UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

For the quarterly period ended June 30, 2015.

 

OR

 

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

For the transition period from __________ to __________

 

Commission File Number: 000-55250

 

AMERICAN DOCTORS ONLINE, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		06-1558586
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
200 Mill Road, Ste 350A
Fairhaven, MA.		02719
(Address of principal executive offices)		(Zip Code)

 

866-539-7379

(Registrant’s telephone number, including area code)

 

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

 

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)	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 registrant’s $0.01 par value Common Stock, as of August 12, 2015, was 12,192,408 shares.

 

AMERICAN DOCTORS ONLINE, INC.

FORM 10-Q

Quarterly Period Ended June 30, 2015

 

INDEX

 

 

FORWARD-LOOKING STATEMENTS		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014	2
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
Item 4.	Controls and Procedures	22
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
SIGNATURES

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this quarterly report on Form 10-Q. Additionally, statements concerning future matters are forward-looking statements.

 

Although forward-looking statements in this quarterly report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. Factors that could cause or contribute to such differences in results and outcomes include, without limitation, those specifically addressed in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the fiscal year ended December 31, 2014, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this quarterly report on Form 10-Q and in other reports that we file with the Securities and Exchange Commission (the “SEC”). You are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this quarterly report on Form 10-Q.

 

We file reports with the SEC. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. You can also read and copy any materials we file with, or furnish to, the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

 

We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this quarterly report on Form 10-Q, except as required by law. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this quarterly report, which are designed to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.

AMERICAN DOCTORS ONLINE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

		June 30,				December 31,
		2015				2014
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	45,783			$	49,898
Accounts receivable			56,006				103,602
Prepaid assets			15,402				—
Total current assets			117,191				153,500
Patents Pending			153,071				122,889
Patents, net of accumulated amortization of $41,417 (2015) and $38,779 (2014)			46,180				48,818
Furniture, fixtures and equipment, net of accumulated depreciation of $194,972 (2015) and $186,622 (2014)			11,425				19,775
Total assets		$	327,867			$	344,982
LIABILITIES AND DEFICIT
Current Liabilities:
Accounts payable and accrued expenses		$	795,749			$	607,221
Accounts payable and accrued expenses, related party			337,860				297,411
Series B convertible preferred stock obligation			179,667				179,667
Deferred rent			40,711				52,924
Total current liabilities			1,353,987				1,137,223
Convertible notes payable, stockholder			119,055				119,055
Total liabilities			1,473,042				1,256,278
Commitment and Contingencies (Note 9)
Deficit:
Preferred stock, $0.01 par value; 15,000,000 shares authorized, Series A Convertible Preferred Stock, $0.01 par value, 3,500,000 shares authorized; 3,500,000 shares issued and outstanding			35,000				35,000
Common stock, $0.01 par value; 100,000,000 shares authorized; 12,192,408 shares issued and outstanding			121,923				121,923
Additional paid-in capital			17,424,972				17,408,041
Accumulated deficit			(16,320,633	)			(16,064,010	)
Total company stockholders' equity			1,261,262				1,500,954
Less noncontrolling interest			(2,406,437	)			(2,412,250	)
Total deficit			(1,145,175	)			(911,296	)
Total liabilities and stockholders' deficit		$	327,867			$	344,982
See notes to unaudited condensed consolidated financial statements.

 

AMERICAN DOCTORS ONLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		For the three months ended June 30,								For the six months ended June 30,
		2015				2014				2015				2014
Fee revenue, net		$	120,361			$	125,457			$	239,320			$	246,778
Operating expenses:
Salaries and management fees (including stock compensation expenses of $6,289 and $16,931 for the three and six months ended June 30, 2015, respectively, and $94,311 and $188,624 for the three and six months ended June 30, 2014, respectively)			79,559				204,827				163,996				409,759
Professional and consulting fees (including stock compensation expense of $455,617 for the three and six months ended June 30, 2014)			118,319				692,279				232,282				840,683
Advertising and marketing			—				1,559				—				1,559
Rent and occupancy costs			14,210				21,510				28,838				42,432
Travel and entertainment			2,202				16,579				3,586				23,866
Insurance			4,652				15,117				11,445				30,200
Depreciation and amortization			5,391				5,878				10,987				12,081
Other general and administrative			16,160				14,864				33,599				55,701
Total operating expenses			240,493				972,613				484,733				1,416,281
Operating loss			(120,132	)			(847,156	)			(245,413	)			(1,169,503	)
Other Expense:
Interest expense			(814	)			(9,844	)			(2,114	)			(10,910	)
Interest expense, stockholder			(1,471	)			(521	)			(3,285	)			(2,551	)
Total other expense			(2,285	)			(10,365	)			(5,399	)			(13,461	)
Net loss			(122,417	)			(857,521	)			(250,812	)			(1,182,964	)
Less net income attributable to noncontrolling interest			3,419				11,272				5,812				16,179
Net loss attributable to American Doctors Online, Inc.		$	(125,836	)		$	(868,793	)		$	(256,624	)		$	(1,199,143	)
Basic and diluted loss attributable to American Doctors Online, Inc. common stockholders, per share		$	(0.01	)		$	(0.08	)		$	(0.02	)		$	(0.11	)
Weighted average number of common shares outstanding Basic and diluted			12,192,409				11,382,685				12,192,409				11,321,925
See notes to unaudited condensed consolidated financial statements.

 

 

AMERICAN DOCTORS ONLINE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Six months ended June 30,
		2015				2014
Cash flows from operating activities:
Net loss		$	(250,812	)		$	(1,182,964	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Non cash interest expense series B convertible preferred stock			—				8,750
Depreciation and amortization			10,987				12,081
Stock based compensation			16,931				644,241
Change in operating assets and liabilities:
(Increase) decrease in prepaid expenses			(15,402	)			12,500
Decrease in accounts receivable			47,596				14,776
Increase in accounts payable and accrued expenses			188,528				294,211
Decrease in deferred rent			(12,213	)			—
Increase in accounts payable and accrued expenses, related parties			40,452				91,552
Net cash provided by (used in) operating activities			26,067				(104,853	)
Cash flows from investing activities:
Payment of patent pending costs			(30,182	)			(12,969	)
Net cash used in investing activities			(30,182	)			(12,969	)
Cash flows from financing activities:
Proceeds from sale of Series B Preferred Stock			—				26,250
Proceeds from the issuance of convertible notes, related party			5,000				—
Repayments on convertible notes, related party			(5,000	)			—
Net cash provided by financing activities			—				26,250
Net decrease in cash and cash equivalents			(4,115	)			(91,572	)
Cash and cash equivalents, Beginning			49,898				96,782
Cash and cash equivalents, Ending		$	45,783			$	5,210
Supplemental disclosure of cash flow information:
Cash paid for interest		$	—			$	2,159
Cash paid for income taxes		$	—			$	—
See notes to unaudited condensed consolidated financial statements.

