ITEM 1. DESCRIPTION OF BUSINESS
Overview
MIT Holding, Inc., a Delaware corporation, is a holding company. Through three wholly-owned subsidiaries MIT distributes wholesale pharmaceuticals, administers intravenous infusions, operates an ambulatory center where therapies are administered and sells and rents home medical equipment.
Our principal executive offices are located at 351B Commercial Drive, Savannah, Georgia, 31406. The phone number is (912) 925-1905. The website is www.mitholdinginc.com. Shares of MIT Holding common stock are traded on the OTC Bulletin Board under the symbol MITD.OB.
History
Our current name and business operations have been preceded by historical name changes and changes in our capitalization.
MIT Holding, Inc. Merger with Convention All Holdings, Inc.
Our Company was formerly known as Convention All Holdings, Inc. and, until May 2, 2007, we were a “shell company” (as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. On May 2, 2007, we then acquired a 100% ownership interest in MIT Holding, Inc. through a merger of MIT Holding, Inc. with and into MIT CVAH Acquisition Corp, a newly formed Delaware corporation and wholly-owned subsidiary, in exchange for 32,886,779 shares of our common stock (the “Merger”). In addition, 4,758,464 shares of common stock of MIT are issuable to the holders of 6% Series A Convertible Preferred Stock (“Series A Preferred Stock”) upon conversion of the Series A Preferred and 9,738,784 shares of common stock are issuable to the holders of certain warrants issued in conjunction with the Series A Preferred Stock at an exercise price of $0.75 per share (the “Warrants”) issued in a private placement by MIT as of May 31, 2007. Simultaneously with the Merger, the company formerly known as MIT Holding, Inc. changed its name to Medical Infusion Group, Inc., and we changed our name to MIT Holding, Inc. As a result of the Merger, we now own 100% of Medical Infusion Group, Inc., which, in turn, continues to own 100% of the issued and outstanding shares of capital stock of MIT Ambulatory Care Center, Inc., a Georgia corporation (“Ambulatory”), Medical Infusion Technologies, Inc., a Georgia corporation (“Infusion”) and MIT International Distribution, Inc. (“MIT International”).
In May 2007 we changed our ticker symbol on the OTC Bulletin Board to MITD.OB.
MIT Business and Operations
Overview
Through its three subsidiaries, MIT prepares intravenous medication for home infusion by the patient, operates an ambulatory center where intravenous infusions are administered and sells and rents home medical equipment. These services are carried out through a full service compounding pharmacy in Savannah, Georgia. In 2010, MITRX Corporation was formed to operate direct mail pharmacies and specialty pharmacies in locations outside Savannah. GA.
Strategy
MIT’s strategy is to continue marketing efforts in the Savannah and surrounding areas for its core clinical business in Infusion Technology, Ambulatory Care and Durable Medical Equipment (DME). 2010 saw a minor increase in revenues for all divisions of the company due to contraction of the economy which led to decreases in referrals and therapies administered over the last 2 years. The demand for these services is created through local physicians, hospitals and insurance companies and should continue to provide an array of therapies for our pharmacy based clinic in Savannah. The Company is no longer devoting substantial resources to wholesale activity, but this focus may change if market conditions and the Company’s financial condition improve.
MIT in 2010 continued to expend substantial effort to evaluate and confirm the efficacy of ProVectorBt, a proprietary biopesticide product developed by Dr. Thomas M. Kollars, Jr. (“Dr. Kollars. This product potentially reduces the spread of certain mosquito-borne infectious diseases including malaria, dengue fever and West Nile virus by killing adult mosquitoes and reducing mosquito population. MIT intends to market ProVector™ through international distribution channels to developing nations.
In order for MIT to expand into international markets and other domestic areas, MIT believes that it will need additional financing. There can be no assurance that MIT will expand into international markets or that it can obtain additional financing on favorable terms, if at all.
Strategic Relationship with Georgia Southern University and Dr. Thomas Kollars, Jr.
In October 2007, MIT signed a sponsored program agreement with Georgia Southern University Research & Service Foundation, Inc. (“GSURSF”), a research division of Georgia Southern University, to research and develop products to stop the spread of infectious diseases. Pursuant to the agreement, MIT and Georgia Southern funded research at the university. Dr. Thomas M. Kollars, Jr. (“Dr. Kollars”), GSURSF’s Chief Scientific Advisor and Director of the Biodefense and Infectious Disease Laboratory and Associate Professor of Epidemiology in the Jiann-Ping Hsu College of Public Health, Georgia Southern University, will oversee the project. Although the agreement with Georgia Southern terminated in August 2008, MIT has continued working with Dr. Kollars and his team of experts to develop the ProVectorBt, and obtain certification as to the efficacy of ProVectorBt. This certification was completed by GSURSF on November 27, 2008. Dr. Kollars has developed prototypes of the ProVector Bt flower that are being tested as we develop a commercial bio-pesticide product. The initial product, ProVectorTM Bt, will be only be available internationally as necessary EPA approval for US use is in the early stage of development and may take up to six months or more to achieve. The company has registered with the EPA and received its registration number. The paperwork for an EPA establishment number which will allow us to immediately market the product for sale overseas has been applied for and received. MIT is in discussion with potential distributor candidates but formal agreements are not in place at this time. It is essential for us to develop agreements with distributors overseas who already have established relationships with the governments where the product is to be sold. MIT does not have the personnel, the funds or time frame to set up its own distribution network to provide ProVector to the world market.
In 2007, MIT also entered into a license agreement with MedEnvVet Laboratories (Mevlabs), an affiliate of Dr. Kollars and the holder of the intellectual property rights to the ProVectorBt. Pursuant to the license agreement, MIT acquired exclusive worldwide rights to sub-license, manufacture and sell the ProVectorBt. MIT is in discussion with potential distribution candidates but formal agreements are not in place at this time.
Wholesale Distribution
MIT is no longer pursuing the domestic wholesale distribution line of business.
Our Suppliers
MIT purchases the majority of its products for domestic sales from six major distributors and several minor distributors. In 2010 the three major distributors supplied approximately 87.8% of the Company’s purchasing needs with the other 12.2% from the other distributors. The Company does not have long-term contracts or arrangements with any of these distributors. The loss of certain of these distributors could have a material adverse effect on our operations, although most of the pharmaceuticals that we purchase are available from multiple sources and are available in sufficient quantities to meet our needs and the needs of MIT’s patients. However, some pharmaceuticals are only available through the manufacturer and may be subject to limits on distribution. In such cases, MIT needs to establish and maintain good working relations with the manufacturer in order to assure sufficient supply to meet its patients’ needs. We utilize several national delivery companies as an important part of the local and national distribution of our products and services, particularly in the delivery of certain specialty pharmaceutical products
In 2008, MIT began utilizing a procurement process commonly called “mail order” supply. This process provides drugs used in various therapies directly to the patient and MIT’s involvement is to administer the drugs so supplied to the patient. This results in a reduction in revenue to the company with a corresponding reduction in cost of sales.
Additionally, certain pharmaceuticals may become subject to general supply shortages, as in 2005 with IVIG immune globulin products. Such shortages can result in cost increases or hamper MIT’s ability to obtain sufficient quantities to meet the needs of our patients. MIT works diligently to obtain commitments from its suppliers, whenever possible, to secure ample supply of pharmaceuticals that are potentially subject to supply shortages, however, all of its purchasing is presently “spot” purchasing, and MIT maintains no long-term contracts with any suppliers, nor does it keep large inventories of our pharmaceuticals.
Pharmacy Services, Home Infusion Therapy and Ambulatory Centers
MIT provides infusion pharmacy services through its pharmacy in Savannah, Georgia. The pharmacy maintains a license from the Drug Enforcement Agency, and can dispense infusible and non-infusible prescription pharmaceuticals to treat a wide range of chronic and acute health conditions. Many infusion therapies cost over $10,000 per patient per year. These pharmaceuticals may require refrigeration during shipping as well as special handling to prevent potency degradation. Patients receiving treatment usually require special counseling and education regarding their condition and treatment. Retail pharmacies and other traditional distributors generally are designed to carry inventories of low cost, high volume products and are not generally equipped to handle the high cost, low volume specialty pharmaceuticals that have specialized handling and administration requirements. As a result, these specialty pharmaceuticals are generally provided by pharmacies such as MIT’s that focus primarily on filling, labeling and delivering injectible pharmaceuticals and related support services.
Patients are generally referred to infusion pharmacy services providers by physicians, hospital discharge planners and case managers. The medications are mixed and dispensed under the supervision of a registered pharmacist and the therapy is typically delivered in the home of the patient by a registered nurse or trained caregiver. Depending on the preferences of the patient and/or the payor, these services may also be provided at an ambulatory infusion center. We believe that several factors will contribute to growth in non-hospital based infusion therapy, including:
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Healthcare cost containment pressures;
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Increased number of therapies that can be safely administered in patients’ homes;
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Patient preference for at-home treatment;
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Increased acceptance of home infusion by the medical community and by managed care organizations and other payors;
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Technological innovations such as implantable injection ports, vascular access devices and portable infusion control devices; and
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Increased utilization of home infusion therapies due to demographic trends, in particular increasing life expectancies.
MIT’s pharmacy customers can choose to have their therapies administered at the 3,000 square foot ambulatory care center in Savannah, Georgia staffed by three full-time nurses and two part-time doctors or in their own homes MIT offers patients the following services:
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Medication and supplies for administration and use at home or within our ambulatory infusion center;
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Consultation and education regarding the patient’s condition and the prescribed medication;
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Clinical monitoring and assistance in monitoring potential side effects; and
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Assistance in obtaining reimbursement.
MIT provides its patients the following home infusion therapies:
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Total Parenteral Nutrition: intravenous therapy providing required nutrients to patients with digestive or gastro-intestinal problems, most of whom have chronic conditions requiring treatment for life;
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Anti-infective Therapy: intravenous therapy providing medication for infections related to diseases such as osteomyelitis and urinary tract infections;
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Pain Management: intravenous or continuous injection therapy, delivered by a pump, providing analgesic pharmaceuticals to reduce pain;
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Other therapies: treating a wide range of medical conditions, including IVIG
MIT’s primary product lines are centered upon infusion therapy. During 2010, approximately 31% of infusion therapy revenue came from home infusion therapies and 63.9% from clinic infusion therapies. In 2010, IVIG and Remicade® products accounted for approximately 55.1% of therapies dispensed at MIT’s ambulatory centers. Remicade® (infliximab), the leading infusion product administered at the ambulatory center, is prescribed primarily for arthritis related conditions. It is a bilogic treatment for a number of inflammatory issues. Remicade® targets specific proteins in the body’s immune system to help control the development of inflammation.
Home Medical Equipment
The home medical equipment division carries a wide variety of durable medical equipment and supplies for purchase or lease. The division maintains inventory or can rapidly obtain a wide variety of home medical equipment products to match almost any request, from electric wheelchairs to nebulizers. All of MIT’s business in 2008 related to home medical equipment was from physician referrals.
Billing and Significant Payors
MIT derives most of its revenue from contracts with third party payors, insurance companies, self-insured employers and Medicare and Medicaid programs. Where permissible, they bill patients for any amounts not reimbursed by third party payors. For the most part, MIT’s infusion pharmacy revenue consists of reimbursement for both the cost of the pharmaceuticals sold and the cost of services provided. Pharmaceuticals are typically reimbursed on a percentage discount from the published average wholesale price (AWP) of each pharmaceutical. Nursing services are typically paid separately, on a per visit basis, while other patient support services and ancillary medical supplies are either reimbursed separately or on a per diem basis, where applicable.
MIT also provides services that are reimbursable through government healthcare programs such as Medicare and state Medicaid programs. For the twelve months ended December 31, 2009 and December 31, 2010 respectively, 11.6% and 13.7% of our infusion pharmacy revenue came from government healthcare programs such as Medicare and Medicaid. The amounts due from these programs represented approximately 11.8% and 9.0% of our total accounts receivable, respectively, as of December 31, 2010 and December 31, 2011.
MIT is responsible for its own billing and collection practices. MIT bills payors and tracks all of its accounts receivable through computerized billing systems. These systems allow the billing staff the flexibility to review and edit claims in the system before such claims are submitted to payors, which are submitted either electronically or through the mail. MIT utilizes electronic claim submission whenever possible to expedite claim review and payment, and to minimize errors and omissions.
MIT’s financial performance is highly dependent upon effective billing and collection practices. The process begins with an accurate and complete patient admission process, in which essential information about the patient, the patient’s insurance and their care needs is gathered. A critical part of this process is verification of insurance coverage and authorization from the insurance company carrier to provide the required care, which typically takes place before we initiate services.
Sales and Marketing
MIT’s sales and marketing efforts focus on establishing, maintaining and strengthening relationships with local and regional patient referral sources and maintaining existing and developing new relationships with pharmaceutical manufacturers to gain distribution access as they release new products.
