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MMRF > SEC Filings for MMRF > Form 10-K on 1-Apr-2013All Recent SEC Filings

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Form 10-K for MMRGLOBAL, INC.


1-Apr-2013

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related notes appearing elsewhere in this annual report on Form 10-K and the description of our business appearing elsewhere herein. This discussion contains forward-looking statements, the accuracy of which involves risks and uncertainties. Please see "Cautionary Note Regarding Forward-Looking Statements" below. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in "Risk Factors" in Item 1A of this annual report on Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains certain forward-looking statements. The words "anticipate," "expect," "believe," "plan," "intend," "will" and similar expressions are intended to identify such statements. Although the forward-looking statements in this annual report on Form 10-K reflect the good faith judgment of our management, such statements are subject to various risks and uncertainties, including but not limited to the following:

Our ability to obtain financing to fund our operations;
Our inability to generate sufficient cash flow to service our debt obligations;
The possible invalidity of the underlying assumptions and estimates related to our business and market;
Possible changes or developments in economic, business, industry, market, legal and regulatory circumstances;
Conditions and actions taken or omitted to be taken by third parties, including customers, suppliers, business partners and competitors and legislative, judicial and other governmental authorities and officials;
The ability to generate subscribers for our products and services given the current competitive landscape;
Our ability to adapt our products to conform to any technical specifications necessary to benefit from stimulus package funding;
Our ability to raise dilutive and non-dilutive capital in order to meet our financial obligations and invest in our business to grow revenues, including risks related to our trading in the Over the Counter market;
Our ability to launch new products or to successfully commercialize our existing or planned products;
Managing costs while building up an effective sales and service delivery organization for our products with our small management team;
Our ability to maximize our legacy biotechnology assets and otherwise protect our intellectual property assets;



Our ability to enter into marketing arrangements with large membership and affinity organizations for our products and maintain and grow subscribers from such arrangements, such as those noted above, particularly after the initial introductory period; and
Our losses incurred since our inception and our ability to achieve profitability in the near term is primarily dependent on our ability to invest capital in our business to increase revenues while controlling and limiting expenses at a rate slower than revenue growth.

Assumptions related to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Any of such assumptions could be inaccurate. You should not place undue reliance on these forward-looking statements, which are based on our current views and assumptions. In evaluating these statements, you should specifically consider various factors, including the foregoing risks and those outlined under "Risk Factors" in Item 1A of this annual report on Form 10-K. Our forward-looking statements represent estimates and assumptions only as of the date of this annual report on Form 10-K. Except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances occurring after the date of this annual report on Form 10-K.

Overview

As described above, on January 27, 2009, we consummated a transaction with MMR through a merger of our wholly-owned subsidiary with and into MMR pursuant to the terms of the Merger Agreement. In connection with the Merger, MMR Inc became our wholly-owned subsidiary, with the former stockholders of MMR Inc collectively owning (or having the right to acquire) shares of our common stock representing approximately 60.3% of the voting power of our capital stock on a fully diluted basis.

For accounting purposes, the Merger was treated as a reverse acquisition with MMR Inc being the accounting acquirer. Accordingly, the historical financial results prior to the Merger are those of MMR Inc and replace our historical financial results as we existed prior to the Merger. Our results of operations are included in MMR's financial results beginning on January 27, 2009.

The Company was incorporated in Delaware in 2005 and is headquartered in Los Angeles, CA. Effective February 9, 2009 MMR changed its corporate name to MMR Information Systems, Inc., or MMRIS after completion of the reverse merger with Favrille. Subsequently, on June 16, 2010, the Company changed its legal entity name to MMRGlobal, Inc., which we believe more accurately reflects the nature of our operations. We provide secure and easy-to-use online Personal Health Records ("PHR") and electronic safe deposit box storage solutions, serving consumers, healthcare professionals, employers, insurance companies, unions and professional organizations and affinity groups. MMR enables individuals and families to access their personal and emergency medical records and other important documents, such as birth certificates, passports, insurance policies and wills anytime from anywhere using the Internet. The MMR products are built on proprietary, patented technologies to allow documents, images and voicemail messages to be transmitted and stored in the system using a variety of methods, including fax, phone, or file upload without relying on any specific electronic medical record platform to populate a user's account. The Company's professional offering, MMR Pro, is designed to give physicians' offices an easy and cost- effective solution to digitizing paper-based medical records and sharing them with patients in real time.