 

AMERICAN DOCTORS ONLINE, INC.

Notes to Condensed Consolidated Financial Statements

June 30, 2015

(Unaudited)

 

 

Note 1 - Organization

 

Business

 

American Doctors Online, Inc. (the “Company” or “ADOL”) was formed in the State of Delaware on September 17, 1999. ADOL owns four U.S. patents and has three pending patent applications. These patents cover the essential core processes required for the delivery of telehealth and telemedicine services. The Company’s business model is to license to telehealth and/or telemedicine providers one or more of the Company’s patents pursuant to non-exclusive agreements with terms and conditions similar to other licensing agreements involving medical related intellectual property (“IP”). The Company believes its’ IP includes the fundamental methodologies inherent to the provision of telehealth and/or telemedicine. On February 18, 2015, the Company filed a Nonprovisional Utility Patent Application titled Athletic Helmet with Magnetic System. The Company plans to form a wholly owned subsidiary for IP not directly related to its’ telehealth and/or telemedicine IP.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (“SEC”) on April 9, 2015. Interim results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of future results for the full year.

 

ADOL receives fees pursuant to a Management Services and License Agreement with PhoneDOCTORx, LLC, (“PDRx”). PDRx, is a Massachusetts limited liability company, owned by five physicians, who collectively own over 70% of ADOL. Based on the common control and ownership of ADOL and PDRx, PDRx is considered a variable interest entity, of which ADOL is the primary beneficiary. Accordingly, these condensed consolidated financial statements include the accounts of PDRx. ADOL exerts no influence on, or has any involvement in the practice of medicine by PDRx’s clinical staff.

 

The condensed consolidated financial statements of the Company include the Company and PDRx. All material inter-company balances and transactions have been eliminated.

 

Variable Interest Entity

 

The Company determined that it was the primary beneficiary of PDRx based primarily on qualitative factors. Specifically, PDRx was formed at the direction of the Company. PDRx is managed and effectively controlled, other than related to the provision of medical services, by the Company through common ownership, and a substantial portion of PDRx revenues accrue to the Company in the form of management fees. The carrying value of the assets and liabilities of PDRx included in the accompanying condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014 are as follows:

 

		2015				2014
Cash		$	39,184			$	9,977
Accounts receivable			47,634				89,252
Prepaid expenses			1,750				—
Total current assets			88,568				99,229
Property and equipment, net			475				825
Total assets		$	89,043			$	100,054
Accounts payable		$	601,611			$	441,424
Due to related party			96,800				78,800
Total current liabilities		$	698,411			$	520,224

 

Emerging Growth Company

 

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. As an emerging growth company, we can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the valuation of stock-based compensation, the allowance for doubtful accounts and impairment of patents.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

Accounts Receivable

 

Pursuant to licenses entered into by PDRx and their customers, the Company bills the customer monthly and records the corresponding accounts receivable due from its licensees. The Company extends credit of up to forty five (45) days from invoice date. The Company provides allowance for losses through a provision for losses charged to expenses. Receivables are charged against the allowance for losses when management believes collectability of the principal is unlikely. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on evaluation of the collectability of the accounts and prior loss experience. While management uses the best information available to make its evaluations, this estimate is susceptible to significant change in the near term. The Company has not recorded an allowance for losses as of June 30, 2015 and December 31, 2014, as management deemed all accounts receivable to be collectible.

 

Patents

 

The Company capitalizes legal fees and filing costs associated with the development and filing of its patents. Patents are generally amortized over an estimated useful life of 17 years using the straight-line method beginning on the issue date. Amortization expense of $1,319 and $2,638 was recorded during the three and six months ended June 30, 2015, respectively, and $1,290 and $2,579 for the three and six months ended June 30, 2014, respectively.

 

Property and Equipment

 

Property and equipment are stated at cost, and depreciation is provided by use of straight-line methods over the estimated useful lives of the assets. The estimated useful lives of property and equipment are as follows:

 

Office equipment and furniture	5 years
Computer hardware and software	3 years

 

The Company's property and equipment consisted of the following at June 30, 2015 and December 31, 2014:

 

		June 30,				December 31,
		2015				2014
Furniture and Equipment		$	191,597			$	191,597
Software			14,800				14,800
Accumulated depreciation			(194,972	)			(186,622	)
Balance		$	11,425			$	19,775

 

Depreciation expense of $4,072 and $8,350 was recorded for the three and six months ended June 30, 2015, respectively, and $4,589 and $9,501 for the three and six months ended June 30, 2014, respectively.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition. ASC 605 requires that following four basic criteria are met (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740-10, Income Taxes. The Company recognizes deferred tax assets and liabilities to reflect the estimated future tax effects, calculated at the tax rate expected to be in effect at the time of realization. The Company records a valuation allowance related to a deferred tax asset when it is more likely than not that some portion of the deferred tax asset will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates of the date of enactment.

 

ASC 740-10 prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. The Company classifies interest and penalties as a component of interest and other expenses. To date, the Company has not been assessed, nor has the Company paid, any interest or penalties.

 

The Company measures and records uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized. The Company’s tax years subsequent to 2005 remain subject to examination by federal and state tax jurisdictions.

 

Earnings (Loss) Per Share

 

The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. The following potentially dilutive securities for the six months ended June 30, 2015 and 2014 were not included in the calculation of diluted loss per share because their impact was anti-dilutive.