Most new patients are referred to MIT by physicians, medical groups, hospital discharge planners, case managers employed by Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs) or other managed care organizations, insurance companies and home care agencies. MIT’s sales force is responsible for establishing and maintaining these referral relationships.
Government Regulation
MIT’s operations are subject to extensive regulation by a number of governmental entities at the federal, state and local level. The industry is also subject to frequent regulatory change. Laws and regulations in the healthcare industry are extremely complex and, in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation. Moreover, MIT’s business is impacted not only by those laws and regulations that are directly applicable to it but also by certain laws and regulations that are applicable to its managed care and other clients. If MIT fails to comply with the laws and regulations directly applicable to its business, it could suffer civil and/or criminal penalties, and it could be excluded from participating in Medicare, Medicaid and other federal and state healthcare programs, which would have an adverse impact on its business.
Professional Licensure. Doctors, Nurses, pharmacists and certain other healthcare professionals MIT employs are required to be individually licensed or certified under applicable state law. MIT performs criminal and other background checks on employees and takes steps to ensure that employees possess all necessary licenses and certifications, and MIT believes that its employees comply in all material respects with applicable licensure laws.
Pharmacy Licensing and Registration. Georgia laws require that our pharmacy be licensed as an in-state pharmacy to dispense pharmaceuticals in Georgia and that home infusion companies to be licensed as home health agencies. MIT believes that it complies with all state licensing laws applicable to its business. If MIT is unable to maintain its licenses, its ability to operate would be severely limited, which could have an adverse impact on its business.
Laws enforced by the U.S. Drug Enforcement Administration (“DEA”), as well as some similar state agencies, require MIT’s pharmacy to register in order to handle controlled substances, including prescription pharmaceuticals. Federal and state laws also require that MIT follow specific labeling, reporting and record-keeping requirements for controlled substances. MIT maintains federal and state controlled substance registrations for each of its facilities that require such registration and follows procedures intended to comply with all applicable federal and state requirements regarding controlled substances.
Food, Drug and Cosmetic Act. Certain provisions of the federal Food, Drug and Cosmetic Act govern the handling and distribution of pharmaceutical products. This law exempts many pharmaceuticals and medical devices from federal labeling and packaging requirements as long as they are not adulterated or misbranded and are dispensed in accordance with and pursuant to a valid prescription. MIT believes that it complies with all applicable requirements.
Wholesale Licenses. The DEA, the U.S. Food and Drug Administration (“FDA”) and various state regulatory authorities regulate the distribution of pharmaceutical products and controlled substances. Wholesale distributors of these substances are required to register for permits, meet various security and operating standards, and comply with regulations governing their sale, marketing, packaging, holding and distribution. The DEA, FDA and state regulatory authorities have broad enforcement powers, including the ability to seize or recall products and impose significant criminal, civil and administrative sanctions for violations of these laws and regulations. As a wholesale distributor of pharmaceuticals and certain related products, we are subject to these regulations. MIT has received all necessary regulatory approvals and believes that it is in compliance with all applicable pharmaceutical wholesale distribution requirements.
Medicare Prescription Drug, Improvement and Modernization Act of 2003. The Medicare Prescription Drug Improvement and Modernization Act of 2003 (“MMA”) significantly expanded Medicare coverage for outpatient prescription drugs. Beginning in 2006, Medicare beneficiaries became eligible to enroll in prescription drug plans that are offered by private entities. Medicare reimbursement rates for certain pharmaceuticals were impacted by implementation of the MMA by the U.S. Department of Health and Human Services. Further Medicare reimbursement reductions and policy changes are scheduled to be implemented in the future. The Deficit Reduction Act of 2005 reduced Medicaid reimbursement for certain prescription drugs, and the U.S. Congress may consider further reductions to Medicaid reimbursement. These policies may adversely affect MIT’s pharmacy business directly and its wholesale pharmaceutical distribution business indirectly.
The MMA also significantly expanded Medicare coverage for outpatient prescription pharmaceuticals through new Medicare Part D. Beginning in 2006, Medicare beneficiaries became eligible to enroll in outpatient prescription pharmaceutical plans that are offered by private entities and became eligible for varying levels of coverage for outpatient prescription pharmaceuticals. Beneficiaries who participate select from a range of stand-alone prescription pharmaceutical plans or Medicare Advantage managed care plans that include prescription pharmaceutical coverage along with other Medicare services (“Part D Plans”). The Part D Plans are required to make available certain pharmaceuticals on their formularies. Each Part D Plan negotiates reimbursement for Part D pharmaceuticals with pharmaceutical manufacturers. For eligible Medicare beneficiaries, the cost of equipment, supplies and professional services associated with infused covered Part D pharmaceuticals will continue to be reimbursed under Part A or Part B, as applicable. For beneficiaries who are dually eligible for benefit under Medicare and a state Medicaid program, covered infused pharmaceuticals will be reimbursed under individual state coverage guidelines.
Stark Law & Anti-Kickback Statute. MIT and its customers are subject to fraud and abuse laws, including the federal anti-kickback statute and the Stark law. The anti-kickback statute prohibits persons from soliciting, offering, receiving or paying any remuneration in order to induce the referral of a person for the furnishing or arranging for the furnishing of any item or service or for inducing the purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering of items or services that are in any way paid for by Medicare, Medicaid, or other federal healthcare programs. The Stark law prohibits physicians from making referrals for designated health services to certain entities with which they have a financial relationship. The fraud and abuse laws and regulations are broad in scope and are subject to frequent modification and varied interpretation. MIT attempts to structure all of its business relationships to comply with these laws.
Health Information Practices. The Health Information Portability and Accountability Act of 1996 (“HIPAA”) and the regulations promulgated thereunder by HHS set forth health information standards in order to protect security and privacy in the exchange of individually identifiable health information. Significant criminal and civil penalties may be imposed for violation of these standards.
Pedigree Requirements. In recent years, some states have passed or have proposed laws and regulations that are intended to protect the safety of the supply channel. For example, Florida and other states are implementing pedigree requirements that require pharmaceuticals to be accompanied by information tracing pharmaceuticals back to the manufacturers. Georgia presently has no such statute. These and other requirements are expected to increase MIT’s cost of operations. At the federal level, the FDA issued final regulations pursuant to the Pharmaceutical Drug Marketing Act that became effective in December 2006. The regulations impose pedigree and other chain of custody requirements that increase the costs and/or burden to MIT of selling to other pharmaceutical distributors and handling product returns.
Competition
The intravenous ambulatory market is highly fragmented with a small number of high volume participants. Most intravenous therapies are originally prescribed to patients while confined to a hospital, and MIT maintains significant relationships with most of the major hospitals in the metropolitan Savannah area. There are no other listed ambulatory centers in Savannah, Georgia.
Over twenty home medical equipment suppliers are in the Savannah area. Most are inside pharmacies. MIT maintains a competitive advantage in that once a patient is referred to MIT, MIT may cross-sell to the patient home medical equipment prescriptions written by the referring physician. MIT formed its home medical equipment division so that an infusion patient with a durable medical equipment prescription would not have to go to another source. Similarly, the pharmacy was established so an infusion patient with a prescription for pharmaceuticals could have the prescription filled by MIT’s pharmacy.
Insurance
MIT caries a professional liability insurance policy that provides for coverage in the amount of $1,000,000 per occurrence and $2,000,000 in the aggregate. A successful claim not covered by our professional liability insurance or substantially in excess of our insurance coverage could cause us to pay out a substantial award, harming our financial condition and results of operations. MIT also maintains officers and directors liability insurance for aggregate coverage of $3,000,000.
Recent Developments
On October 13, 2010 the Company entered into an exclusive agreement with Vivakor, Inc. Under the agreement, the Company obtained the exclusive right to distribute Vivakor’s Viva Thermic vials including the Viva Thermic Super-150 and Viva Thermic ULTRA-300 products worldwide. Vivathermic vials are used for biological transportation and storage.
On February 4, 2011, MITRX Corporation, a South Carolina corporation and subsidiary of MIT Holding Inc. (“MIT” or the “Company”), executed two stock purchase agreements (attached hereto as Exhibit 10.19 and 10.20) (the “Agreements”), pursuant to which it agreed to acquire one hundred Percent (100%) of the issued and outstanding equity interests of two companies; National Direct Home Pharmacy, Inc., owned by Lancelot D. Wright and John T. Crocker, Sr., and Palmetto Long Term Care Pharmacy, LLC a wholly owned subsidiary of Strategies Healthcare, Inc., which is owned by Lancelot D. Wright and Robert A. Williams. There are no material relationships between the sellers, their owners, affiliates, officers or directors and MIT’s officers, directors or affiliates.
Pursuant to the terms of the purchase agreements, MITRX has acquired a fully operating home delivery/mail order pharmacy with annual gross sales of approximately Eighteen Million Dollars ($18,000,000) in exchange for the assumption of approximately $15,273,492 in total debt. The acquired companies have assets including but not limited to furniture, fixtures, licenses, government awards, private nursing home contracts, large individual customer bases and pharmaceutical equipment, including a PharmASSIST RobotX.
Effective March 18, 2011, MIT Holding Inc. (“MIT” or the “Company”) through its subsidiary, MITRX Corporation, executed a Letter of Intent (attached hereto as Exhibit 10.18) to acquire one hundred Percent (100%) of Fitte Enterprises, Inc dba CRD MedServices, LLC, a retail/mail order pharmacy with locations in Texas, South Caroline and Florida. Per the letter of intent, the Company will acquire a fully operating retail/mail order pharmacy with licenses and government awards, mental health facility contracts and a large individual customer base in exchange for the assumption, by MITRX, of three hundred eighty thousand dollars ($380,000.00) in debt.
Employees
As of December 31, 2012, MIT employed 24 persons on a full-time basis of which 7 were involved in administration, 15 in medical services, and 2 for durable medical equipment. None of MIT’s employees is represented by a labor union or bound by a collective bargaining unit. MIT believes that its relationship with its employees is satisfactory.
Item 1A.
Item 1A. RISK FACTORS
Before you purchase our securities, you should carefully consider the risks described below and the other information contained in this prospectus, including our financial statements and related notes. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. If any of the adverse events described in this “Risk Factors” section actually occurs, our business, results of operations and financial condition could be materially adversely affected and you might lose all or part of your investment.
Our restricted cash flow raises substantial doubt about our ability to continue operations unless we obtain financing or generate adequate cash flow.
Although we had revenues of $3,355,518 in 2012 and had receivables of $236,235 as of December 31, 2012, our inability to achieve sufficient increases in our revenues has created a liquidity challenge that raises doubt about our ability to continue as a going concern. The auditor’s opinion which accompanies our financial statements is qualified as to our ability to continue as a going concern. Revenues decreased in 2012 to $3,355,518 from $5,933,206 in 2011. In addition, collection of medical receivables can be delayed as they are submitted to insurance companies and government agencies, unless we generate sufficient collections on our receivables, otherwise increase revenues or obtain financing through other means, our operations may be difficult to sustain.
On August 1, 2008, we received a term loan from Globank, Corp. (“Globank”) in the amount of $500,000 and used the proceeds to pay off our obligation to a factor. The term loan from Globank, Corp. matured on July 31, 2010. This loan was replaced by a new loan in 2010 with Globank (the “New Loan”). This New Loan accrues interest at a rate of 14.9% per annum and matures on December 31, 2013. The terms of the New Loan require monthly payments of accrued interest payments plus principal payments of $1,000 per month. A balloon payment of $1,002,727 is due on the maturity date. The new loan is secured by our assets and guaranties of the Company’s chief executive officer and our three subsidiaries
We rely on reimbursements from Medicare and Medicaid.
For the fiscal year ended December 31, 2012 over 19% of our ambulatory and infusion revenue came from reimbursement by federal and state programs such as Medicare and Medicaid. Reimbursement from these and other government programs is subject to statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments, governmental funding restrictions and changes to, or new legislation, all of which may materially affect the amount and timing of reimbursement payments to us. Changes to the way Medicare pays for our services may reduce our revenue and profitability on services provided to Medicare patients and increases our working capital requirements.
In addition, we are sensitive to possible changes in state Medicaid programs as we do business with a number of state Medicaid providers. Budgetary concerns in many states have resulted in and may continue to result in, reductions to Medicaid reimbursement as well as delays in payment of outstanding claims. Any reductions to, or delays in collecting amounts reimbursable by state Medicaid programs for our products or services, or changes in regulations governing such reimbursements, could cause our revenue and profitability to decline and increase our working capital requirements.
Our new products strategy is unproven and risky.
Our business strategy was to develop the sales of ProVector™ in the international market. Our ability to implement its plans will depend primarily on the ability to attract distributors in targeted markets where malaria, dengue fever or West Nile disease are present. Development of a distribution network throughout the world will determine our sales and growth rate for Provector in 2011. MIT is in discussion with potential distribution candidates but formal agreements are not in place at this time. There can be no assurance at this time as to when the distribution network will be in place to generate sales for ProVector™
MIT has no history with manufacture and distribution of Provector™.