Starting in 2005, the Company began filing for patent protection for their PHR products and services. Over the last seven years, these patents have been in the process of issuance and we now have patents issued, pending, and applied for in numerous countries around the world. As a result the Company has evolved from an operating business selling products and services to consumers and healthcare professionals to a company whose value proposition is based on a combination of factors including:

A personal health records company specializing in storing medical records and other important documents for consumers and health care professionals
A document imaging and management company for healthcare professionals
A licensor of Biotech Intellectual Property based on a portfolio of biotech assets developed at a cost of more than 100 million dollars
And a licensor of Health Information Technology patents and other Intellectual Property in numerous counties around the world

Going Concern

As more fully described in Note 1 to the financial statements appearing elsewhere herein, our independent registered public accounting firm has included an explanatory paragraph in their report on our financial statements included with this annual report on Form 10-K for the year ended December 31, 2012 related to the uncertainty of our ability to continue as a going concern. As of December 31, 2012, current liabilities of $8,042,130 exceeded cash and cash equivalents of $36,655. As a result of the above, there is uncertainty about the Company's ability to continue as a going concern.


Historically, we issued capital stock, sold debt and equity securities and received funds from The RHL Group, Inc. (a significant stockholder that is wholly-owned by our Chairman, Chief Executive Officer and President) to operate our business. Although we received additional funding from The RHL Group pursuant to the Seventh Amended and Restated Note dated July 30, 2012, nevertheless we may be required to obtain additional financing in order to meet payment obligations resulting from settlement payments with various creditors from pre-merger Favrille, which we refer to as the Creditor Plan and the previously existing obligations under the secured indebtedness to The RHL Group, which had a balance of $1,587,160 as of December 31, 2012. As a result of the above, we express uncertainty about our ability to continue as a going concern.

On May 8, 2012, the Company filed a Form S-1 related to the offer and resale of up to 100,000,000 shares of our common stock, by the selling stockholder, Granite State Capital, LLC, or Granite. Granite has agreed to purchase all 100,000,000 shares pursuant to the Investment Agreement dated April 16, 2012, or the Investment Agreement, between Granite and the Company. Subject to the terms and conditions of the Investment Agreement, the Company had the right to put up to $15 million in shares of our common stock to Granite. As of December 31, 2012 the amount available under the equity line facility was $14.4 million, however that amount could be reduced based on the market price of our stock at the time any shares are sold.

Our management intends to continue to utilize our available line of credit with The RHL Group (see Note 3), if necessary to address our uncertainty to continue as a going concern. At December 31, 2012, we had approximately $1,498,211 remaining as available under The RHL Group line of credit. Furthermore, we already began and plan to continue to utilize portions of our standby equity line facility with Granite as needed. Additionally, we plan to continue to sell additional debt and equity securities, continue to settle our existing liabilities through issuance of equity securities, explore other debt financing arrangements, continue to increase our existing subscriber and affiliate customer base, sell MMRPro products, and continue licensing our intellectual property to obtain additional cash flow over the next twelve months. We cannot assure you that funds from these sources will be available when needed or, if available, will be on terms favorable to us or to our stockholders. If we raise additional funds or settle liabilities by issuing equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution or such equity securities may provide for rights, preferences or privileges senior to those of the holders of our common stock. For further details regarding our indebtedness with The RHL Group, Inc., see "-Liquidity and Capital Resources-Description of Indebtedness-The RHL Group, Inc.," below.

If we are unable to utilize our available line of credit with The RHL Group, the Granite equity line of credit, or obtain suitable alternative debt or equity financing, our ability to execute our business plan and continue as a going concern may be adversely affected.

Description of Indebtedness

The RHL Group, Inc.

For a description of our indebtedness to The RHL Group, please See Note 3- Related Party Note Payable, included above in this Annual Report on Form 10-K

The RHL Group Note payable had a balance of $1,587,160 at December 31, 2012. The components of the RHL Group Note payable and the related balance sheet presentation as of December 31, 2012 are as follows: $1,045,947, which is included in the line of credit, related party; and $541,212 related to other obligations due to The RHL Group which are included in related party payables.

Total interest expense on this note for the years ended December 31, 2012 and 2011 amounted to $155,866 and $119,710 respectively. The unpaid interest balances as of December 31, 2012 and 2011 were $35,451 and $24,145, respectively.

Promissory Notes

On various date between April 15, 2011 and December 7, 2011, we entered into Convertible Promissory Notes (the "Notes") with one related party and twelve unrelated third-parties for principal amounts totaling $1,800,858. Under the terms of the agreements, principal amounts owed under the Notes become due and payable six months from the investment date provided that, upon ten (10) days' prior written notice to the Holder, we may, in our sole discretion, extend the maturity date for an additional six months. Some of the Notes bear an interest rate of 6%, 8% and others bear an interest rate of 12% per annum payable in cash or shares of common stock, or a combination of cash and shares of common stock, at the election of the Company.