 

		June 30,
		2015				2014
2007 Option Plan			515,000				515,000
2011 Option Plan			3,747,360				3,747,360
Class A Preferred Stock			7,000,000				7,000,000
Class B Preferred Stock			93,333				93,333
Convertible Notes			119,055				104,055
			11,474,748				11,459,748

 

Accounting for Stock-based Compensation 

 

The Company accounts for stock based compensation in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”).  ASC 718 establishes accounting for stock-based awards exchanged for employee services.  Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant).  The fair value of our common stock options are estimated using the Black Scholes option-pricing model.

 

The Company estimates the fair value of stock options and warrants using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of options that have no vesting restrictions and are fully transferable. This model requires the input of subjective assumptions, including the expected price volatility of the underlying stock and the expected life of stock options. Projected data related to the expected volatility of stock options is based on the average volatility of the trading prices of comparable companies and the expected life of stock options is based upon the term and vesting schedules of the options. Changes in these subjective assumptions can materially affect the fair value of the estimate, and therefore the existing valuation models do not provide a precise measure of the fair value of our stock options and warrants. The expected dividend rate is zero as the Company does not expect to pay or declare any cash dividends on common stock. The risk-free rates for the expected terms of the stock options are based on the U.S. Treasury yield curve in effect at the time of the grant.

 

The Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete.

 

The Company estimates the fair value of shares of common stock issued for services based on the price of shares of the Company’s common stock sold in contemporaneous private placements of offerings on the date shares are granted.

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future consolidated financial statements.

 

Note 3 – Patents

 

Patents as of June 30, 2015 consist of the following:

 

Gross carrying amount		$	87,597
Accumulated amortization			(41,417	)
Net carrying amount		$	46,180

 

A reconciliation as June 30, 2015, of the net carrying amount of the Company’s Patent Rights is as follows:

 

	Balance – December 31, 2014			$	48,818
	Amortization				(2,638	)
	Balance – June 30, 2015			$	46,180

 

As of June 30, 2015, Patent Rights are expected to be amortized over the remaining lives as follows:

 

Twelve Months Ending June 30,
	2016				4,472
	2017				4,472
	2018				4,472
	2019				4,472
	2020				4,472
	Thereafter				23,820
				$	46,180

 

Note 4 – Sales Concentration and Concentration of Credit Risk

 

Cash

 

Financial   instruments   that   potentially   subject   the   Company to concentrations of credit risk consist principally of cash. The Company maintains cash balances at one financial institution, which is insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company has not experienced any losses in such accounts.

 

Sales and Accounts Receivable

 

Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three and six months ended June 30, 2015 and 2014 and the accounts receivable balance as of June 30, 2015:

 

				2014								2015
Customer				Sales % Three Months Ended June 30,				Sales % Six Months Ended June 30,				Sales % Three Months Ended June 30,				Sales % Six Months Ended June 30,				Accounts Receivable Balance as of June 30, 2015
	A				38	%			38.6	%			37.7	%			38.8	%		$	16,266
	B				32.2	%			31.4	%			30.4	%			30.7	%		$	15,894
	C				—				—				13.7	%			—			$	8,372

 

Note 5 – Convertible Notes Payable, Stockholder

 

For the six months ended June 30, 2015 and the year ended December 31, 2014, the Company’s Chairman, Dr. Bulat, loaned the Company various amounts for Company expenses, included in accrued liabilities, related. The notes mature on the third anniversary of their issuance (the “Maturity Date”) and carry a per annum interest rate of 5%. The Notes automatically convert on the nine month anniversary following the effectiveness of the Company becoming a public company (the “Conversion Date”) at a conversion price equal to the average closing bid price over the five consecutive days immediately preceding the Conversion Date. Interest expense of $1,471 and $3,285 was recorded for the three and six months ended June 30, 2015. The activity for the six months ended June 30, 2015 is as follows:

 

		June 30,
		2015
Beginning balance		$	119,055
Loans			5,000
Payments			(5,000	)
Ending Balance		$	119,055

 

Note 6 – Related Party Transactions

 

For the three and six months ended June 30, 2015, the Company incurred rent expense of $11,534 and $23,068, respectively compared to $14,359 and $35,281 for the three and six months ended June 30, 2014, respectively, on behalf of St. Luke’s Emergency Associates (“SLEA”). Dr. Paul Bulat, the Company’s founder and Chairman is the President of SLEA. In consideration of $52,924 (recorded as deferred rent on the balance sheets herein) received on December 19, 2014, the Company entered into a Lease Assignment with SLEA, whereas the Company has agreed to accept assignment of the lease on behalf of SLEA. The Company is amortizing $2,036 of the deferred rent monthly through March 2017, the remaining life of the lease.

 

For the three and six months ended June 30, 2015, the Company recorded interest expense, stockholder of $1,471 and $3,285, respectively, compared to $521 and $2,551 for the three and six months ended June 30, 2014, respectively. As of December 31, 2014 and June 30, 2015, accrued interest of $10,574 and $13,860, respectively, is owed to the stockholder and is included in accounts payable and accrued expenses, related party.

 

Effective on November 1, 2013 (the “Effective date”), the Company appointed Mr. Hollander as the Chief Financial Officer of the Company, and agreed to issue Mr. Hollander or his assigns 520,754 additional shares of common stock of the Company, and increased the monthly compensation to $8,000. Pursuant to this appointment, Mr. Hollander earned 50% of the additional shares on the nine month anniversary of the Effective Date and earned 50% on the one year anniversary of the Effective Date. Accordingly, the 520,754 shares of common stock, with a value of $260,377 were initially recorded as deferred equity compensation. The Company valued the common stock at $0.50 per share, the same value as the then most recent sales of common stock. The Company amortized the deferred equity compensation over the twelve month term, and has included $65,094 and $130,188, respectively, in stock compensation expense for the three and six months ended June 30, 2014, respectively.

 

The Board also agreed to enter into an employment agreement with Mr. Bulat (Chief Innovations Officer) for an annual salary up to $300,000 effective January 1, 2014. The Company and Mr. Bulat agreed to accrue $10,000 per month for the year ended December 31, 2014 and agreed to increase the annual compensation to the full amount at a later date. Included in salaries and management fees for the three and six months ended June 30, 2015 and 2014 is $30,000 and $60,000, respectively. As of June 30, 2015 ($180,000) and December 31, 2014, ($120,000) is included in accounts payable and accrued expenses related party.