Distributing ProVector™ overseas is a heavily regulated endeavor, and we will be subject to both domestic and foreign governmental regulatory schemes and may be required to rely on a limited number of distributors in each foreign country in which it will sell products and may be required to obtain registrations in each country to import product. We have no significant experience complying with the legal systems of countries other than the United States. We will be dependent on our relationships with foreign distributors, suppliers, purchasers and government agencies and enforcement of our rights in foreign courts, particularly in less developed countries, is uncertain. Such compliance will be time consuming and expensive, and is expected to require hiring legal and/or business advisers who are specialists in such transactions. Changes in foreign statues and regulations could adversely affect our operations. Achieving significant revenues denominated in foreign currencies would also subject our financial results to the risk of foreign exchange fluctuations.
Our revenues are subject to fluctuations which may adversely affect our business
MIT’s revenues increased from $7.8 million in 2004 to $16.1 million in 2005, then declined to $13.0 million in 2006. Revenues in 2007 declined to $12.6 million and in 2008, sales declined to $9.5 million. In 2009, revenue fell to $6.4 million. In 2010, revenue increased $688k from $6.4 million to $7.1 million, There were no material changes in our sources of income in 2010.
MIT experiences seasonal liquidity.
MIT has historically experienced seasonal liquidity due to the natural cycle of demand for our wholesale pharmaceutical products, and we expect this seasonal fluctuation in liquidity to continue. MIT historically experienced decreases in revenue in the first half of the year compared to the second half. Lesser cash flow could adversely affect MIT’s liquidity and funds available for operations.
The loss of Mr. Parker could adversely affect our operations.
Our success depends upon the availability and performance of our key employees, such as President, William C. Parker, MIT’s founder. We intend to purchase “key person” insurance for Mr. Parker for coverage in the amount of at least $1,000,000. However, MIT does not currently have such insurance, and it may not be able to obtain such insurance on favorable terms or if the loss of Mr. Parker’s services could have a material adverse effect upon our business and results of operations.
We are highly dependent on reimbursement from non-governmental third party payors.
We are highly dependent on reimbursement from managed care organizations and other non-governmental third party payors. For the fiscal years ended December 31, 2012 and December 31, 2011, approximately 80.9% and 83.4% of our revenue came from managed care organizations and other non-governmental payors, including self-pay patients. Many payors seek to limit the number of providers that supply pharmaceuticals to their enrollees in order to build volume that justifies their discounted pricing. From time to time, payors with whom we have relationships require that we bid against our competitors to keep their business. As a result of such bidding process, we may not be retained, and even if we are retained, the prices at which we are able to retain the business may be less than what we sought. The loss of a payor relationship could significantly reduce the number of patients we serve and have a material adverse effect on our revenue and net income, and a reduction in pricing could reduce our gross margins and our net income.
We are subject to numerous governmental regulations, including healthcare reform laws.
Non-compliance with laws and regulations applicable to MIT’s business and future changes in those laws and regulations could have a material adverse effect on MIT. MIT’s operations are subject to stringent laws and regulations at both the federal and state levels, requiring compliance with burdensome and complex billing, substantiation and record-keeping requirements. Financial relationships between MIT and physicians, nurses, and other referral sources are also subject to strict limitations.
MIT relies heavily on a single source product manufacturer and certain distributors.
We sell intravenous therapies that are supplied to us by a variety of manufacturers, many of which are the only source of that specific pharmaceutical. In order to have access to these therapies, and to be able to participate in the launch of new intravenous pharmaceuticals, we must maintain good working relationships with the manufacturers. Most of the manufacturers of the pharmaceuticals we sell have the right to cancel their supply contracts with us without cause and after giving only minimal notice. The loss of our relationship with one or more pharmaceutical distributors may reduce our revenue and profitability. In addition, IVIG, which is comprised of approximately seven products derived from numerous manufacturers and distributors accounted for approximately xx.xx% and 22.8% of MIT’s revenues for the years ended December 31, 2011 and December 31, 2010, respectively. The loss of a key pharmaceutical manufacturer could have material adverse affect on our business. There can be no assurance that MIT will have access to adequate supplies on acceptable terms to meet its demands.
Quantities of our intravenous therapies are limited.
Certain of the intravenous therapies that we distribute have limited shelf life and some, such as blood products, are subject to supply shortages. There can be no assurance that we can obtain the supplies of products that we desire. In such event, the operations of our wholesale distribution business will be adversely affected.
Development of new products that compete with MIT’s product line could materially, adversely affect its financial condition.
The pharmaceutical distribution industry is highly competitive and characterized by changing client preferences and continuous introduction of new products and/or services. MIT believes that its future growth will depend, in part, on its ability to anticipate changes in client preferences and develop and introduce, in a timely manner, new products and/or services that adequately address such changes. There can be no assurance that MIT will be successful in developing, introducing and marketing new products and/or services on a timely and regular basis. If MIT is unable to introduce new products and/or services or if MIT’s new products and/or services are not successful, such events could have a material, adverse effect upon its business, operating results and financial condition.
Changes in state and federal government regulation could restrict our ability to conduct our business.
The marketing, sale and purchase of intravenous pharmaceutical therapies, pharmaceuticals, other medical supplies and provision of healthcare services generally is extensively regulated by federal and state governments. Other aspects of our business are also subject to government regulation. We believe we are operating our business in compliance with applicable laws and regulations. The applicable regulatory framework is complex, and the laws are very broad in scope. Many of these laws remain open to interpretation and have not been addressed by substantive court decisions. Accordingly, we cannot provide any assurance that our interpretation would prevail or that one or more government agencies will not interpret them differently. Changes in the law or new interpretations of existing law can have a dramatic effect on what we can do, our cost of doing business and the amount of reimbursement we receive from governmental third party payors, such as Medicare and Medicaid. Also, we could be affected by interpretations of what the appropriate charges are under government programs.
Some of the healthcare laws and regulations that apply to our activities include:
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The federal “Anti-Kickback Statute” prohibits individuals and entities from knowingly and willfully paying, offering, receiving, or soliciting money or anything else of value in order to induce the referral of patients or to induce a person to purchase, lease, order, arrange for, or recommend services or goods covered in whole or in part by Medicare, Medicaid, or other government healthcare programs. Although there are “safe harbors” under the Anti-Kickback Statute, some of our business arrangements and the services we provide may not fit within these safe harbors or a safe harbor may not exist that covers the arrangement. The Anti-Kickback Statute is an intent based statute and the failure of a business arrangement to satisfy all elements of a safe harbor will not necessarily render the arrangement illegal, but it may subject that arrangement to increased scrutiny by enforcement authorities. Violations of the Anti-Kickback Statute can lead to significant penalties, including criminal penalties, civil fines and exclusion from participation in Medicare and Medicaid.
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The “Stark Law” prohibits physicians from making referrals to entities with which the physicians or their immediate family members have a “financial relationship” (i.e., an ownership, investment or compensation relationship) for the furnishing of certain Designated Health Services (“DHS”) that are reimbursable under Medicare. The Stark Law exempts certain business relationships which meet its exception requirements. However, unlike the Anti-Kickback Statute under which an activity may fall outside a safe harbor and still be lawful, a referral for DHS that does not fall within an exception is strictly prohibited by the Stark Law. A violation of the Stark Law is punishable by civil sanctions, including significant fines and exclusion from participation in Medicare and Medicaid.
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The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) provides federal privacy protections for individually identifiable health information. Through the adoption of the Privacy Rule, HIPAA set national standards for the protection of health information for providers and others who transmit health information electronically. In addition to regulating privacy of individual health information, HIPAA includes several anti-fraud and abuse laws, extends criminal penalties to private health care benefit programs and, in addition to Medicare and Medicaid, to other federal health care programs, and expands the Office of Inspector General’s authority to exclude persons and entities from participating in the Medicare and Medicaid programs.
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MIT must obtain state certain licenses to operate and dispense pharmaceuticals. If we are unable to maintain our licenses or if states or the federal government place burdensome restrictions or limitations on pharmaceutical distributors, this could limit or affect our ability to operate in some states which could adversely impact our business and results of operations.
It is unlikely that MIT will pay dividends in the foreseeable future.
MIT has not paid cash dividends to its shareholders in the past, and there is no assurance that MIT will pay dividends in the future. MIT does not intend to declare or pay cash dividends in the foreseeable future. Earnings, if any, are expected to be retained to finance and expand its business.
We may be subject to liability for the services we offer and the products we sell.
We and other participants in the health care market are likely to continue to be subject to lawsuits based upon alleged malpractice, product liability, negligence or similar legal theories, many of which involve large claims and significant defense costs. A successful claim not covered by our professional liability insurance ($1,000,000 per occurrence) or substantially in excess of our general liability insurance ($1,000,000 per occurrence) coverage could cause us to pay out a substantial award, harming our financial condition and results of operations. In addition, we retain liability on claims up to the $500 - $1,000 amount of our deductibles, which generally are upwards of $2,000 per year for infusion per occurrence. Further, our insurance policy is subject to annual renewal and it may not be possible to obtain liability insurance in the future on acceptable terms, with adequate coverage against potential liabilities, or at all. Also, claims against us, regardless of their merit or eventual outcome, could be a serious distraction to management and could harm our reputation.
We are controlled by our principal shareholders and as a result you may not be able to exert meaningful influence on significant corporate decisions.
At present, our officers, directors and principal shareholders own approximately 62% of the issued and outstanding shares, including 25,100,000 shares over which Mr. Parker, our Chief Executive Officer, had the right to vote until May 2009 and therefore have the ability to elect all of the members of the Board of Directors of the company. Mr. Parker, alone has the right to vote a majority of the outstanding shares of common stock. As such, control of the company will remain with the controlling shareholders who will continue to formulate business decisions and policy.
We are subject to price volatility due to our operations materially fluctuating, as a result, any quarter-to-quarter comparisons in our financial statements may not be meaningful and may also cause the price of our stock to fluctuate.
As a result of the evolving nature of the markets in which we compete, and the early stage in development of our business plan, our operating results have and may in the future, fluctuate materially, as a result of which quarter-to-quarter comparisons of our results of operations may not be meaningful. Until we have developed and demonstrated uses for our services and technology which is accepted by a significant number of customers on a regular basis (through licensing or otherwise) our quarterly results of operations may fluctuate significantly which, in turn, may cause the price of our stock to fluctuate.
MIT’s common stock is deemed to be a “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.
MIT’s common stock could be considered to be a “penny stock” if it meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Securities Exchange Act of 1934, as amended. These include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange; (iii) it is not quoted on the NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.
Broker-dealer requirements may affect trading and liquidity of MIT’s common stock which may result in shareholders being unable to sell their shares.
Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account.
Potential investors in MIT’s common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of MIT’s common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.
We may be exposed to potential risks relating to our internal controls over financial reporting and our ability to have those controls attested to by our independent auditors.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K. We have established disclosure controls and procedures effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of December 31, 2009. Commencing by the fiscal year ended December 31, 2010, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. However, there can be no assurance that we will receive a positive attestation from our independent auditors. In the event we are unable to receive a positive attestation from our independent auditors with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
We may be affected by global climate change or by legal, regulatory, or market responses to such change.
The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns. Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost of key raw materials that we use to produce our products. Additionally, the sale of our products can be impacted by weather conditions.
Laws enacted that directly or indirectly affect our production, distribution (which, in particular, could place restrictions on our use of delivery vehicles), packaging, cost of raw materials, fuel, ingredients, and water could all impact our business and financial results.
Item 2.
Item 2. Description of Property
MIT is headquartered in Savannah, Georgia at 115 Echols Street, while its administrative offices are at 351B Commercial Drive, also in Savannah. This rented facility on Echols Street consists of a building, with a warehouse for inventory and is also the location of MIT’s pharmacy, clean room for compounding and the Savannah ambulatory center. MIT believes that its premises are sufficient for its current operations. On November 1, 2011, the Fairmont location was severely damaged by a fire and the company had rented temporary space on a month to month basis to continue operations. It is not known when the facility will be ready for occupancy. The monthly rent on the temporary location is $1325 per month.
The following are the key terms of MIT’s lease agreements:
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The lease on the facility located at 115B Echols St., Savannah, GA provides for rent of $4,120 per month and is on a month to month basis. This lease is personally guaranteed by William C. Parker, Chairman of the Board.
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MIT leases two suites in the facility located at 351B Commercial Drive , Savannah, GA. The leases for the suites are on a month to month basis. The monthly rent on Suites 351B is $675 and $700. One suite was abandoned on December 31, 2012 due to decreased staff size... This lease is personally guaranteed by William C. Parker.
Item 3.
Item 3. Legal Proceedings
From time to time, we are party to litigation that we consider to be a part of the ordinary course of our business. At present, we are not involved in any pending claims that we believe could reasonably be expected to have a material adverse effect on our business, financial condition, or results of operations.
Item 4.
Item 4. RESERVED
Item 5.