On February 17, 2012, the Company entered into a Convertible Promissory Note (the "Note") with one unrelated third-party for a principal amount totaling $35,000. Under the terms of the agreement, the Note had a one year term and was renewable, in our sole discretion, for an additional six month term. The Note had a stated interest rate of 12% per annum payable in cash or shares of common stock, or a combination of cash and shares of common stock, at the election of the Company. The Note was convertible at the option of the holder into common stock at a fixed conversion price of seventy-five percent (75%) multiplied by the arithmetic average of the volume-weighted average trading price of the common stock for the ten (10) consecutive trading days ending on the day that was three (3) trading days prior to the applicable investment date, subject to anti-dilution and other customary adjustments. In connection with the Note, the Company also issued a warrant to purchase an aggregate of 105,000 shares of common stock. The term of the warrant was one day and the exercise price was the product of fifty percent (50%) multiplied by the arithmetic average of the volume-weighted average trading price of the common stock for the ten (10) consecutive trading days ending on the day that was three (3) trading days prior to the applicable grant date, subject to anti-dilution and other customary adjustments. The loan discounts for the convertible note feature and the warrant totaled to $16,492 and was amortized to interest. As of December 31, 2012, the note had been converted and the warrant was exercised.

On various dates between May 4, 2012 and June 29, 2012, the Company entered into thirteen different Convertible Promissory Notes with twelve different unrelated third-parties for principal amounts totaling $265,000 at a fixed conversion price of $0.02, which was a premium of approximately 33% of the average closing price of our common stock during that period. Under the terms of the agreement, the Notes had a one year term and were renewable, in our sole discretion, for an additional six month term. The Notes had a stated interest at a rate of 6% per annum payable in cash or shares of common stock or a combination of cash and shares of common stock. The decision whether to pay in cash, shares of common stock or combination of both shall be at our sole discretion. At any time from and after the earliest to occur of (i) the approval of the stockholder's of the Company of the increase in the authorized shares of the Company's common stock from 650,000,000 to 950,000,000; or (ii) the availability of sufficient unreserved shares, the Company shall be entitled to convert any portion of the outstanding and unpaid conversion amount into fully paid and non-assessable shares of common stock. There were no loan discounts for the convertible note feature and the warrant. As of December 31, 2012, all notes had been converted.

On various dates between August 9, 2012 and September 27, 2012, the Company entered into eight different Convertible Promissory Notes (the "Notes") with eight different unrelated third-parties for principal amounts totaling $480,000 at a fixed conversion price of $0.02, which was a premium of approximately 33% of the average closing price of our common stock during that period. Under the terms of the agreement, the Notes had a one year term and were renewable, in our sole discretion, for an additional six month term. The Notes had the option to be converted into shares of our common stock. These Notes had a stated interest at a rate of 6% per annum payable in cash or shares of common stock or a combination of cash and shares of common stock at the option of the Company. In connection with these Notes, the Company also issued warrants to purchase 2,000,000 shares of common stock. The term of these warrants is five years and the exercise price is at $0.02. The loan discounts for the convertible note feature and the warrant totaled to $13,436 and was amortized to interest. As of December 31, 2012, all notes had been converted and the related warrants had not been exercised.

On various dates between November 5, 2012 and December 21, 2012, we entered into seven different Convertible Promissory Notes (the "Notes") with seven different unrelated third-parties for principal amounts totaling $296,000 with fixed conversion price ranging from $0.016 to $0.03 per share and a weighted average of $0.0218 per share, which was a premium of approximately 33% of the average closing price of our common stock during that period. Under the terms of the agreement, the Notes had a one year term and were renewable, in our sole discretion, for an additional six month term. The Notes had the option to be converted into shares of our common stock. These Notes had a stated interest at a rate of 6% per annum payable in cash or shares of common stock or a combination of cash and shares of common stock at the option of the Company. The loan discounts for the convertible note feature totaled to $47,000 and was amortized to interest. There were no loan discounts for the convertible note feature. As of December 31, 2012, all notes had been converted.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses during each reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, allowances for doubtful accounts, the valuation of deferred income taxes, tax contingencies, long-lived and intangible assets, valuation of derivative liabilities and stock-based compensation. These estimates are based on historical experience and on various other factors that it believes to be reasonable under the circumstances. Actual results could differ from those estimates. For additional information relating to these and other accounting policies, see note 2 to our financial statements appearing elsewhere in this current report on Form 10-K.


Revenue Recognition

Our revenues are derived from the sale of services, hardware, and software systems used for providing electronic access to consumer medical records and other vital documents, as well as from the licensing of our intellectual property rights and services. We recognize revenue for such services only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed, and collectability of the resulting receivable is reasonably assured.

Our subscriber revenues consist of annual and monthly recurring retail subscriptions and usage-based fees, which are primarily paid in advance by credit card, and corporate accounts that are based on either an access-fee or actual number of users, and in each case billed in advance at the beginning of each month of service. We defer the portion of annual recurring subscription fees collected in advance and recognize them on a straight line basis over the subscription period.