 

On October 27, 2014, Mr. Brian Lane (“Lane”) resigned as CEO of the Company. Mr. Lane remains a member of the Board of Directors of the Company. On October 29, 2014, the Company and Mr. Lane entered into a Resignation and Separation Agreement (the “RSA”). Pursuant to the RSA, the Company has agreed to provide consideration to Mr. Lane of $58,856 in fourteen bi-weekly payments of approximately $4,204. The consideration included wages accrued and unpaid as of October 24, 2014. Mr. Lane’s resignation was not due to any disagreement with the Company, the Board or the Company’s management. As of December 31, 2014 and June 30, 2015, the balance owed Mr. Lane was $37,837 and $0 for unpaid salary and severance.

 

For the six months ended June 30, 2015 and the year ended December 31, 2014, the Company’s Chairman, Dr. Bulat, loaned the Company various amounts for Company expenses, included in accrued liabilities, related. The notes mature on the third anniversary of their issuance (the “Maturity Date”) and carry a per annum interest rate of 5%. The Notes automatically convert on the nine month anniversary following the effectiveness of the Company becoming a public company (the “Conversion Date”) at a conversion price equal to the average closing bid price over the five consecutive days immediately preceding the Conversion Date. Interest expense of $1,471 and $3,285 was recorded for the three and six months ended June 30, 2015. The activity for the six months ended June 30, 2015 is as follows:

 

		June 30,
		2015
Beginning balance		$	119,055
Loans			5,000
Payments			(5,000	)
Ending Balance		$	119,055

 

As of June 30, 2015 and December 31, 2014 the Company owes its Chief Technology Officer $144,000 and $108,000, respectively, for accrued and unpaid fees and is included in accounts payable and accrued expenses, related parties.

 

Note 7 – Stockholders’ Deficit

 

Deferred Equity Compensation

 

During the year ended December 31, 2013, the Company’s CFO was issued 520,754 shares of common stock. The common stock was valued at $260,377, equal to $0.50 per share, the same value as the most recent sales of common stock. The Company amortized the deferred equity compensation over the twelve month term, and has included $65,094 and $130,188 in stock compensation expense for the three and six months ended June 30, 2014, respectively.

 

Common Stock

 

On June 18, 2014, pursuant to a consulting agreement, the Company issued 911,233 shares of common stock to Makena (see Note 9). The Company recorded an expense of $455,617 for the three and six months ended June 30, 2014, respectively, for the issuance, based on a per share price in the most recent private placements of $0.50 per share.

 

Series A Preferred Stock

 

On October 7, 2013, the Board of Directors of the Company authorized the filing of a Certificate of Designation establishing Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and authorized 3,500,000 shares be available for issuance. Each share of Series A Preferred Stock shall be convertible at the option of the Holder thereof and without the payment of additional consideration by the Holder thereof, at any time, into shares of Common Stock at a conversion rate of two (2) shares of Common Stock for every one (1) share of Series A Preferred Stock and holders of Series A Preferred Stock shall have the right to cast fifteen (15) votes for each share held of record on all matters submitted to a vote of holders of the Corporation’s common stock, including the election of directors, and all other matters as required by law. The holders of Series A Preferred Stock shall vote together with all other classes and series of common stock of the Corporation as a single class on all actions to be taken by the common stock holders of the Corporation except to the extent that voting as a separate class or series is required by law.

Series B Preferred Stock

 

On November 13, 2013, the Board of Directors of the Company authorized the Company to sell 4,000,000 shares of Series B Convertible Redeemable Preferred Stock (the “Series B Preferred Stock”), at $0.75 per share.

 

On April 3, 2014, the Company received proceeds of $26,250 from the sale of 35,000 shares of Series B Preferred Stock. The shares were issued at $0.75 per share.

The Series B Preferred Stock and any accrued and unpaid dividends thereon shall, with respect to rights on liquidation, winding up and dissolution, rank senior to the common stock, par value $0.01 per share (the “Common Stock”) issued and outstanding of the Company and the Series A Preferred Stock (“Series A Preferred Stock”) issued and outstanding.

 

The holders of shares of Series B Preferred Stock are entitled to receive an annual dividend at the rate of eight percent (8%) per annum. Such dividend can be paid in cash or in the issuance of additional Series B Preferred Shares.

 

Each share of Series B Preferred Stock shall automatically convert (the “Mandatory Conversion”) and without the payment of additional consideration by the Holder thereof, into shares of Common Stock on the Mandatory Conversion Date (as hereinafter defined) at a conversion rate of seventy-five percent (75%) of the price of the Common Stock sold for cash in a non-affiliated equity transaction (the “Equity Price”). The Mandatory Conversion Date shall be the date that the five (5) day weighted average trading price of the Common Stock exceeds 110% of the Equity Price.

 

At any time, or upon receipt of a redemption notice by the Company, the Holder will have twenty (20) days to elect to convert the Series B Preferred Stock into Common Stock at a price per share equal to a twenty-five percent (25%) discount to the most recent Common Stock price per share paid by any non-affiliated investor in a subsequent financing to the Series B Preferred Stock.

 

Because the Series B convertible preferred stock is convertible into a variable number of shares of the Company’s stock, determined with referenced to a fixed dollar amount, the fair value of the conversion option, which approximates its intrinsic value, is required to be presented as a liability. As of June 30, 2014 and December 31, 2014, $179,667 is presented as Series B convertible preferred stock obligation, a liability on the accompanying consolidated balance sheets. The excess of the fair value of the conversion option over the proceeds received was recorded as interest expense of $8,750 for the six months ended June 30, 2014.

 

Stock Options

 

During the year ended December 31, 2007, the Company adopted the 2007 Stock Option/Stock Issuance Plan (the “2007 Plan”). The 2007 Plan permits the grants of Options to purchase shares of Common Stock, either ISOs or Non-Qualified Options; and awards of Restricted Stock. The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including, without limitation, the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights, phantom stock awards or stock units.

 

Effective May 17, 2011, the Company adopted the 2011 Stock Option/Stock Issuance Plan (the “2011 Plan”). The 2011 Plan permits the grants of Options to purchase shares of Common Stock, either ISOs or Non-Qualified Options; and awards of Restricted Stock. The Board shall have the right to grant other Awards based upon the Common Stock having such terms and conditions as the Board may determine, including, without limitation, the grant of shares based upon certain conditions, the grant of securities convertible into Common Stock and the grant of stock appreciation rights, phantom stock awards or stock units.