Item 5. Market For Common Equity And Related Stockholder Matters
Market information
Our common stock is presently traded in the over-the-counter market and quoted on the National Association of Securities Dealers’ OTCQB under the ticker symbol “MITD “. The shares are thinly traded and a limited market presently exists for the shares. The following table describes, for the respective periods indicated, the prices of MIT common stock in the over-the-counter market, based on inter-dealer bid prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
Holders Of Record
According to the Company’s transfer agent, the Company had approximately 126 stockholders of record as of April 12, 2013. Because many of the Company’s shares of common stock are held by brokers and other institutions on behalf of stockholders, the Company is unable to estimate the total number of beneficial stockholders represented by those record holders.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently plan to retain future earnings, if any, to finance the growth and development of our business and do not anticipate paying any cash dividends in the foreseeable future. We may incur indebtedness in the future which may prohibit or effectively restrict the payment of dividends, although we have no current plans to do so. Any future determination to pay cash dividends will be at the discretion of our board of directors.
Transfer Agent
Our transfer agent is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004, Telephone number (212) 509-4000.
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
In the first quarter of 2009, the Board of Directors authorized the issuance of a total of 850,000 shares of common stock to Board Members and key employees valued at a price of $0.03 per share, or $25,500 total. In the fourth quarter of 2009, the Board of Directors authorized the issuance of 2,139,937 shares of common stock to Board Members valued at prices ranging from $0.04 per share to $0.76 per share, or $148,352 total. The Company included the $173,582 estimated fair value of the shares in selling, general and administrative expenses in the accompanying statement of operations for the year ended December 31, 2009 and increased common stock and additional paid-in capital by the same amount. In the first quarter of 2010, the Board of Directors authorized the issuance of 320,000 shares of common stock to key employees for $0.04 per share or $12,400. The Company also converted 100 shares of preferred stock into 200,000 shares of common stock in the fourth quarter of 2010.
Pursuant the New Loan, the Company issued Globank 5,000,000 restricted shares of its common stock on January 19, 2011 and Globank agreed not to transfer the stock without the Company’s prior written consent and appointed the Company’s Chairman of the Board as its proxy with respect to the stock for all voting purposes through December 31, 2013, the maturity date of this loan. The Company agreed to redeem the stock no later than January 1, 2014 for an amount equal to $250,000 (the “Minimum Stock Redemption Amount”) plus 50% of the excess of the Payoff Value (based on the average closing sales price of the stock for the 5 consecutive trading days immediately preceding the Payoff Date) over $250,000, if any. The New Loan also provides for anti-dilution rights to Globank.
ITEM 6.
ITEM 6. SELECTED FINANCIAL INFORMATION
Following is a summary of our operations and financial condition from 2009 through 2013. You are urged to review the detailed audited financial statements and accompanying footnotes for a complete understanding of our operations.
No cash dividends have been paid during any of the periods stated above.
Item 7.
Item 7. Management’s Discussion and Analysis
The statements contained in this prospectus are not purely historical statements, but rather include what we believe are forward-looking statements. The forward-looking statements are based on factors set forth in the following discussion and in the discussions under “Risk Factors” and “Business.” Our actual results could differ materially from results anticipated in these forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements.
Overview
Through its subsidiaries, MIT prepares intravenous medication for home infusion by the patient, operates an ambulatory center where intravenous infusions are administered and sells and rents home medical equipment. MIT and its subsidiaries have been based in Savannah, Georgia for 19 years and operates an ambulatory care center there. Our home infusion and ambulatory center accounts for the majority of our revenues and is anticipated to be our most significant area of growth.
Critical Accounting Policies
Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, impairment of long-lived assets, including finite lived intangible assets, accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.
Our significant accounting policies are summarized in Note 1 to our audited financial statements for the year ended December 31, 2012. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). They consist mainly of pharmaceutical supplies and medical equipment.
Revenue Recognition
Sales and services are recorded when products are delivered to the customers. Provision for discounts, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of the Company’s final test procedures.
Advertising Cost
Advertising cost is expensed as incurred.
Estimates
Preparing the Company’s financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
New accounting statements issued, and adopted by the Company, include the following:
In March 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets” - an amendment to FASB SFAS No. 140. Statement 156 requires that an entity recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a service contract under certain situations. The new standard is effective for fiscal years beginning after September 15, 2006. The adoption of SFAS No. 156 did not have a material impact on the Company’s financial position and results of operations.
In July 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements and establishes guidelines for recognition and measurement of a tax position taken or expected to be taken in a tax return. We have adopted this statement which became effective on January 1, 2007. The Company has not made any adjustments as a result of the adoption of this interpretation.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. We are currently evaluating the impact on our consolidated financial statements of SFAS 157, which will become effective for us on January 1, 2008 for financial assets and January 1, 2009 for non-financial assets.
In February 2007, the Financial Accounting Standards Board issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”. SFAS No. 159 amends SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities”. SFAS No. 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. SFAS No. 159 applies to all entities, including not-for-profit organizations. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. This statement is effective as of the beginning of each reporting entity’s first fiscal year that begins after November 15, 2007. The Company has not yet determined the effect of SFAS No. 159 on its financial position, operations or cash flows.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” It will require an acquirer to recognize, at the acquisition date, the assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree at their full fair values as of that date. In a business combination achieved in stages (step acquisitions), the acquirer will be required to remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss in earnings. The acquisition-related transaction and restructuring costs will no longer be included as part of the capitalized cost of the acquired entity but will be required to be accounted for separately in accordance with applicable generally accepted accounting principles in the U.S. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements.” The statement clarifies the definition of a non-controlling (or minority) interest and requires that non-controlling interests in subsidiaries be reported as a component of equity in the consolidated statement of financial position and requires that earnings attributed to the non-controlling interests be reported as part of consolidated earnings and not as a separate component of income or expense. However, it will also require expanded disclosures of the attribution of consolidated earnings to the controlling and non-controlling interests on the face of the consolidated income statement. SFAS No. 160 will require that changes in a parent’s controlling ownership interest, that do not result in a loss of control of the subsidiary, are accounted for as equity transactions among shareholders in the consolidated entity therefore resulting in no gain or loss recognition in the income statement. Only when a subsidiary is deconsolidated will a parent recognize a gain or loss in net income. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008, and will be applied prospectively except for the presentation and disclosure requirements that will be applied retrospectively for all periods presented. The Company is currently evaluating the impact of SFAS No. 160 to its financial position and results of operations.
Results of Operations
Comparison of year ended December 31, 2012 to the year ended December 31, 2011.
The following tables show the operations of the Company’s reportable segments:
Revenues
Consolidated revenues for the year ended 2012 were $3,355,518 as compared to $5,933,206 for the year ended December 31, 2011, representing an decrease of $2,577,388 or 43.4%. Consolidated cost of sales for the year ended December 31, 2012 were $1,515,905 or 45.2% of sales as compared to cost of sales for the year ended December 31, 2011 of $2,550,745 or 43.0% of sales. This resulted in a gross profit for the year ended December 31, 2012 of $1,839,613 or 54.8% as compared to gross profit for the year ended December 31, 2011 of $3,382,460 or 57.0%. The decrease in our consolidated revenues for the year ended 2012 were the result of decreasing referrals and therapies administered. The decrease in the costs of good sold and the gross profit is directly related to mail order drugs supplied by certain health plans and decreases in referrals in the clinic. For the year ended 2012, the ambulatory division sales decreased by $2,166,570 while costs of goods sold for the division remained flat as a % of sales resulting in a gross profit of $493,364. Revenues for the infusion division decreased by $669,449, while cost of goods were reduced by $268,165 to $513,931 for the year resulting in a decrease in gross profit of $1,098,406.
Operating Expenses
Total operating expenses decreased $2,034,971 or a 42.4% decrease to $2,7761,171 for the year ended December 31, 2012 from $4,796,143 for the year ended December 31, 2011.
The decrease in operating expense is attributable to the $1,010,476 decrease in expenses relating to issuance of stock in 2011 and reduced headcount during 2012 resulting in $818,599 decrease in labor expenses. The major components of operating expense include:
● Salaries and payroll related costs decreased $818,599 to $950,051 for the year ended December 31, 2012 as compared to $1,768,650 for the year ended December 31, 2011, a decrease of 46.3%. The decrease was due primarily to the realignment of personnel at a decreased cost and reduced headcount.
● Sales, general and administrative expenses decreased $1,106,980 or 41.2% to $1,581,183 for the year ended December 31, 2012 as compared to $2,688,163 for the year ended December 31, 2011. The decrease was due primarily to expenses for issuance of stock offset by decreases in legal fees relating to the Provector product. Bad debt expense decreased $106,059 from $306,000 to $199,941. Additional decreases in spending were in marketing expenses, insurance and office expense offset by increase in expenses relating to consulting fees and a decrease in payroll related costs. Consulting fees were $457,887; lease expense was $80,078; Insurance expense was $74,039; legal and professional expense was $22,813. Additional expenses included office expense of $49,429; automobile expense of $39,107; telephone expense of $38,246; marketing expenses of $14,961.
● Depreciation and amortization decreased $3,333 or 10.0% to $29,997 for the year ended December 31, 2012 as compared to $33,330 for the year ended December 31, 2011. The decrease was attributable to the reduction in depreciable assets.
Operating Income
Operating income increased $492,124 or 34.8% to ($921,559) for the year ended December 31, 2012 from $(1,413,682) for the year ended December 31, 2011. Operating income as a percentage of gross revenue was (27.5%) for the year ended December 31, 2012 as compared to (23.8%) for the year ended December 31, 2011.
Income Tax
There was no tax liability for 2011 and 2010 due to losses sustained in both years
Net income
As a result of the above factors, net income (loss) decreased to ($1,136,555) for the year ended December 31, 2012 from $(1,329,764) for the year ended December 31, 2011.
Liquidity and Capital Resources
As of December 31, 2012, we had cash of $52,758, as compared to $52,569 at December 31, 2011. For the year ended December 31, 2012, net cash used by operating activities aggregated ($70,585) as compared to cash used by operations for the year ended December 31, 2011 of ($462), As of December 31, 2011, we had cash of $113,596 as compared to a cash balance of $111,337 as of December 31, 2010.
On December 31, 2010, the Company entered into the New Loan with Globank to modify the original agreement and original note dated July 29, 2008. Pursuant to the New Loan and Amended and Restated Promissory Note, the principal amount increased from $500,000 to $1,037,727, the maturity date was extended from July 29, 2010 to January 1, 2014,and the interest rate was reduced from 60% to 14.9% per annum.
Our inability to achieve sufficient increases on our revenues has created a liquidity challenge that raises doubt about our ability to continue as a going concern. The auditor’s opinion which accompanies our financial statements is qualified as to our ability to continue as a going concern.
Off- Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements.
Item 8.
Item 8. Financial Statements
MIT HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these statements
MIT HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND
The accompanying notes are an integral part of these statements.
MIT HOLDING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
The accompanying notes are an integral part of these statements.
MIT HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND
The accompanying notes are an integral part of these statements.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Nature of Operations/ Basis of Presentation
Nature of Operations
MIT Holding, Inc., a Delaware corporation, is a holding company. Through three wholly-owned subsidiaries, MIT distributes wholesale pharmaceuticals, administers intravenous infusions, operates an ambulatory center where therapies are administered and sells and rents home medical equipment.
Medical Infusion Technologies, Inc. was incorporated in November 1991 in the state of Georgia. On July 6, 2006, an agreement and plan of merger was made between MIT Holding, Inc., a Delaware corporation, Medical Infusion Technologies, Inc., and MIT Acquisition A, Inc. By this agreement, MIT Holding, Inc. became the parent company and Medical Infusion Technologies, Inc. and MIT Ambulatory Care Center, Inc., the wholly-owned subsidiaries.
MIT Holding, Inc. Merger with Convention All Holdings, Inc.
Our company was formerly known as Convention All Holdings, Inc. and, on May 2, 2007, we acquired a 100% ownership interest in MIT Holding, Inc. through a merger of MIT Holding, Inc. with and into MIT CVAH Acquisition Corp., a newly formed Delaware corporation and wholly-owned subsidiary, in exchange for 32,886,779 shares of our common stock. Simultaneously with the Merger, the company formerly known as MIT Holding, Inc. changed its name to Medical Infusion Group, Inc., and we changed our name to MIT Holding, Inc. As a result of the Merger, we now own 100% of Medical Infusion Group, Inc., a Delaware corporation, which, in turn, continues to own 100% of the issued and outstanding shares of capital stock of MIT Ambulatory Care Center, Inc., a Georgia corporation (“Ambulatory”), Medical Infusion Technologies, Inc., a Georgia corporation (“Infusion”) and MIT International Distribution, Inc., a Delaware corporation (“MIT International”).
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.
2. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of MIT Holdings, Inc and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
3. Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
4. Cash Equivalents
Investments having an original maturity of 90 days or less that are readily convertible into cash are considered cash equivalents. The Company had no cash equivalents as of December 31, 2012 and December 31, 2011.
5. Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, net, accounts payable and accrued expenses, and debt. The fair value of these financial instruments approximate their carrying amounts reported in the balance sheets due to the short term maturity of these instruments or based upon market quotations or quotations of instruments with similar interest rates and similar maturities.
6. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market (net realizable value). They consist mainly of pharmaceutical supplies and medical equipment.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
7.Property and Equipment
Property and equipment are stated at cost and are depreciated principally on methods and at rates designed to amortize their costs over their estimated useful lives.
The estimated service lives of property and equipment are principally as follows:
Furniture and fixtures
7 years
Computer equipment
3- 7 years
Vehicles
5- 7 years
Repairs and maintenance are expensed as incurred. Expenditures that increase the value or productive capacity of assets are capitalized.
8. Long-Lived Assets
Property and equipment and other long-lived assets, including non-compete agreements, are evaluated for impairment whenever events or conditions indicate that the carrying value of an asset may not be recoverable, but not less than annually. If the sum of undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets.
9. Revenue Recognition
Sales and services are recorded when products are delivered to the customers. Provision for discounts, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. In instances where products are configured to customer requirements, revenue is recorded upon the successful completion of the Company’s final test procedures.
10. Stock-Based Compensation
Stock-based compensation is accounted for at fair value in accordance with Accounting Standards Codification (“ASC”) 718, “Compensation- Stock Compensation”.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In addition to requiring supplemental disclosures, ASC 718, Compensation - Stock Compensation, addresses the accounting for share-based payment transactions in which a company receives goods in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. FASB ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.
References to the issuances of restricted stock refer to stock of a public company issued in private placement transactions to individuals who are eligible to sell all or some of their shares of restricted Common Stock pursuant to Rule 144 promulgated under the Securities Act of 1933 (“Rule 144”), subject to certain limitations. In general, pursuant to Rule 144, a stockholder who is not an affiliate and has satisfied a six-month holding period may sell all of his restricted stock without restriction, provided that the Company has current information publicly available. Rule 144 also permits, under certain circumstances, the sale of restricted stock, without any limitations, by a non-affiliate of the Company that has satisfied a one-year holding period.
11. Advertising Costs
Advertising costs are expensed as incurred. Advertising expense totaled $ 38,140 for the year ended December 31, 2012 and $ 112,844 for the year ended December 31, 2011.
12. Income Taxes
Deferred income taxes are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements by applying enacted statutory tax rates expected to apply in the years in which these temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is not more likely than not that some portion or all of the deferred tax assets will be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
13. Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed on the basis of the weighted average number of common shares outstanding during the period.
Diluted net income (loss) per common share is computed on the basis of the weighted average number of common shares and dilutive securities (such as warrants and convertible securities) outstanding. Dilutive securities having an anti-dilutive effect on diluted net income (loss) per share are excluded from the calculation.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
For the years ended December 31, 2012 and 2009, diluted weighted average number of common shares outstanding exclude 3,593,460 (2009: 3,793,460) shares issuable on conversion of Series A Preferred Stock, 600,000 shares issuable on exercise of outstanding options and 8,418,780 shares issuable on exercise of outstanding warrants.
14. Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
15. Recent Accounting Pronouncements
Effective for interim and annual periods ending after September 15, 2009, the FASB Accounting Standards Codification (the “Codification”) is the single source of authoritative literature of U.S. generally accepted accounting principles (“GAAP”). The Codification consolidates all authoritative accounting literature into one internet-based research tool, which supersedes all preexisting accounting and reporting standards, excluding separate rules and other interpretive guidance released by the SEC. New accounting guidance is now issued in the form of Accounting Standards Updates, which update the Codification. The adoption of the Codification did not result in any change in the Company’s significant accounting policies.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In August 2009, the FASB issued an update to ASC 820. This Accounting Standards Update (“ASU”) No. 2009-5, Measuring Liabilities at Fair Value (“ASU 2009-5”) amends the provisions in ASC 820 related to the fair value measurement of liabilities and clarifies for circumstances in which a quoted price in an active market for the identical liability is not available. ASU 2009-5 is intended to reduce potential ambiguity in financial reporting when measuring the fair value of liabilities. ASU 2009-5 was effective for the Company in the first quarter of fiscal year 2010. ASU 2009-5 concerns disclosure only. The adoption of ASU 2009-5 did not have a material effect on the Company's consolidated financial statements.
In December 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-17, which codifies SFAS No. 167, Amendments to FASB Interpretation No. 46(R) issued in June 2009. ASU 2009-17 requires a qualitative approach to identifying a controlling financial interest in a variable interest entity (“VIE”), and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. ASU 2009-17 is effective for annual reporting periods beginning after November 15, 2009. The adoption of ASU 2009-17 did not have a material effect on the Company's financial statements.
In January 2010, the FASB issued ASU 2010-6, Improving Disclosures About Fair Value Measurements, which requires reporting entities to make new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. ASU 2010-6 is effective for annual reporting periods beginning after December 15, 2009, except for Level 3 reconciliation disclosures which are effective for annual periods beginning after December 15, 2010. The Company believes that the adoption of ASU 2010-6 will not have a material effect on its consolidated financial statements.
Certain other accounting pronouncements have been issued by FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Company’s consolidated financial position and results of operations from adoption of these standards is not expected to be material.
NOTE B - GOING CONCERN
At December 31, 2012, the company had negative working capital of $1,185,879 and a stockholders’ deficiency of $2,247,789. From inception the Company has incurred an accumulated deficit of $8,527,203. These factors raise substantial doubt as the Company’s ability to continue as a going concern. There can be no assurance that sufficient funds required during the next year or thereafter will be generated from operations or that funds will be available from external sources such as debt or equity financings or other potential sources. The lack of additional capital resulting from the inability to generate cash flow from operations or to raise capital from external sources would force the Company to substantially curtail or cease operations and would, therefore, have a material adverse effect on its business. Furthermore, there can be no assurance that any such required funds, if available, will be available on attractive terms or that they will not have a significant dilutive effect on the Company’s existing stockholders.
The accompanying financial statements do not include any adjustments related to the recoverability or classification of asset-carrying amounts or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE C - ACCOUNTS RECEIVABLE
Accounts receivable consist of:
The allowance for doubtful accounts changed as follows:
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE D - INVENTORIES
Inventories consist of:
NOTE E - NON-COMPETE AGREEMENT
Non-compete agreement consists of:
The non-compete agreement is being amortized over the estimated remaining period of the agreement (see Note M).
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE F - LONG-TERM DEBT
The Company’s debt is as follows:
At December 31, 2012, the debt is due as follows:
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE F - LONG-TERM DEBT (continued)
On December 31, 2011, the Company entered into a Loan and Security Agreement (the “New Loan”) with Globank Corp. (“Globank”) to modify the Original Agreement and Original Note dated July 29, 2008. Pursuant to the New Loan and Amended and Restated Promissory Note, the principal amount increased from $500,000 to $1,037,727, the maturity date was extended from July 29, 2010 to January 1, 2014,and the interest rate was reduced from 60% to 14.9% per annum. The $537,727 increase in principal was applied as follows:
Also, pursuant to the New Loan, the Company agreed to issue Globank 5,000,000 restricted shares of its common stock (which occurred January 19, 2011)(the “Stock”) and Globank agreed not to transfer the Stock without the Company’s prior written consent and appointed the Company’s Chairman of the Board as its proxy with respect to the Stock for all voting purposes to December 31, 2013. The Company is to redeem the Stock no later than January 1, 2014 for an amount equal to $250,000 (“Minimum Stock Redemption Amount”) plus 50% of the excess of the Payoff Value (based on the average closing sales price of the Stock for the 5 consecutive trading days immediately preceding the Payoff Date) over $250,000, if any. The New Loan also provides for anti-dilution rights to Globank whereby Globank is to be issued additional shares of Company common stock if the Company issues additional shares to another person or entity (so that Globank retains the same percentage of stock ownership). The Stock has been reflected at the Minimum Stock Redemption Amount of $250,000 as “Common Stock Subject to Mandatory Redemption” within liabilities in the consolidated balance sheet at December 31, 2012. All stock restrictions have been removed by the Company.
The Renewal Fee of $160,000 and the Minimum Redemption Amount of $250,000 have been reflected as debt discounts in the consolidated balance sheet at December 31, 2012 and will be amortized over the term of the New Note and recognized as interest expense.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE G -ESTIMATED LIABILITY FOR EQUITY-BASED FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF LIABILITIES
Effective January 1, 2009, in accordance with EITF Issue No. 07-05, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock”, the Company reclassified the fair values at January 1, 2009 of the outstanding Series A Convertible Preferred Stock and warrants from the private placement of the units which closed May 31, 2007 from stockholders’ equity to liabilities, as follows:
Since at January 1, 2009 the carrying value of the outstanding financial instruments was $2,871,316, the Company recognized a cumulative effect adjustment resulting from a change in accounting principle of $2,537,514. Accordingly, the accumulated deficit balance at December 31, 2008 was decreased from $9,899,884 to $7,362,370, as adjusted, on January 1, 2009.
The characteristics which require classification of the Series A Preferred Stock and warrants as liabilities are the Company’s obligations to reduce the conversion price of the Series A Preferred Stock and the exercise price of the warrants in the event that the Company sells, grants, or issues any nonexcluded shares, options, warrants, or any convertible instrument at a price below the $0.50 current conversion price of the Series A Preferred Stock. As a result, the Company remeasures the fair values of these financial instruments each quarter, adjusts the liability balances, and reflects changes in operations as “income (expense) from revaluation of equity-based financial instruments with characteristics of liabilities at fair values”.
The fair values of the financial instruments consisted of:
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE G -ESTIMATED LIABILITY FOR EQUITY-BASED FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF LIABILITIES (Continued)
Below is a reconciliation of the change in the fair values of the financial instruments from January 1, 2009 through December 31, 2012:
NOTE H - PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of Preferred Stock, of which 5,000 shares have been designated Series A Preferred Stock, par value $ 0.000001. As of December 31, 2012 and December 31, 2011, there are 1,796.73 and 1,896.73 shares of Series A Preferred Stock issued and outstanding, respectively. Holders of Series A Preferred Stock are entitled at any time to convert their shares of Series A Preferred Stock into Common Stock, without any further payment therefore. Each share of Series A Preferred Stock is initially convertible into 2,000 shares of Common Stock, equivalent to a Conversion Price of $0.50 per share. The number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock is subject to adjustment upon the occurrence of certain events, including, among others, a stock split, reverse stock split or combination of MIT's Common Stock; an issuance of Common Stock or other securities of MIT as a dividend or distribution on the Common Stock; a reclassification, exchange or substitution of the Common Stock; or a capital reorganization of MIT. In the event that MIT issues any additional shares of its Common Stock following the Offering, the Conversion rate will be that number of shares of Common Stock equal to $1,000 divided by the price per share at which MIT issues Common Stock in such offering. At our option, following the effectiveness of a registration statement registering the shares of Common Stock issuable upon the conversion of the Series A Preferred Stock and the exercise of the Warrants, if the price of the Common Stock trades above 300% of the Conversion Price per share during any period of 30 consecutive trading days and the average trading volume is at least 50,000 shares per day, for such 30 day period, each share of Series A Preferred Stock can be automatically converted into Common Stock at the Conversion Rate then in effect.
The liquidation preference amount of each share of Series A Preferred Stock is $1,000, or a total of $1,796,730 for the 1,796.73 shares issued and outstanding as of December 31, 2012 (December 31,2009: $1,896,730 for the 1,896.73 shares issued and outstanding).
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE H - PREFERRED STOCK (Continued)
As part of its private placement of the Units (including the Series A Preferred Stock) which closed May 31, 2007, the Company granted a financial advisor a five-year option to purchase up to 635 units (comprised of 635 shares of Series A Preferred Stock and warrants to purchase up to 1,270,000 shares of common stock at an exercise price of $0.75 per share to August 13, 2012) at a price of $1,000 per Unit.
Dividends accrue on the Series A Preferred Stock at the rate of 6% per annum and are cumulative. If and when declared, the Company may pay such dividends in cash or common stock. The cumulative undeclared and unpaid dividends are $386,297 and $295,831 at December 31, 2012 and December 31, 2011, respectively.
On October 12, 2012, the Board of Directors authorized the issuance of 1,100,000 shares of Series B Preferred Stock for later issue. The Series B Preferred Stock shall not be entitled to receive any dividends and shall have no liquidation preference and carries a par value of $.000001. There have been no share issued of the Series B Preferred Stock
NOTE I - ISSUANCE OF COMMON STOCK
On February 24, 2010, the Board of Directors authorized the issuance of a total of 320,000 shares of common stock to Board Members and key employees valued at a price of $0.04 per share, or $12,400 total. The Company included the $12,400 estimated fair value of the shares in selling, general and administrative expenses in the statement of operations for the year ended December 31, 2011 and increased the common stock and additional paid-in capital by the same amount.
On July 5, 2010, a holder of 100 shares of Series A Convertible Preferred Stock converted the 100 shares of Series A Convertible Preferred Stock into 200,000 shares of common stock. The Company reported the $8,000 estimated fair value of the common shares as a reduction of the “estimated liability for equity-based financial instruments with characteristics of liabilities” and increased common stock and additional paid-in capital by the same amount.