We grant exclusive licenses for the sale and marketing of our services in international territories in consideration of an up-front license fee and an ongoing royalty. The royalty fee is usually a percentage of revenue earned by the licensee and there usually are certain minimum guarantees. License fee revenues received in advance from international licensees for the grant of the license are deferred and recognized over the period covered by the agreement. Minimum guaranteed royalty payments received in advance are deferred and recognized over the period to which the royalty relates. All such revenues are included under "License Fees and Other." In those cases where a license agreement contains multiple deliverables, the agreement is accounted for in accordance with ASC 605- 025 (formerly EITF 00-21, "Revenue Arrangements with Multiple Deliverables "). As of the date hereof, we no longer had any active international licensing agreements.

We recognize revenue on sales of our MMRPro system in accordance with ASC 605-25, Revenue Recognition, Multiple- Element Arrangements. We have also adopted Accounting Standards Update ("ASU") 2009-13, "Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force" effective January 1, 2010.

Our multiple-deliverable arrangements consist solely of our MMRPro product. Significant deliverables within these arrangements include sophisticated scanning equipment, various licenses to use third party software, a license to use our proprietary MMRPro application software, installation and training, dedicated telephone lines, secure online storage and warranties.

We determined all elements to be separate units of accounting as they have standalone value to the customers and/or they are sold by other vendors on a standalone basis. Delivery of the hardware and certain software elements of these arrangements occur at the inception of the agreement. We deliver installation and training at the inception of the agreement. We provide other software licenses, telephone lines and online secure storage over the three year term of the agreement. We include warranties in the arrangements, however the third party product manufacturer, and not us, is obligated to fulfill such warranties. The contracts are paid in advance and are not refundable.

We allocate the revenue derived from these arrangements among all the deliverables. We base such allocation on the relative selling price of each deliverable. With the exception of our proprietary MMRPro application software, we use third party evidence to set the selling prices used for this allocation. In all such cases, third parties sell the same or very similar products. For the MMRPro application software, we estimate the selling price based on recent discussions regarding licensure of that particular application on a standalone basis. To date, we have not licensed this software on a standalone basis.

We recognize the allocated revenue for each deliverable in accordance with SEC Staff Accounting Bulletin ("SAB") No. 104,Topic 13: Revenue Recognition. Under this guidance, we recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable and collectability is reasonably assured. This results in us recognizing revenue for the hardware, certain software and the warranties upon delivery to the customer, for the installation and training upon completion of these services, and ratably over the contract period for the software licenses, telephone lines and online secure storage.

Revenue from the licensing of our Health Information Technology and biotech patents and related assets may include non- refundable license and up-front fees, non-refundable milestone payments that are triggered upon achievement of a specific event and future royalties or lump-sum payments on sales of related products. For agreements that provide for milestone payments, such as the Celgene Agreement, we adopted ASC 605-28-25, Revenue Recognition, Milestone Method.

Accounting for Income Taxes and Uncertain Tax Positions

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


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

We measure and record uncertain tax positions by establishing a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized.

Intangible Assets

We account for website development costs in accordance with the provisions of ASC 350-50 and ASC 985-20. Pursuant to these provisions we capitalize internally developed website costs when the website under development has reached technological feasibility. These costs are amortized, typically over an estimated life of five years, using the larger of the amount calculated using the straight-line method or the amount calculated using the ratio between current period gross revenues and the total of current period gross revenues and estimated future gross revenues. At each balance sheet date, we evaluate the unamortized capitalized website costs compared to the net realizable value. The amount by which the unamortized capitalized website costs exceed its net realizable value is written off. The determination of estimated future gross revenues requires the exercise of judgment and assumptions by our management and actual results could vary significantly from such estimates.

Impairment of Long-Lived Assets and Intangibles

We evaluate long-lived assets and identifiable intangible assets with finite useful lives in accordance with ASC 350-30 and ASC 360, and accordingly, management reviews our long-lived assets and identifiable intangible assets with finite useful lives for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We recognize an impairment loss when the sum of the future undiscounted net cash flows expected to be realized from the asset is less than its carrying amount. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Considerable judgment is necessary to estimate the fair value of the assets and accordingly, actual results could vary significantly from such estimates. Our most significant estimates and judgments relating to the long-lived asset impairments include the timing and amount of projected future cash flows.

Share-Based Compensation

We account for share-based compensation in accordance with ASC 718-20, Awards Classified as Equity. We apply ASC 718-20 in accounting for stock-based awards issued to employees under the recognition of compensation expense related to the fair value of employee share-based awards, including stock options and . . .

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