 

A summary of the plans as of June 30, 2015 is as follows:

 

Plan	Authorized	Granted	Available
2007	1,500,000	515,000	985,000
2011	10,000,000	3,747,360	6,252,640

 

A summary of the activity of options for the six months ended June 30, 2015 is as follows:

 

				Options				Weighted- Average exercise price				Weighted- Average grant date fair value				Weighted- Average remaining term
	Balance January 1, 2015				4,262,360			$	1.28
	Outstanding as of June 30, 2015				4,262,360			$	1.28								5.72
	Exercisable at June 30, 2015				4,260,138			$	1.28								5.72

 

As of June 30, 2015, there are options to purchase 2,222 shares of common stock that have not vested. Upon their vesting, expected to occur through December 31, 2015, the Company will realize future expenses of $2,856.

 

During the three and six months ended June 30, 2015, the Company recorded stock based compensation expense related to stock options of $6,289 and $16,931, respectively, compared to $29,218 and $58,436 for the three and six months ended June 30, 2014, respectively.

 

Note 8 – Income Taxes

 

Deferred income taxes reflect the net tax effects of operating loss and tax credit carry forwards and temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Due to the uncertainty of the Company’s ability to realize the benefit of the deferred tax assets, the deferred tax assets are fully offset by a valuation allowance at June 30, 2015, and December 31, 2014.

 

As of June 30, 2015, the Company had a tax net operating loss carry forward of approximately $1,214,000. Any unused portion of this carry forward expires in 2030. Utilization of this loss may be limited in the event of an ownership change pursuant to IRS Section 382.

 

Note 9 – Commitments and Contingencies

 

Employment Agreements

 

One June 20, 2011, the Company entered into a two year employment agreement with Mr. Brian Lane, our Chief Executive Officer (Mr. Lane resigned October 27, 2014, see Note 6). The agreement, as amended, provided for a base salary of $12,708 per month, annual incentive bonuses based on the Company’s performance in achieving prescribed revenue and earnings before interest and taxes (“EBIT”) targets, and discretionary bonuses.  The amended agreement further provided for a grant of options to acquire 2,000,000 shares of common stock of the Company. Effective June 20, 2013, the Company further amended Mr. Lane’s employment agreement, extending the term through December 31, 2013 and agreed to issue 2,000,000 shares of common stock and cancelled the options. Effective November 1, 2013, the board also agreed to compensate Mr. Lane (Chief Executive Officer) up to $250,000 per annum beginning January 1, 2014, however Mr. Lane and the Company had agreed that he will continue to be paid at his previous annual salary of $152,500. Included in salaries and management fees for the three and six months ended June 30, 2014, is $38,478 and $76,169, respectively.

 

On November 1, 2013, the Board also agreed to enter into an employment agreement with Mr. Bulat (Chief Innovations Officer) for an annual salary up to $300,000 effective January 1, 2014. The Company and Mr. Bulat agreed to accrue $10,000 per month for the year ended December 31, 2014 and agreed to increase the annual compensation to the full amount at a later date. The corresponding liability is included in accounts payable and accrued expenses, related party as of June 30, 2015.

 

On October 27, 2014, Mr. Brian Lane (“Lane”) resigned as CEO of the Company. Mr. Lane remains a member of the Board of Directors of the Company. On October 29, 2014, the Company and Mr. Lane entered into a Resignation and Separation Agreement (the “RSA”). Pursuant to the RSA, the Company has agreed to provide consideration to Mr. Lane of $58,856 in fourteen bi-weekly payments of approximately $4,204. The consideration included wages accrued and unpaid as of October 24, 2014. Mr. Lane’s resignation was not due to any disagreement with the Company, the Board or the Company’s management. As of June 30, 2015, the balance owed Mr. Lane is $-0- for unpaid salary and severance.

 

On October 30, 2014, the Board of Directors of the Company appointed Mr. Paul Bulat (“Bulat”) as the interim Chief Executive Officer. Mr. Bulat currently also serves as the Chairman of the Board and the Chief Innovations Officer of the Company. There will be no additional compensation due Mr. Bulat and the terms and conditions of his employment agreement as CIO remain in effect (see note 6).

 

Consulting Agreements

 

On April 15, 2014, the Company entered into a three month Consulting Agreement with a consultant (the “Consultant”) to assist the Company regarding the formation of strategic relationships with existing and new identified technology companies. Additionally, the Consultant worked with the executive management team in developing market strategies and comprehensive video conferencing technology solution offerings including the bundling of these technologies, working with ADOL’s partner on developing licensing packages, creating new sales proposal formats for consultation services and technologies/products, and assisting with the development and placement of products and services. The Company agreed to compensate the Consultant $100 per hour, for a minimum of 40 hours per week, for these services, which may be paid, at the option of the Company, in the form of cash or equity consideration. The parties extended the Agreement through July 31, 2014, at which time the Agreement was terminated. On August 18, 2014, the Company issued 136,667 shares of Series B Preferred Stock in satisfaction of $102,500 of accrued and unpaid consulting fees.

 

Effective June 1, 2013, the Company entered into a consulting agreement with Venture Equity, LLC (“Venture Equity”), whereby Venture Equity will assist the Company in their seeking to become a public company. The Company issued 347,169 shares of common stock and agreed to pay Venture Equity $5,000 per month. On October 7, 2013, the Company appointed Mr. Hollander as the Chief Financial Officer of the Company, and effective on November 1, 2013 (the “Effective date”) agreed to issue Mr. Hollander or his assigns an additional 520,754 shares of common stock of the Company and increased the monthly fee to $8,000. Pursuant to these agreements, Mr. Hollander earned 50% of the additional shares on the six month anniversary of the Effective Date and earned 50% on the one year anniversary of the Effective Date. As of June 30, 2015, the balance owed Mr. Hollander related to the monthly compensation is $11,000 and is included in accounts payable and accrued expenses related party.