In January 2011, the Company issued a total of 42,000 shares to seven parties related to or affiliated with the Company’s chief financial officer for services rendered. The Company included the $1,470 estimated fair value of the shares at date of issuance in selling, general and administrative expenses in the statement of operations for the year ended December 31, 2012 and increased common stock and additional paid-in capital by the same amount.
On August 17,2011, the Company issued a total of 29,104,240 shares of common stock valued at a price of $0.04 per share or $1,164,170 total for services rendered. 25,000,000 shares were issued to a corporation affiliated with the Company’s chief financial officer, 3,504,240 were issued to the Company’s chief executive officer, and a total of 600,000 shares were issued to six board members (100,000 shares each). The Company included the $1,164,170, estimated fair value of the shares in selling, general and administrative expenses in the statement of operations for the year ended December 31, 2012 and increased common stock and additional paid-in capital by the same amount.
In October 2012. the company recognized the issuance of 6,860,000 shares of common stock valued at a price of $0.02 cents per share or $137,200 for consideration of services rendered and for acquisition costs relating to Palmetto Long Term Care (PLTC).
NOTE J - STOCK OPTIONS AND COMMON STOCK PURCHASE WARRANTS
A summary of stock options and warrants activity for the years ended December 31, 2012 and 2011 follows:
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE J - STOCK OPTIONS AND COMMON STOCK PURCHASE WARRANTS (Continued)
Stock options outstanding at December 31, 2012 and 2011 are:
Common stock purchase warrants outstanding at December 31, 2012 and December 31, 2011 are:
NOTE K - INCOME TAXES
Expected income tax expense (benefit) computed by applying the United States statutory income tax rate of 34% to pretax income (loss) differs from the Company’s provision for (benefit from) income taxes, as follows:
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE K - INCOME TAXES (Continued)
The components of net deferred income tax assets are as follows:
Based on management’s present assessment, the Company has not yet determined it to be more likely than not a deferred income tax asset of up to approximately $1,351,003 attributable to the future utilization of the net operating loss carryforwards and other timing differences of approximately $3,973,539 as of December 31, 2012 will not be realized. Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at December 31, 2012. The Company will continue to review this valuation allowance and make adjustments as appropriate. The $3,464,820 net operating loss carryforward expires $1,743,693 in year 2028, $983,226 in year 2029 and $737,901 in year 2030.
NOTE L - OPERATING SEGMENTS
The Company has four principal operating segments, which are as follows:
· Medical Infusion Technologies-“MIT”
· MIT International / Provector
· Durable Medical Equipment - “DME”
· MIT Ambulatory Care Center -“Ambulatory Care”
“MIT” is a provider of intravenous therapies to patients at their home, at a designated facility. MIT’s primary product lines are centered upon infusion therapy.
“International / Provector” is the division responsible for the marketing and distribution of Provector on a worldwide basis for international sales only.
“DME” carries a variety of durable medical equipment and supplies.
“Ambulatory Care” administers the intravenous therapies to patients in the Company’s facility.
The following tables show the summarized financial information of the Company’s reportable segments at December 31, 2012 and 2011 and for the years then ended:
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited and unreviewed with respect to year ended December 31, 2012
NOTE L - OPERATING SEGMENTS (Continued)
NOTE M - COMMITMENTS AND CONTINGENCIES
Employment Agreements
Pursuant to an Employment Agreement with the Company’s chief executive officer effective June 30, 2006 and expiring June 30, 2011, the Company is obligated to pay its chief executive officer a salary of $250,000 per year.
Pursuant to an Employment Agreement with the Company’s chief operating officer effective May 10, 2005, as amended March 14, 2006, April 1, 2006, December 20, 2006, and June 7, 2007, the Company is obligated to pay its chief operating officer a salary of approximately $117,000 per year through May 10, 2010 and, on May 10, 2010, cash or common stock, at the option of the Company, equal to the amount (if any) by which $625,000 exceeds the sum of ( i ) the market value of the remainder of the 312,500 unsold shares issued to her on June 7, 2007 and ( ii) the proceeds, if any, received by her from the sale of any of the 312,500 shares. As part of the agreement, the Company’s chief operating officer has agreed not to compete with the Company for a period of three years after the sales of any shares of the Company. The agreement has been verbally extended and amended to defer the $625,000 common stock market value contingent liability of the Company until 2012.
Pursuant to an Employment Agreement with the Company’s pharmacist in charge effective May 10, 2005, as amended March 14, 2006, April 1, 2006, December 20, 2006, and June 7, 2007, the Company is obligated to pay its pharmacist in charge a salary of approximately $40,000 per year through May 10, 2010 and, on May 10, 2010, cash or common stock, at the option of the Company, equal to the amount (if any) by which $500,000 exceeds the sum of ( i ) the market value of the remainder of the 250,000 unsold shares issued to him on June 7, 2007 and ( ii) the proceeds, if any, received by him from the sale of any of the 250,000 shares. As part of the agreement, the pharmacist in charge has agreed not to compete with the Company for a period of three years after the sales of any shares of the Company. The agreement has been verbally extended and amended to defer the $500,000 common stock market value contingent liability of the Company until 2012.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE M - COMMITMENTS AND CONTINGENCIES (continued)
Lease Agreements
The Company operates from two locations in Savannah, Georgia (under month to month verbal agreements at rents totaling approximately $8,200 per month) and from two locations in South Carolina (under written operating lease agreements expiring October 31, 2013 and April 30, 2012 at monthly rents ranging from $2,500 to $3,000 (for the first lease) and $800 to $824 (for the second lease), respectively). Rent expense for the years ended December 31, 2012 and 2009 was $116,722 and $ 111,300, respectively.
At December 31, 2012, future minimum rental commitments under all non-cancellable operating leases are due as follows:
Delinquent Payroll Tax Returns and Payments
The Company is delinquent in filing certain Federal and Georgia payroll tax returns resulting in the non-payment of the related withholdings and employer taxes. The delinquency and non-payments are for the quarterly periods ended December 31, 2011, March 31, 2010, June 30, 2010, and September 30, 2010.
The total amount of money owed (excluding potential late filing and late payment penalties) at December 31, 2012 is approximately $688,447(which is included in “accounts payable and accrued expenses” in the accompanying consolidated balance sheet at December 31, 2012).
In October 2010, we retained the public accounting firm Drakeford and Drakeford to contact the Internal Revenue Service and the Georgia tax authority to negotiate various payment plans associated with the amounts owed. In connection therewith, we sent $60,000 to Drakeford and Drakeford for the sole purpose of satisfying portions of these payroll tax obligations. To the extent unused, Drakeford and Drakeford is required to return any unused portion to the Company. The $60,000 is included in “Prepaid expenses and other current assets” in the accompanying consolidated balance sheet at December 31, 2012.
Stock-Based Compensation Plan
On June 7, 2007 the Board of Directors approved the 2007 Stock Incentive Plan (the "Plan") covering 5,000,000 shares. The shareholders subsequently approved the Plan. The shares underlying the Plan are restricted. The Plan is identical to MIT’s 2006 Stock Incentive Plan (which was adopted by Medical Infusion Group, Inc. (the former MIT Holding, Inc.) prior to the Merger) in all material respects, other than that the 2006 Stock Incentive Plan covers 7,000,000 shares. All awards under the 2006 Stock Incentive Plan were exchanged for awards under the Plan effective upon the Company’s May 2, 2007 merger with Medical Infusion Group, Inc.
The Plan is intended to benefit the stockholders of the Company by providing a means to attract, retain and reward individuals who can and do contribute to the longer-term financial success of the Company. Further, the recipients of stock-based awards under the Plan should identify their success with that of the Company's shareholders and therefore will be encouraged to increase their proprietary interest in the Company. The Compensation Committee administers the Plan.
MIT HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited and unreviewed with respect to year ended December 31, 2012)
NOTE N - RELATED PARTY TRANSACTIONS
During the years ended December 31, 2012 and 2011, the Company incurred consulting fees of $39,000 and $282,000, respectively, included within “Selling, general and administrative” expenses to a company that has a professional relationship with the Company’s Co-chairmen.
NOTE O - SUBSEQUENT EVENTS
On November 8, 2012, our Board of Directors approved, subject to receiving the approval of the stockholders of our common stock, the amendment to our Certificate of Incorporation to cause a recapitalization of the issued and outstanding common stock of the Company be converting 10 existing shares to 1 resultant share, but maintaining the number of authorized shares at 250,000,000. The company issued 35,845,200 shares to vendors and consultants prior to the recapitalization bringing total shares issued to 124,606,011. The recapitalization occurred on March 15, 2013.
On November 8, 2012, our Board of Directors approved a Series B Preferred Stock. The Shareholders by majority approved this establishment of Series B Preferred Stock.
Item 9.
Item 9. Changes In and Disagreements With Accountants And Accounting And Financial Disclosure
On June 24, 2009, the Company’s independent accountants, Drakeford and Drakeford LLC (“Drakeford”) advised the Company that it must refuse to stand for re-election as the Company’s independent certified public accountant. Drakeford ’ s refusal to stand for reelection resulted from the revocation of the registration of Drakeford by the Public Company Accounting Oversight Board.
During the fiscal years ended December 31, 2008 and 2007, and any subsequent period through June 24, 2009, (i) there were no disagreements between the Company and Drakeford on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Drakeford would have caused Drakeford to make reference to the matter in its reports on the Company’s financial statements, and (ii) except as described below, Drakeford’s reports on the Company’s financial statements did not contain an adverse opinion or disclaimer of opinion, and was not modified as to uncertainty, audit scope or accounting principles. Drakeford’s audit reports for the years ended December 31, 2007 and December 31, 2008 stated that several factors raised substantial doubt about the Company’s ability to continue as a going concern and that the financial statements do not include any adjustments that might result from the outcome of this uncertainty. During the fiscal years ended December 31, 2008 and 2007 and through June 24, 2009, there were no reportable events as the term described in Item 304(a)(1)(iv) of Regulation S-K.
The Company provided Drakeford with a copy of the disclosures it is making in response to Item 4.01 on this Form 8-K, and Drakeford furnished it with a letter addressed to the Securities and Exchange Commission stating that it agreed with the above statements.
On July 22, 2009, the Company engaged Michael T. Studer CPA P.C. (“Studer”) as Company’s new independent accountants. At no time during the past two fiscal years or any subsequent period prior to the engagement did the Company consult with Studer, the newly engaged accountants, regarding any matter described in Item 304(a)(2) of Regulation SK, including any issue related to Company’s financial statements or the type of audit opinion that might be rendered for the Company. The change of independent accountants was approved by the Board of Directors of the Company
Item 9A.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of December 31, 2011, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective to ensure that the information required to be disclosed by us in this Annual Report on Form 10-K was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-K.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011.
Our internal control over financial reporting is a process designed by or under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our financial statements.
In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in ‘Internal Control - Integrated Framework’. Our management has concluded that, as of December 31, 2011, our internal control over financial reporting is effective based on these criteria.
There were no changes in our internal controls over financial reporting during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within China Marine Food Group Limited have been detected.
Item 9B.
Item 9B. Other Information
None.
Item 10.
Item 10. Directors And Executive Officers Of The Registrant.
As of March 31, 2013 - our executive officers and directors are:
NAME
AGE
POSITION WITH COMPANY
William C. Parker
Co-President, Co-CEO, & Chairman of the Board of Directors
Walter H. C. Drakeford
Co-President, Co-CEO,Co-Chairman, CFO, Director
Arlene Wilhelm
Chief Operating Officer
Tommy J. Duncan
Director
Robert Rubin
Director
William C. Parker
Mr. Parker has served as President, Chief Executive Officer and Chairman of the Board of Directors of MIT since May 2007, and he has served as President, Chief Executive Officer, and founding member each of MIT’s operating subsidiaries since the inception of each. Mr. Parker attended Armstrong State University in Savannah, Georgia and graduated from the American Banking Institute, in Savannah. The Board believes that Mr. Parker has the experience, qualifications, attributes and skills necessary to serve on the Board because of his experience in the pharmaceutical and medical infusion industry, his having provided leadership and strategic direction to the Company and his unparalleled knowledge of the Company and its business. Mr. Parker is not a member of the Board of any other public company or any investment company, neither has he been a member of the boards of directors of such companies for the past five years.
Walter H. C. Drakeford
Mr. Drakeford became Co-President, Co-Chief Executive Officer and Chief Financial Officer in August 2010. Mr. Drakeford’s career includes being the senior managing director of Drakeford & Drakeford for the past 20 years. Since 2007, he has been the director of mergers and acquisitions of AMC Global Communications, Inc. Mr. Drakeford served as chairman of the board for Ebank Financial Services. He has also served on the boards of Netstar-USA Corp. and LaidLaw Transportation as well as serving as an attaché to the White House under Presidents Nixon, Reagan and George H.W. Bush. Mr., Drakeford holds a finance degree from the University of Berlin and a Masters of Business Administration from Heed University. He also holds a law degree from Thomas Jefferson School of Law. The Board believes that Mr. Drakeford has the experience, qualifications, attributes and skills necessary to serve on the Board because of his experience in finance, his having provided leadership and strategic direction to the Company and his unparalleled knowledge of the Company and its business. Mr. Drakeford is not a member of the Board of any other public company or any investment company, neither has he been a member of the boards of directors of such companies for the past five years.
