revenues.

 

Through our subsidiary, Regional Professional Alliance, Inc. (“Lifestyle Professional Alliance”), a physician’s professional consulting company that provides professional medical consulting services to medical management companies related to matters affecting professional licensure and medical clinic compliance matters for the benefit of clinics managed by Lifestyle Management, we have agreed to enter into a Regional Medical Director Agreement, which will be effective as of April 1, 2015, with Dr. Moomaw, pursuant to which Lifestyle Professional Alliance would provide the services of Dr. Moomaw for the benefit of Lifestyle Management related to oversight and professional medical services coordination of the managed clinics which have entered into management services agreements with Lifestyle Management.

 

Through Lifestyle Texas Licensing, LLC (“Lifestyle Licensing”), the Company plans to sublicense to the MED-CURE Companies the non-exclusive right to use, and to sublicense the use of, certain patents, trademarks, trade names, service marks, logos, slogans, trade dress, commercial symbols, operational systems, and other intellectual property rights, in connection with operating and managing medical clinics that provide medical services and/or products of a distinctive character and quality, in particular relating to men’s health.

 

Issuance of Warrants

 

In connection with the engagement of our director, Dr. Ronald Moomaw, under a Regional Medical Director Agreement with RPA, at a Board of Directors meeting, held on April 17, 2015, the Board authorized the issuance Dr. Moomaw of a seven year stock purchase warrant, expiring April 17, 2022, to purchase 5,000,000 shares of our common stock, at an exercise price of $.09 per share.

 

Conversion of Debt

 

At the Board meeting held on April 17, 2015, our Board approved the conversion by the Company of $757,200 principal amount plus accrued interest of Company debt held by The Dellinger Fund, into an aggregate of 6,000,000 shares of common stock.

 

Refund of Deposit

 

On April 10, 2015, the Company received from Dr. Nazmudin Keshwani a refund of the $100,000 deposit made by the Company in February 14, 2014, in connection with the Company’s previous negotiations to acquire the MED-CURE Companies.

 

 

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto and the other financial information included elsewhere in this report.  Certain statements contained in this report, including, without limitation, statements containing the words “believes,” “anticipates,” “expects” and words of similar import, constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such forward-looking statements involve known and unknown risks and uncertainties.  Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including our ability to create, sustain, manage or forecast our growth; our ability to attract and retain key personnel; changes in our business strategy or development plans; competition; business disruptions; adverse publicity; and international, national and local general economic and market conditions.

 

Organization

 

The Company was incorporated in the State of Nevada on September 3, 2003, under the name Beverly Hills Film Studios, Inc. and changed its name to Emerging Media holdings, Inc. on September 28, 2006. On September 30, 2006, we effectuated a share exchange whereby we acquired all of the outstanding equity interests in our wholly-owned subsidiary, IM “Media Alianta” SRL, the 100% owner of SA “Analiticmedia-Grup”, both Moldovan companies ("AMG"), and on May 2, 2008, the Company acquired the common stock of “TNT-Bravo” channel-ICS “Media Top Prim” SRL, the exclusive operator in Moldova of Russian channel TNT programs owned by Gazprom Media.

 

On July 11, 2012, through a merger with our wholly-owned Nevada subsidiary, Lifestyle Medical Network Inc., the name of our Company was changed from Emerging Media Holdings, Inc. to Lifestyle Medical Network Inc.  The change of our corporate name was approved by FINRA, effective for trading purposes on July 31, 2012.

 

Acquisition of Lifestyle Medical Corp.

 

On December 29, 2011, we closed an acquisition of 100% of the outstanding shares of Lifestyle Medical Corp. (“Lifestyle Medical”), which has rights to technologies and practices licensed to its subsidiary, Elite Professional IP Licensing, LLC (“Elite”), pursuant to an October 5, 2010 License Agreement with Modular Properties Limited, Inc. (the “License Agreement”). The consideration paid by the Company for the acquisition of Lifestyle Medical was 5,000,000 shares of our common stock paid to the holders of a majority of the outstanding shares of LMC, valued at $2,500,000. On February 2, 2012, we completed acquisition of the rights to our licensed men’s medical clinic operating technologies and processes, by acquiring from Worldwide Medassets, Ltd. (SAL) the full assignment of rights to the License Agreement, by the issuance of 19,000,000 shares of our common stock in exchange for the satisfaction of the outstanding $3,000,000 principal balance on the note issued to Worldwide Medassets, Ltd. in connection with the assignment of rights to the License Agreement to Elite.

 

On December 29, 2011, we completed the sale of our remaining Moldova media subsidiaries in exchange for the assumption of the liabilities of the subsidiaries and 250,000 shares of our common stock.

 

Recent Developments

 