 

On June 7, 2013, the Company entered into a consulting agreement with Makena Investment Advisors, LLC. (“Makena”). Pursuant to the one year agreement Makena will assist the Company in its efforts to seek to become a public company, including but not limited to consulting in the preparation of a private placement memorandum, assisting and consulting on the preparation of a registration statement and other consulting services. The Company has agreed to compensate Makena $50,000 and 4.99% of the Company’s common stock outstanding prior to the filing of a registration statement or any transaction that results in a change of control of the Company. Makena began to provide the services in April 2013 and the Company recorded $12,500 in consulting expenses for the six months ended June 30, 2014.

 

Lease Agreements

 

The Company utilizes office space in Fairhaven, Massachusetts that is leased from a third party by SLEA, the tenant of the space. In consideration of $52,924 (recorded as deferred rent on the Company’s balance sheet) received on December 19, 2014, the Company entered into a Lease Assignment with SLEA, whereas the Company has agreed to accept assignment of the lease on behalf of SLEA and is amortizing $2,036 of the deferred rent as a reduction in rent expense, monthly through March 2017, the remaining life of the lease. For the three and six months ended June 30, 2015, the Company recorded rent expense of $11,534 and $23,068, respectively, compared to $14,359 and $35,281 for the three and six months ended June 30, 2014, respectively.

 

Litigation

 

There are no material proceedings pending or threatened against ADOL. PDRx is a plaintiff in a law suit against HealthBridge Management, Inc, (“Healthbridge”) for non-payment of monies owed for services rendered. HealthBridge has answered the claim with a countersuit against PDRx. The outcome is unknown, legal expenses have been incurred and additional expenses will be forthcoming. The Company does not believe that the disposition or ultimate resolution of existing claims or lawsuits will have a material adverse effect on the business or financial condition of the Company. When and if it appears probable in management's judgment that the Company would incur monetary damages or other costs in connection with any claims or proceedings, and such costs can be reasonably estimated, liabilities will be recorded in the financial statements and charges will be recorded against earnings.

 

Note 10 – Going Concern

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of June 30, 2015 the Company had an accumulated deficit of $16,320,633 and a working capital deficit of $1,236,796. These conditions 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.

 

Management’s Plans

 

The Company currently plans to satisfy its cash requirements for the next 12 months though it’s current cash, sales, and raising funds in capital raise transactions and if necessary by borrowing from its officers and directors or companies affiliated with its officers and directors. The Company maintains daily operations and capital needs through the receipts of monthly amounts received pursuant to various license and sub-license agreements, however the Company anticipates that it will need a minimum of $180,000 to continue operations for the next twelve (12) months. ADOL believes it will meet its cash requirements although it has no agreements in place for a capital raise transaction or from any of its officers or directors.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The Company, through PDRx, currently provides weekday after hour and weekend physician coverage services to the primary care physicians at nursing homes and extended care facilities (“ECFS”). During our hours of operation nurses may call our facility to manage the care of a specific patient. Our physicians are located at a call center and interact with the nurse, family, and patient via phone and/or video. Our services are paid by the facility on a monthly basis, pursuant to annual contracts. These facilities on average pay us $1,800 a month. This fee arrangement covers all services to the nursing home regardless of the number of calls. Our physicians are paid hourly as independent contractors for their services. The company also has a contract with Senior Whole Health (“SWH”), a senior care organization. If any patient at one of our contracted facilities is a member of SWH, SWH compensates the Company $2 per day for that patient and the Company issues a credit to the nursing home or ECF for the amount received from SWH for member patients at their facility.

 

Results of Operations

 

For the three and six months ended June 30, 2015 compared to the three and six months ended June 30, 2014

 

Revenues

 

Revenues for the three and six months ended June 30, 2015 were $120,361 and $239,320, respectively, compared to $125,457 and $246,778 for the three and six months ended June 30, 2014, respectively and was comprised of the following:

 

		Three months ended June 30,								Six months ended June 30,
		2015				2014				2015				2014
Telemedicine		$	96,691			$	101,737			$	194,290			$	204,477
Consulting			9,235				6,960				16,135				10,206
Other Services			14,435				16,760				28,895				32,095
Total		$	120,361			$	125,457			$	239,320			$	246,778

 

Operating Expenses

 

Operating expenses were $240,493 and $484,733, respectively, for the three and six months ended June 30, 2015 compared to $972,613 and $1,416,281 for the three and six months ended June 30, 2014, respectively. The expenses were comprised of the following:

 

		Three months ended June 30,								Six months ended June 30,
Description		2015				2014				2015				2014
Administration and management fees		$	73,270			$	110,516			$	147,065			$	221,135
Stock compensation expense, management			6,289				94,311				16,931				188,624
Stock compensation expense, other			—				455,617				—				455,617
Professional and consulting fees			118,319				236,662				232,282				385,066
Rent and occupancy costs			14,210				21,510				28,838				42,432
Travel and entertainment			2,202				16,579				3,586				23,866
Insurance			4,652				15,117				11,445				30,200
Depreciation and amortization			5,391				5,878				10,987				12,081
General and other administrative			16,160				16,423				33,599				57,260
Total		$	240,493			$	972,613			$	484,733			$	1,416,281

 

Administrative salaries and management fees are comprised of the following:

 

		Three months ended June 30,								Six months ended June 30,
Description		2015				2014				2015				2014
Salary, former CEO, resigned October 2014		$	—			$	38,478			$	—			$	76,169
Management fees			54,000				54,000				108,000				108,000
Salary, other			19,270				18,038				39,065				36,966
		$	73,270			$	110,516			$	147,065			$	221,135

 

Included in administrative and management fees for the three and six months ended June 30, 2015 is $30,000 and $60,000, respectively, in management fees for Mr. Bulat and $24,000 and $48,000, respectively, to our CFO. Also included in administration and management fees for the three and six months ended June 30, 2015 is $19,270 and $39,065, respectively, in administrative salaries.

 

Included in administrative and management fees for the three and six months ended June 30, 2014 is $30,000 and $60,000, respectively, in management fees for Mr. Bulat and $24,000 and $48,000, respectively, to our CFO. Also included in administration and management fees for the three and six months ended June 30, 2014 is $56,515 and $113,135, respectively, in administrative salaries. The decrease in 2015 is a result of the Company’s CEO resigning during the year ended December 31, 2014.