Arlene O. Wilhelm, RN
Ms. Wilhelm has been the Chief Operating Officer of the Company since May 2007. She is a founder of Medical Infusion Technologies, Inc. and has been its Chief Operating Officer since its formation in 2006. She has served as Vice President of Clinical Services of Infusion for over 15 years, where she is responsible for directing medical operations. Ms. Wilhelm served as a member of the Board of Directors of Infusion from 1991 through 2006. Ms. Wilhelm has over 23 years experience as a Registered Professional Nurse. She attained her RN from Armstrong Atlantic University in Savannah, Georgia, and is a Certified Surgical Technologist, a Certified Surgical Assistant and is certified for use of PICC catheters. The Board believes that Ms. Wilhelm has the experience, qualifications, attributes and skills necessary to serve as an officer for the Company because of her experience in the medical infusion field, her having provided leadership and strategic direction to the Company and her unparalleled knowledge of the Company and its business. Ms. Wilhelm is not a member of the Board of any other public company or any investment company, neither has he been a member of the boards of directors of such companies for the past five years.
Tommy J. Duncan
Mr. Duncan became a member of the Board of Directors of MIT in May 2007, and joined the board of directors of Medical Infusion Group in September 2006. Mr. Duncan is employed with Southeast Vending, LLC, where he has been President since 2001, and he is its sole member. He has been President of Southeast Lumber and Construction, Inc. since 2001, and Secretary and Treasurer of both Custom Locators, Inc. and Auto Locators, Inc., since 2000 and 2004, respectively. Mr. Duncan maintains controlling interests in each entity. Since 2005, Mr. Duncan has been a member of the Board of Directors of CNB BanCorp, Inc., the holding company for Citizens National Bank, a national commercial bank based in Windsor Virginia. Mr. Duncan graduated from the University of Georgia in 1976 with a BBA in Accounting. The Board believes that Mr. Duncan has the experience, qualifications, attributes and skills necessary to serve on the Board because of his experience in finance, his having provided leadership and strategic direction to the Company and his unparalleled knowledge of the Company and its business. Mr. Duncan is not a member of the Board of any other public company or any investment company, nor has he been a member of the boards of directors of such companies for the past five years except for CNB BanCorp, Inc.
Robert Rubin
Robert Rubin became a member of the Board of Directors in April 2007. He has served as the Chairman of the Board of Directors of Solar Thin Films, Inc. f/k/a American United Global Inc, since May 1991, and was the Chief Executive Officer from May 1991 to January 1, 1994. Between October 1990 and January 1, 1994, Mr. Rubin served as the Chairman of the Board and Chief Executive Officer of the company and its subsidiaries; from January 1, 1994 to January 19, 1996, he served only as Chairman of the Board of the company and its subsidiaries. From January 19, 1996 to the present, Mr. Rubin served as Chairman of the Board, President and Chief Executive Officer. Mr. Rubin was the founder, President, Chief Executive Officer and a Director of Superior Care, Inc. (“SCI”) from its inception in 1976 until May 1986, when the business was sold to Olsten Corporation (NYSE). Mr. Rubin continued as a director of SCI until the latter part of 1987. Mr. Rubin is also a Director of Western Power and Equipment Corp. Mr. Rubin was a director of Med-Emerg, Inc., a publicly held Canadian management company for hospital emergency rooms and outpatient facilities until November 2001. Mr. Rubin was also a director of StyleSite Marketing, Inc., which liquidated its assets for the benefit of secured creditors in January 2000. The Board believes that Mr. Rubin has the experience, qualifications, attributes and skills necessary to serve on the Board because of his experience in the medical industry, his having provided leadership and strategic direction to the Company and his unparalleled knowledge of the Company and its business. Mr. Rubin is not a member of the Board of any other public company or any investment company, neither has he been a member of the boards of directors of such companies for the past five years except for Solar Thin Films, Inc.
Brinson Clements
Mr. Clements resigned from the Company on October 23, 2012 in order to pursue other opportunities.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None of our directors, executive officers, or control persons has been involved in any of the following events during the past ten years:
●
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of bankruptcy or within two years prior to that time; or
●
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); or
●
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
●
Being found by a court of competent jurisdiction (in a civil violation), the SEC or the Commodity Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; or
●
Being the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: any Federal or State securities or commodities law or regulation; or any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity. This violation does not apply to any settlement of a civil proceeding among private litigants; or
●
Being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
FAMILY RELATIONSHIPS
There are no family relationships between the officers and directors of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report, in this Form 10-K, any failure to comply therewith during the fiscal year ended December 2008. We believe that the following persons failed to satisfy the filing requirements of Section 16(a):
1.
Mr. Robert Rubin, Director - no Form 3 or 5 is on file
2.
Mr. Tommy J. Duncan, Director - no Form 3 or 5 is on file
3.
Mr. Drakeford, Co-President, Co-Chief Executive Officer and Chief Financial Officer
Item 11.
Item 11.Executive Compensation
COMPENSATION PHILOSOPHY
Our board of directors have historically determined the compensation to be paid to our executive officers based on our financial and operating performance and prospects, and contributions made by the officers’ to our success. Each of the named officers will be measured by a series of performance criteria by the board of directors, on a yearly basis. Such criteria will be based on certain objective parameters such as job characteristics, required professionalism, management skills, interpersonal skills, related experience, personal performance and overall corporate performance.
Our board of directors have not adopted or established a formal policy or procedure for determining the amount of compensation paid to our executive officers. As our executive leadership and board of directors grow, our board of directors may decide to form a compensation committee charged with the oversight of executive compensation plans, policies and programs.
Our compensation program for our executive officers and all other employees is designed such that it will not incentivize unnecessary risk-taking. We provide our executive officers solely with a base salary to compensate them for services rendered during the year. Our policy of compensating our executives with a cash salary has served us well. To date, we have not believed it necessary to provide our executives discretionary bonuses, equity incentives, or other benefits in order for us to continue to be successful. Senior executives do not have the incentive to take unnecessary risks in order to receive a bonus. However, as the Company grows and the operations become more complex, the Board of Directors may deem it in the best interest of the Company to provide such additional compensation to existing executives and in order to attract new executives.
The following table and discussion sets forth information with respect to all compensation earned by or paid by us to our President and Chief Executive Officer, William Parker, our Chief Financial Officer, Walter Drakeford (John Sabia through_August 16, 2010) and our most highly compensated executive officers other than the CEO and CFO, for all services rendered in all capacities to us for each of the last two (2) fiscal years. No disclosure has been made for any executive officer whose total annual salary and bonus does not exceed $100,000.
Employment Agreements
MIT and Mr. Parker have entered into an employment agreement for a term of five years commencing June 2006. The employment agreement provides for a base salary of $250,000 (exclusive of housing and expense allowances), with bonuses to be determined annually by the Board of Directors.
In May 2005, Arlene Wilhelm, MIT’s Chief Operating Officer, and MIT entered into an employment agreement and stock purchase agreement. Under the agreements, Ms. Wilhelm agreed to sell all of her shares of stock of Infusion and Ambulatory for $1,200,000, with $100,000 payable upon execution and $1,100,000 payable upon the earlier of April 15, 2006 or the closing of MIT’s merger with a public company. Under the employment agreement, Ms. Wilhelm receives a salary of $108,000 per year for five years, with an eight percent annual cost of living adjustment, and an expense account of $18,000 per year. MIT also agreed to issue Ms. Wilhelm shares of common stock following its merger with a public company, which shares would have an aggregate value of $625,000 over the term of her agreement. In April 2006, MIT and Ms. Wilhelm executed an amendment to the agreement which provided for the issuance of 1,050,000 shares of Common Stock of MIT to Ms. Wilhelm and an additional deferred purchase price of $500,000. In December 2006, MIT and Ms. Wilhelm executed an amendment to the agreement which provided that the $500,000 payable on a deferred basis is payable as follows: (i) one hundred thousand dollars ($100,000) on July 1, 2007, (ii) three hundred thousand dollars ($300,000) on January 2, 2008, and (iii) and one hundred thousand dollars ($100,000) on July 1, 2008. On June 7, 2007, MIT and Ms. Wilhelm executed another amendment to her employment agreement which provided that, MIT issue Ms. Wilhelm 312,500 shares of common stock of the Company on June 7, 2007, and, on May 10, 2010, cash or common stock, at the option of the Company, equal to the amount, if any, by which $625,000 exceeds the sum of (i) the market value of those 312,500 shares issued to Wilhelm on June 7, 2007 which she holds on May 10, 2010, and (ii) the amount of proceeds, if any, Wilhelm received upon the sale of any of the 312,500 shares. Market value of the shares is to be determined at the discretion of the Compensation Committee of the Board of Directors, if any, and should a Compensation Committee not exist, by the Board of Directors, effective as of May 10, 2010. The agreement has been verbally extended and amended to defer the $625,000 common stock market value contingent liability of the Company for the issuance of common stock until 2012.
Director Compensation
Contemporaneously with the Merger on May 2, 2007 and pursuant to its terms, the Board ratified the following issuances, each of which had been previously approved by the Board of Medical Infusion Group, Inc. on March 19, 2007: (i) options to purchase 100,000 shares of common stock of MIT at an exercise price of $0.50 per share, which options vest on May 2, 2008, provided the Director remains a Director of the Company; (ii) common stock with a market value of $10,000 per year as of April 1 of each year that the non-management Director remains a Director, provided, that such shares shall vest in the non-management Directors on the one year anniversary of their issuance; and (iii) the payment to each non-management Director a fee of $15,000 cash per year for each year that each such Director serves as a Director, with the fee payable quarterly in arrears commencing June 30, 2007, and a fee of $1,000 for each meeting of the Board of Directors and each meeting of a Committee of the Board of Directors attended by such Director. In 2009 the outside directors were issued common shares in lieu of cash payment. Each director received 13,158 shares for 2008 and 250,000 shares for 2009, On May 2, 2007, the Company’s Board of Directors authorized the issuance of options to John Sabia and Brinson Clements to purchase 100,000 shares of common stock of MIT at an exercise price of $0.50 per share, which options vest on May 2, 2008, provided the Director remains a Director of the Company. Each of the foregoing grants to the non-management Directors was made pursuant to the Corporation’s 2006 Stock Incentive Plan. In November 2008, the Company awarded 100,000 shares of Common Stock to each of the six directors for services rendered in 2008.
Equity Incentive Plan
On June 7, 2007 the Board of Directors approved the 2007 Stock Incentive Plan (the “Plan”) covering 5,000,000 shares. The shareholders subsequently approved the Plan. The shares underlying the Plan are restricted. The Plan is identical to MIT’s 2006 Stock Incentive (which was adopted by which was adopted by Medical Infusion Group (the former MIT Holding Inc.) prior to the Merger) in all material respects, other than that the 2006 Stock Incentive Plan covers 7,000,000 shares. All awards under the 2006 Stock Incentive Plan were exchanged for awards under the Plan effective upon the Company’s May 2, 2007 merger with Medical Infusion Group, Inc.
The Plan is intended to benefit the stockholders of the Company by providing a means to attract, retain and reward individuals who can and do contribute to the longer-term financial success of the Company. Further, the recipients of stock-based awards under the Plan should identify their success with that of the company’s shareholders and therefore will be encouraged to increase their proprietary interest in the Company. The Compensation Committee administers the Plan.
The Plan provides for the granting of non-qualified stock options, incentive stock options (within the meaning of Section 422 of the Code), stock appreciation rights (“SARs”), restricted stock and restricted stock unit awards, performance shares and other cash or share-based awards. In the event of any merger, reorganization, recapitalization, stock split, stock dividend, or other change in corporate structure that affects our common stock, an adjustment may be made to the (a) maximum number of shares available for grants under the plan and/or kind of shares that may be delivered under the plan, (b) the individual award limits under the plan and (c) number, kind and/or price of shares subject to outstanding awards granted under the plan, by the Compensation Committee of the company, to prevent dilution or enlargement of rights. Shares of stock covered by an award under the plan that is cancelled, expired, forfeited or settled in cash will again be available for issuance in connection with future grants of awards under the plan.
Our Compensation Committee has broad authority to administer the plan, including the authority to determine when and to whom awards will be made, determine the type and size of awards, determine the terms and conditions of awards, construe and interpret the plan and award agreements, establish rates and resolutions for the plan’s administration, and amend outstanding awards. Generally, the plan is open to directors, employees and consultants who are selected by the Compensation Committee.