Dr. Ronald Moomaw, a director of the Company and a licensed physician in the State of Texas, who had been assisting the Company in evaluating the acquisition by the Company of two medical practices in Houston, Texas, has purchased the two medical professional associations, MED-CURE Primary Care Physicians, P.A. and MED-CURE Anti-Aging and Skin Care, P.A. (the “MED-CURE Companies”), effective April 1, 2015. The MED-CURE Companies were purchased by Dr. Moomaw directly from the owner, Dr. Nazmudin Keshwani, for a purchase price of $2,500,000, utilizing local bank financing. The MED-CURE Companies between them operate six medical clinics in Houston, of which four are primary care clinics and two are skin care clinics. The MED-CURE Companies have agreed, effective April 1, 2015, to enter into management agreements with the Company, pursuant to which the Company, through its subsidiary Lifestyle Texas Medical Management, LLC (“Lifestyle Management”), will provide organizational development, accounting, human resources, computer technical support compliance, scheduling, marketing and advertising, office space, equipment supplies and other management services and will receive an agreed percentage of the gross revenues of the practice group, with adjustments designed to ensure that management fees do not exceed an agreed cap, or that the remaining amounts distributed to the doctors are no less than a specified floor percentage of gross revenues. Through our subsidiary, Regional Professional Alliance, Inc. (“Lifestyle Professional Alliance”), a physician’s professional consulting company that provides professional medical consulting services to medical management companies related to matters affecting professional licensure and medical clinic compliance matters for the benefit of clinics managed by Lifestyle Management, we have entered into an agreement with Dr. Moomaw to provide services through Lifestyle Professional Alliance for the benefit of Lifestyle Management related to oversight and professional medical services coordination of the managed clinics which have entered into management services agreements with Lifestyle Management. Through Lifestyle Texas Licensing, LLC (“Lifestyle Licensing”), the Company plans to sublicense to the MED-CURE Companies the non-exclusive right to use, and to sublicense the use of, certain patents, trademarks, trade names, service marks, logos, slogans, trade dress, commercial symbols, operational systems, and other intellectual property rights, in connection with operating and managing medical clinics that provide medical services and/or products of a distinctive character and quality, in particular relating to men’s health.

 

 

Basis of Presentation

 

Throughout this Form 10-Q, the terms "we," "us," "our" and "Company" refer to Lifestyle Medical Network, Inc., a Nevada corporation, and, unless the context indicates otherwise, includes our subsidiaries.

 

Significant Accounting Policies

 

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  There were no significant changes to these accounting policies during the nine months ended September 30, 2014, and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

 

PLAN OF OPERATION

 

As of the date of this report, we are focusing our efforts on the transition in ownership and management of the MED-CURE Companies. As of this date, we have not entered into any further agreements relating to any such initial start-up of a clinic or any acquisition of a clinic business.

 

RESULTS OF OPERATIONS

 

NINE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2013

 

During the nine months ended September 30, 2014, we incurred a net loss of $405,448, compared to a loss of $289,080 for the nine months ended September 30, 2013.  The increase in the loss is primarily due to an increase of approximately $65,000 in general and administrative expense, primarily consulting fees and amortization, and an increase of approximately $50,000 in interest expense.

 

THREE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2013

 

During the three months ended September 30, 2014, we incurred a net loss of $137,385, compared to a loss of $97,705 for the three months ended September 30, 2013.  The increase in the loss is primarily due to an increase of approximately $29,100 in general and administrative expense, primarily consulting fees and amortization, and an increase of approximately $10,500 in interest expense.

 

LIQUIDITY AND FINANCIAL RESOURCES

 

At September 30, 2014, we had a working capital deficiency of approximately $1,377,000.  At September 30, 2014, we had total assets of approximately $215,000, including cash of $723. Net cash used in operating activities in the nine months ended September 30, 2014 was $266,023, primarily from the net loss of approximately $405,000, offset by non-cash compensation of $145,000. Net cash used in Investing activities was $100,000 from a deposit payment of $100,000, offset by net cash from financing activities of approximately $347,000 in that period.

 

It is expected that we will continue to incur operating losses in the future. In the first nine months of 2013, we had $-0- of revenues, operating expenses of $334,448, and no net income.  As of September 30, 2014, we had $723 cash on hand to fund operations.  There is no assurance that we will operate profitably in the future.

 

We have obtained interim capital through a $150,000 loan, evidenced by a 12% Promissory Note with a principal amount of $150,000, the due date on which has been extended to December 15, 2014, in connection with which we agreed to issue the lender 500,000 shares of our common stock, and a $75,000 loan, evidenced by a 10% Promissory Note due December 15, 2014. We will have to obtain significant additional capital to continue with our proposed business. There is no assurance that we will be able to obtain sufficient capital to implement our business plans. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  These conditions and uncertainties raise substantial doubt about the Company's ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Off Balance Sheet Arrangements

 

We do not currently have any off balance sheet arrangements falling within the definition of Item 303(c) of Regulation S-B.

 

Inflation

 

To date inflation has not had a material impact on our operations.

 

 

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

ITEM 4.  Controls and Procedures.

 

As of September 30, 2014, the end of the period covered by this quarterly report, the Chief Executive and Chief Financial Officer of the Company (the “Certifying Officer”) conducted an evaluation of the Company’s disclosure controls and procedures.  As defined under Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the term “disclosure controls and procedures” means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the 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 an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including the Certifying Officer, to allow timely decisions regarding required disclosure.

 

Based on this evaluation, the Certifying Officer has concluded that the Company’s disclosure controls and procedures were not effective for the quarter ended September 30, 2014, to ensure that material information is recorded, processed, summarized and reported by management of the Company on a timely basis in order to comply with the Company’s disclosure obligations under the Exchange Act, and the rules and regulations promulgated there under.

 

Further, there were no changes in the Company’s internal control over financial reporting during the first fiscal quarter of our 2014 fiscal year that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II

 

Other Information

 

Item 6.    Exhibits.

 

31	Certification of Chief Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a)
32	Certification of Chief Executive Officer and Principal Financial Officer  pursuant to 18 U.S.C. Section 1350

 

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

 

SEC Ref. No.		Title of Document
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Label Linkbase Document
101.PRE		XBRL Taxonomy Presentation Linkbase Document

 

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 

 

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.

 

	LIFESTYLE MEDICAL NETWORK INC. (Registrant)
Date:   April 27, 2015	By:	/s/ Christopher Smith
		Christopher Smith, Chief Executive Officer and Principal Financial Officer

 

 

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