 

Stock compensation expense is comprised of the following:

 

		Three months ended June 30,								Six months ended June 30,
Description		2015				2014				2015				2014
Amortization of 2011 stock option grants		$	—			$	10,029			$				$	20,058
Amortization of 2012 stock option grants			1,496				14,396				7,345				28,792
Amortization of 2013 stock option grants			4,793				4,793				9,586				9,586
Stock grants(1)			—				455,617								455,617
Amortization of deferred equity compensation(2)			—				65,094								130,188
		$	6,289			$	549,929			$	16,931			$	644,241

 

(1) During the six months ended June 30, 2014, the Company issued 911,233 shares of common stock pursuant to a consulting agreement. The shares were valued at $.50 per share, the most recent sales price of the Company’s common stock.

 

(2) During 2013, the Company issued 867,924 shares of common stock to the CFO, of which 347,170 shares immediately vested and 520,754 shares were initially recorded as deferred equity compensation. The shares of common stock were valued at $0.50 per share. The 2014 expense represents the amortization of the shares issued in 2013.

 

Professional and consulting fees were $118,319 and $232,282, respectively, for the three and six months ended June 30, 2015, compared to $236,662 and $385,066 for the three and six months ended June 30, 2014, respectively, and is comprised of the following:

 

		Three months ended June 30,								Six months ended June 30,
Description		2015				2014				2015				2014
Outside service fees		$	104,811			$	106,456			$	209,574			$	213,564
Consulting fees			—				77,800				—				90,300
Legal fees			10,508				36,656				11,983				63,702
Accounting fees			3,000				15,750				10,725				17,500
		$	118,319			$	236,662			$	232,282			$	385,066

 

Outside services fees for the three and six months ended June 30, 2015 and 2014 include the following:

 

		Three months ended June 30,								Six months ended June 30,
Description		2015				2014				2015				2014
Chief Medical Officer fees		$	18,000			$	18,000			$	36,000			$	36,000
Assistant Chief Medical Officer fees			14,700				14,700				29,400				29,400
Chief Technology Officer fees			18,000				18,000				36,000				36,000
Clinical Staff			45,450				45,700				90,801				91,203
Cost associated with providing physical examinations			8,661				10,056				17,373				20,961
		$	104,811			$	106,456			$	209,574			$	213,564

 

Consulting fees is primarily a result of fees accrued pursuant to a Consulting Agreement of $77,800 for three and six months ended June 30, 2014 and fees related to preparing the Company to become publicly traded of $12,500 for the six months ended June 30, 2014.

 

The increase in legal fees for the three and six months ended June 30, 2014 compared to the 2015 periods were primarily due to the costs associated with the Company’s lawsuit against Healthbridge Management, Inc. and general legal matters.

 

General and other administrative costs for the three and six months ended June 30, 2015 were $16,160 and $33,599, respectively, and $16,423 and $57,260 for three and the six months ended June 30, 2014, respectively. Significant cost include the following:

 

		Three  months ended June 30,								Six months ended June 30,
Description		2015				2014				2015				2014
Financing fees		$	—			$	1,834			$	—			$	24,737
Payroll taxes and fees			2,579				5,310				8,238				11,824
Internet and software costs			6,499				2,592				11,298				6,096
Office supplies			2,917				2,404				5,578				6,657
Transfer agent and filing fees			2,052				—				2,349				—
Investor relations			1,497				—				2,994				—
Other general and administrative			616				4,283				3,142				7,946
Total		$	16,160			$	16,423			$	33,599			$	57,260

 

Net Loss

 

For the three and six months ended June 30, 2015, our net loss was $122,417 and $250,812, respectively compared to $857,521 and $1,182,964, respectively for the three and six months ended June 30, 2014.

 

Capital Resources and Liquidity

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. As of June 30, 2015, we had cash and cash equivalents of $45,783, a decrease of $4,115 from $49,898 as of December 31, 2014. As of June 30, 2015, the Company had $117,191 in current assets, consisting of $45,783 in cash, $56,006 in accounts receivable and $15,402 in prepaid assets. As of June 30, 2015, the Company had $1,353,987 in current liabilities consisting of accounts payable and accrued expenses of $795,749, accounts payable and accrued expense, related party of $337,860, Series B convertible preferred stock obligation of $179,667 and deferred rent expense of $40,711. Long term debt is comprised of convertible notes of $119,055 payable to our Chairman for loans made to the Company or expenses paid on behalf of the Company (the “Bulat Notes”). The Bulat Notes accrue interest at 5% per year and are due on their three year anniversary (the “Maturity Date”) of the issuance date.

 

Operating Activities

 

Net cash provided by operating activities was $26,067 for the six months ended June 30, 2015 compared to net cash used in operating activities of $104,853 for the six months ended June 30, 2014. The net loss for the six months ended June 30, 2015 of $250,812 was impacted by non-cash items of stock-based compensation of $16,931 and amortization and depreciation expenses of $10,987. Changes in operating assets and liabilities were comprised of an increase of $15,402 in prepaid expenses, a decrease in accounts receivable of $47,596, an increase in accounts payable and accrued expenses of $188,528, an increase in accounts payable and accrued expenses, related party of $40,452 and a decrease in deferred rent expense of $12,213.

 

Negative cash flow from operations for 2014 was due to the net loss of $1,182,964 reduced by decreases of $12,500 and $14,776 in prepaid expenses and accounts receivable, respectively, $8,750 of non-cash interest expense, the non-cash stock-based compensation of $644,241, amortization and depreciation expenses of $12,081, an increase in accounts payable and accrued expenses of $294,211 and an increase in accounts payable and accrued expenses, related party of $91,552.

 

Investing Activities

 

Net cash used in investing activities was $30,182 for the six months ended June 30, 2015 compared to $12,969 for the six months ended June 30, 2014 and were due to costs associated with the Company’s pending patents.

 

Financing Activities

 

Net cash used in financing activities was $-0- for the six months ended June 30, 2015. Net cash provided by financing activities was $26,250 for the six months ended June 30, 2014 and was comprised of proceeds received from the sale of Series B Preferred Stock.