Stock Options. Options granted under the plan may be “incentive stock options,” as defined in Section 422 of the Code, or “nonqualified stock options” which are stock options that do not qualify as incentive stock options. An incentive stock option must expire within ten years from the date it is granted (five years in the case of options granted to holders of more than 10% of the total combined voting power of all classes of our stock and the stock of our subsidiaries). The exercise price of an incentive stock option, qualified or non-qualified, must be at least equal to 120% of the fair market value on the date such incentive stock option is granted. Subject to such restrictions as the Compensation Committee may impose, the exercise price of options granted under the plan may be paid (i) in cash or its equivalent, (ii) by delivery, or attesting to the ownership, of previously-acquired shares of our common stock, (iii) pursuant to a cashless exercise program, (iv) by such other methods as the compensation committee may permit or (v) by any combination of (i), (ii), (iii) and (iv). As of the date of this prospectus, no non-qualified stock options had been granted under the plan.
SARs. The Compensation Committee may grant a SAR in connection with all or any portion of an option grant as well as independent of any option grant. A SAR entitles the participant to receive the amount by which the fair market value of a specified number of shares on the exercise dates exceeds an exercise price established by the committee. The excess amount will be payable in common stock, in cash, or in a combination of shares and cash.
Restricted Stock. Restricted Stock Units and Performance Shares. These awards may be granted in such amounts and subject to such terms and conditions as determined by the Compensation Committee. Holders of restricted stock may generally exercise full voting rights and may be credited with regular dividends paid with respect to the underlying shares while they are so held; however, stock dividends or other non-cash distributions made with respect to restricted stock awards generally will be subject to the same restrictions as the restricted stock award. Generally, after the last day of the applicable period of restriction, the shares become freely transferable.
Restricted stock units and performance shares are conditional grants of a right to receive a specified number of shares of common stock or an equivalent amount of cash (or a combination of shares and cash) if certain conditions are met. Each restricted stock unit and performance share must have an initial value equal to the fair market value of a share on the date of grant. Restricted stock units may have conditions relating to continued service or employment only or continued employment or service and attainment of performance goals, as determined by the Compensation Committee. Performance shares may be granted based on a performance period of one or more years or other periods, as determined by the Compensation Committee.
The Compensation Committee must determine the performance objectives for grants of performance shares and the range of the number of shares to be paid to an employee if the relevant measure of performance is met within the performance period. Recipients of restricted stock units and performance shares may receive dividend equivalents with respect to their awards.
Other Awards. Subject to the terms of the plan, the Compensation Committee may grant other awards such as deferred share, share or cash awards based on attainment of performance or other goals or shares in lieu of cash under other incentive or bonus programs. Payment under such awards may be made in such manner and at such times as the Compensation Committee may determine.
Except as otherwise provided in a participant’s award agreement, upon the occurrence of a change in control of the company, all outstanding stock options and SARs become immediately exercisable, any restriction imposed on restricted stock, restricted stock units, performance shares or other awards will lapse, and any performance shares or other awards with performance-related vesting conditions will be deemed earned at the target level (or if no target level is specified, the maximum level). Unless a participant’s award agreement provides otherwise, if a participant’s employment or service terminates following a change in control, any of the participant’s stock options or SARs that were outstanding on the date of the change in control and that were vested as of the date of termination of employment or service will remain exercisable for a period ending not before the earlier of the first anniversary of the termination of the participant’s employment or service or the expiration of the stated term of the award.
The Plan may be amended, suspended or terminated at any time by our board of directors, provided that no amendment that requires shareholder approval in order for the plan to comply with any applicable stock exchange listing standards or securities laws will be effective unless the requisite shareholder approval is obtained, and no amendment or termination may be made without approval of a participant to the extent the amendment or termination materially adversely affects the participant’s outstanding awards.
As of March 31, 2010, the Company issued 320,000 shares of stock to key employees and consultants at prices ranging from $.03 to $.04 per share.
As of December 31, 2009 we have granted 80,000 shares of common stock and options to purchase 600,000 shares of common stock pursuant to the Plan. Each Director other than Mr. Parker holds options to purchase 100,000 shares of Common stock. Each option was priced at the fair market value of the company’s common shares at the date of grant. In May 2007, MIT issued Messrs. Schuster, Rubin, Duncan and Bagwell 20,000 shares of common stock of MIT as compensation for services rendered and to be rendered in 2007.
In November, 2008, the Board of Directors granted 100,000 shares to each member of the Board for services rendered in 2008.
Equity Compensation Plan Information
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows the amount of our common stock beneficially owned as of March 12, 2013 by each of our directors and officers, all executive officers and directors as a group, and each person whom we believe beneficially owns more than 5% of our outstanding voting stock. As of March 12, 2013 there were 124,606,011 shares of common stock of the Company issued and outstanding.
*Less than 1%
(1)
Includes options to purchase 100,000 shares of common stock of MIT, which options vested on May 2, 2008 provided the director remains a director of the company.
(2)
20,000 shares were issued on May 2, 2007 to each of Messrs. Duncan, Rubin and Bagwell as outside directors of the Company. The shares vested on May 2, 2008.
(3)
Excludes 1,148,668 shares of common stock, warrants to purchase 173,020 shares of common stock and Series A Preferred Stock convertible into 173,020 shares of common stock by the Rubin Family Irrevocable Stock Trust, over which Mr. Rubin disclaims beneficial ownership.
(4)
Includes 935,000 shares of common stock and an option to purchase up to 635 units, each unit consisting of one share of Series A Preferred Stock and one Warrant to purchase 2,000 shares of common stock, at a purchase price of $1,000 per unit. Meyers Associates L.P. disclaims beneficial ownership of 980,000 shares of common stock owned by Bruce Meyers, an affiliate of Meyers Associates L.P.
(5)
The Board of Directors met two times in 2012 and not all members were present. The audit committee and the compensation committee met jointly with the other independent directors once, and all members were present.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
We believe that all prior related party transactions have been entered into upon terms no less favorable to us than those that could be obtained from unaffiliated third parties. Our reasonable belief of fair value is based upon proximate similar transactions with third parties or attempts to obtain the consideration from third parties. All ongoing and future transactions with such persons, including any loans or compensation to such persons, will be approved by a majority of disinterested members of the Board of Directors.
On August 1, 2008, MIT borrowed $500,000 from Globank, Inc. The loan bore interest at the rate of 6% per year, with monthly payments of interest only of $25,000 beginning on September 1, 2008. The term of the loan was for 24 months. The loan matured in August, 2010 and was replaced with a new loan bearing an interest rate of 14.9% with interest payable monthly plus $1,000 toward principal and is for a 3 year term ending December 31, 2013.
Director Independence
Each of Messrs. Rubin and Duncan is an independent director and together they do not constitute a majority of the Board of Directors. Neither they nor their affiliates have taken any positions inside the company except for being the independent directors, and are thus considered as independent
Audit Committee and Financial Experts
Our audit committee consists of Mr. Duncan and Mr. Rubin, who are independent member of our Board of Directors The functions of our audit committee include things such as: recommending an independent registered public accounting firm to audit the annual financial statements; reviewing the independent registered public accounting firm’s independence, the financial statements and their audit report; and reviewing management’s administration of the system of internal accounting controls. We do not currently have a written audit committee charter or similar document.
Compensation Committee
Our compensation committee consists of Mr. Schuster and Mr. Rubin. The compensation committee reviews and sets the compensation of our executive officers and directors. We do not currently have a written compensation committee charter or similar document. The compensation payable to Mr. Parker and Ms. Wilhelm, the two most highly paid executives, is determined by their employment agreements. The Company’s performance was not deemed to be sufficiently successful in 2010 to warrant the payment of performance bonuses. The Committee, together with other independent directors, receives recommendations from Mr. Parker, the President of MIT. The Committee, in reaching its conclusions, reviews MIT’s performance in comparison to the expectations set forth the prior year.
Code of Ethics
MIT has not yet adopted a code of ethics. The company is reviewing a code of ethics as part of its reorganization following the Shareholder’s Meeting in June, 2013. The code of ethics will be reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
Meetings of the Board of Directors and Committees
The Board of Directors met two times in 2012 and not all members were present. The audit committee and the compensation committee met jointly with the other independent directors once, and all members were present.
Item 14.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
For 2012, the Company paid $28,000 for audit fees and no other accounting fees by the principal accountant for the audit. For 2011, the Company paid $22,000 for audit fees and no other accounting fees by the principal accountant for the audit. The principal accountant was not paid any fees for other services in 2010 or 2009. The audit committee approved the engagement of the independent accountant for all services rendered in 2010.
Item 15.
Item 15. EXHIBITS.
EXHIBITS
Exhibits:
2.1
Agreement and Plan of Merger, dated as of May 2, 2007, by and among MIT Holding, Inc. and Convention All Holdings, Inc. (1)
3.1
Certificate of Incorporation, as amended(2)
3.2
Bylaws (1)
4.1
Certificate of Designations, Rights and Preferences of Series A Preferred Stock of MIT Holding Inc. (1)
4.2
Form of warrant of MIT Holding Inc. issued in the Private Placement(1)
4.3
Registration Rights Agreement issued to investors in the Private Placement (1)
4.4
Registration Rights Agreement issued to investors in November 2006 Bridge Loan(1)
4.5
Promissory Note issued to Northern Healthcare Capital(1)
10.1
Credit and Security Agreement between MIT and Northern Healthcare Capital, dated April 2007(1)
10.2
Unit Purchase Option dated May 2, 2007(1)
10.3
Employment Agreement of William C. Parker dated as of June 30, 2006(1)
10.4
Employment Agreement of Arlene Wilhelm, dated December 2006, as amended(2)
10.5
Employment Agreement of Dexter Truax, dated December 2006, as amended (1)
10.6
Real Property Lease: 115B Echols St, Savannah(1)
10.7
Real Property Lease & Guaranty: 37 W. Fairmont Ave., Suite 202, Savannah(1)
10.8
Real Property Lease & Guaranty: 37 W. Fairmont Ave., Suite 204, Savannah(1)
10.9
Real Property Lease & Guaranty: 393 EH Court, Brunswick(1)
10.10
MIT’s 2006 Stock Incentive Plan(1)
10.11
Stock Incentive Plan(2)
10.12
Agreement with MIURA Enterprises, dated December 20, 2007
10.13
Promissory Note between the Company and Globank Corp. dated as of July 29, 2008
10.14
Guaranty of William C. Parker in favor of Globank Corp. dated as of July 29, 2008
10.15
Guaranty of Medical Infusions Technologies Inc. in favor of Globank Corp. dated as of July 29, 2008
10.16
Guaranty of Medical Infusions Technologies Ambulatory Care Center, LLC in favor of Globank Corp. dated as of July 29, 2008
10.17
Guaranty of MIT Ambulatory Care Center, Inc. in favor of Globank Corp. dated as of July 29, 2008
10.18
Amended and Restated Promissory Note dated as of December 31, 2010
10.19
Guaranty of Medical Infusions Technologies Inc. in favor of Globank Corp. dated as of December 31, 2010
10.20
Guaranty of Medical Infusions Technologies Ambulatory Care Center, LLC in favor of Globank Corp dated as December 31, 2010
10.21
Loan and Security Agreement between Mit Holding, Inc, Medicsl Infusion Technologies, Inc. Medical Infusiion Technologies Ambulatory Care Center, LLC and MIT Ambulatory Care Center, Inc in favor of Globank Corp, dated as of December 31, 2010 .
10.22
Guaranty of William C. Parker in favor of Globank Corp. dated as of December 31, 2010
10.23
Guaranty of MIT Ambulatory Care Center, Inc in favor of Globank Corp dated as of December 31, 2010
10.24
License agreement between the Company and Vivakor Inc. dated as of October 13, 2010 (4)
10.25
Stock purchase agreements between MITRX Corporation and Direct Home Pharmacy, Inc. and Palmetto Long Term Care Pharmacy, LLC dated January 14, 2011 (5) dated February 4, 2011
21.1
List of subsidiaries of MIT
31.1
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)
31.2
Certification of the Principal Financial Officer pursuant to Rule 15d-14(a)
32.2
Certification of the Chief Executive Officer and the Principal Financial Officer pursuant to 18 U.S.C. 1350
(1)
This Exhibit is filed as an Exhibit to the Form 8-K filed by the Company with the Securities Exchange Commission on May 8, 2007, and incorporated herein by reference.
(2)
This Exhibit is filed as an Exhibit to the Form SB-2 filed by the Company with the Securities Exchange Commission on July 5, 2007, and incorporated herein by reference
(3)
This Exhibit is filed as an Exhibit to the Form 10KSB for the period ended September 30, 2008 and incorporated herein by reference
(4)
This Exhibit is filed as an Exhibit to the Form 8-K filed by the Company with the Securities Exchange Commission on October 20, 2010, and incorporated herein by reference.
(5)
This Exhibit is filed as an Exhibit to the Form 8-K filed by the Company with the Securities Exchange Commission on February 9, 2011, and incorporated herein by reference.
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this annual report on From 10-K for the year ended December 31, 2012 to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 16, 2013