 

Off Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

 

Going Concern

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As of June 30, 2015 the Company had an accumulated deficit of $16,320,633 and a working capital deficit of $1,236,796. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

 

The unaudited consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Critical Accounting Policies

 

We have identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

 

Basis of Presentation and Principles of Consolidation

 

The accompanying condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted. These condensed financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report filed with the Securities and Exchange Commission (“SEC”) on April 9, 2015. Interim results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of future results for the full year.

 

Variable Interest Entity

 

The Company determined that it was the primary beneficiary of PDRx based primarily on qualitative factors. Specifically, PDRx was formed at the direction of the Company. PDRx is managed and effectively controlled, other than related to the provision of medical services, by the Company through common ownership, and a substantial portion of PDRx revenues accrue to the Company in the form of management fees. The carrying value of the assets and liabilities of PDRx included in the accompanying condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014 are as follows:

 

		2015				2014
Cash		$	39,184			$	9,977
Accounts receivable			47,634				89,252
Prepaid Expenses			1,750				—
Total current assets			88,568				99,229
Property and equipment, net			475				825
Total assets		$	89,043			$	100,054
Accounts payable and accrued liabilities		$	601,611			$	441,424
Due to related party			96,800				78,800
Total current liabilities		$	698,411			$	520,224

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the valuation of stock-based compensation, the allowance for doubtful accounts and impairment of patents.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an original term of three months or less to be cash equivalents.

 

Patents

 

The Company capitalizes legal fees and filing costs associated with the development and filing of its patents. Patents are generally amortized over an estimated useful life of 17 years using the straight-line method beginning on the issue date. Amortization expense of $1,319 and $2,638 was recorded during the three and six months ended June 30, 2015, respectively, and $1,290 and $2,579 for the three and six months ended June 30, 2014, respectively.

 

Property and Equipment

 

Property and equipment are stated at cost, and depreciation is provided by use of straight-line methods over the estimated useful lives of the assets. The estimated useful lives of property and equipment are as follows:

 

Office equipment and furniture	5 years
Computer hardware and software	3 years

 

The Company's property and equipment consisted of the following at June 30, 2015 and December 31, 2014:

 

		June 30,				December 31,
		2015				2014
Furniture and Equipment		$	191,597			$	191,597
Software			14,800				14,800
Accumulated depreciation			(194,972	)			(186,622	)
Balance		$	11,425			$	19,775

 

Depreciation expense of $4,072 and $8,350, respectively was recorded for the three and six months ended June 30, 2015 compared to $4,589 and $9,501 for the three and six months ended June 30, 2014, respectively.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605, Revenue Recognition. ASC 605 requires that following four basic criteria are met (1) persuasive evidence of an arrangement exists, (2) delivery of products and services has occurred, (3) the fee is fixed or determinable and (4) collectability is reasonably assured.

 

Earnings (Loss) Per Share

 

The Company reports earnings (loss) per share in accordance with ASC 260, "Earnings per Share." Basic earnings (loss) per share is computed by dividing net income (loss), after deducting preferred stock dividends accumulated during the period, by the weighted-average number of shares of common stock outstanding during each period. Diluted earnings per share is computed by dividing net loss by the weighted-average number of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding during the period. The following potentially dilutive securities for the six months ended June 30, 2015 and 2014 were not included in the calculation of diluted loss per share because their impact was anti-dilutive.

 

		June 30,
		2015				2014
2007 Option Plan			515,000				515,000
2011 Option Plan			3,747,360				3,747,360
Class A Preferred Stock			7,000,000				7,000,000
Class B Preferred Stock			93,333				93,333
Convertible Notes			119,055				104,055
			11,474,748				11,459,748

 

Accounting for Stock-based Compensation 

 

The Company accounts for stock based compensation in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”).  ASC 718 establishes accounting for stock-based awards exchanged for employee services.  Under the provisions of ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the equity grant).  The fair value of our common stock options are estimated using the Black Scholes option-pricing model.

 

The Company estimates the fair value of stock options and warrants using the Black-Scholes option-pricing model, which was developed for use in estimating the fair value of options that have no vesting restrictions and are fully transferable. This model requires the input of subjective assumptions, including the expected price volatility of the underlying stock and the expected life of stock options. Projected data related to the expected volatility of stock options is based on the average volatility of the trading prices of comparable companies and the expected life of stock options is based upon the term and vesting schedules of the options. Changes in these subjective assumptions can materially affect the fair value of the estimate, and therefore the existing valuation models do not provide a precise measure of the fair value of our stock options and warrants. The expected dividend rate is zero as the Company does not expect to pay or declare any cash dividends on common stock. The risk-free rates for the expected terms of the stock options are based on the U.S. Treasury yield curve in effect at the time of the grant.

 

The Company accounts for stock awards issued to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. The measurement date is the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is complete.

 

The Company estimates the fair value of shares of common stock issued for services based on the price of shares of the Company’s common stock sold in contemporaneous private placements of offerings on the date shares are granted.

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements issued by the FASB and the SEC did not have, or are not believed by management to have, a material impact on the Company's present or future consolidated financial statements.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to smaller reporting companies.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated to allow our management to make timely decisions regarding required disclosure. Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report and they determined that our disclosure controls and procedures were not effective as of June 30, 2015 due to a control deficiency. During the period we did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. Due to the size and operations of the Company, we are unable to remediate this deficiency until we acquire or merge with another company.

 

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. Other Information

 

Item 1. Legal Proceedings

 

We are not a party to any material litigation, nor to the knowledge of management, is any litigation threatened against us that may materially affect us.

 

Item 1A. Risk Factors

 

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

 

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

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

Exhibit Number				Description of Exhibit
31.1*			Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2*			Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1*			Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.INS*			XBRL Instance
101.SCH*			XBRL Taxonomy Extension Schema
101.CAL*			XBRL Taxonomy Extension Calculation Linkbase
101.DEF*			XBRL Taxonomy Extension Definition Linkbase
101.LAB*			XBRL Taxonomy Extension Labels Linkbase
101.PRE*			XBRL Taxonomy Extension Presentation Linkbase

 

* Filed herewith.

 

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.

 

Dated: August 12, 2015	AMERICAN DOCTORS ONLINE, INC.
	By:	/s/ Paul Bulat
		Paul Bulat
		Interim Chief Executive Officer (principal executive officer)
	By:	/s/ Barry Hollander
		Barry Hollander
		Chief Financial Officer (principal financial and accounting officer)