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U.S. Securities and Exchange Commission
Washington, D.C. 20549
____________________
FORM 10-QSB
____________________
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2005.
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act
For the transition period from N/A to N/A
____________________
Commission File No. 0-25474
____________________
MEDCOM USA, INCORPORATED
(Name of small business issuer as specified in its charter)
DELAWARE 65-0287558
State of Incorporation IRS Employer Identification No.
7975 NORTH HAYDEN ROAD, SUITE D-333
SCOTTSDALE, AZ 85258
(Address of principal executive offices)
(480) 675-8865
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of the issuer's common equity outstanding as of May 2,
2005 was 54,031,693 shares of common stock.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
MEDCOM USA, INC.
INDEX TO FORM 10-QSB FILING
FOR THE INTERIM PERIODS ENDED MARCH 31, 2005.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet
As of March 31, 2005 3
Consolidated Statements of Operations
For the Three and Nine Months Ended March 31, 2005
and 2004 4
Consolidated Statements of Cash Flows
For the Nine Months Ended March 31, 2005
and 2004 5
Notes to the Financial Statements 6 - 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10 - 15
PART II
OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 3. Control and Procedures. 15
Item 6. Exhibits and Reports on Form 8-K 15
CERTIFICATIONS
Exhibit 31 - Management Certification 16
Exhibit 32 - Sarbanes-Oxley Act 17
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MEDCOM USA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
AS OF MARCH 31, 2005
ASSETS
CURRENT ASSETS
Cash $ 117,925
Accounts receivable, net of allowance of $85,283 409,661
Inventories 274,607
Prepaid expenses and other current assets 30,236
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Total current assets 832,429
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PROCESSING TERMINALS, net of accum. deprec. $3,126,439 3,798,128
PROPERTY AND EQUIPMENT, net of accum. deprec. $1,438,017 571,165
GOODWILL 436,423
OTHER ASSETS 161,657
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TOTAL ASSETS $ 5,799,802
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 604,150
Accrued expenses and other liabilities 646,565
Dividend payable 23,750
Notes payable - current 109,437
Deferred revenue - current portion 1,311,332
Reserve for sales returns 40,270
Capital lease obligations - current portion 1,604,934
Note payable - affiliate 166,285
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Total current liabilities 4,506,723
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CAPITAL LEASE OBLIGATIONS - long-term portion 2,762,023
DEFERRED REVENUE 2,016,096
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Total liabilities 9,284,842
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STOCKHOLDERS' DEFICIT:
Convertible preferred stock, Series A $.001par value, 52,900 shares
designated, 4,250 issued and outstanding 4
Convertible preferred stock, Series D $.01par value, 50,000 shares
designated, 2,850 issued and outstanding 29
Common stock, $.0001 par value, 80,000,000 shares authorized,
issued and 53,304,843 outstanding 141,482
Treasury stock (37,397)
Paid in capital 74,931,851
Accumulated deficit (78,521,009)
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Total stockholders' deficit (3,485,040)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 5,799,802
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See the accompanying notes to these unaudited consolidated financial statements.
3
MEDCOM USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2005 AND 2004
Three Months Ended Nine Months Ended
2005 2004 2005 2004
------------ ------------ ------------ ------------
REVENUES:
Terminal sales $ 35,844 $ 571,566 $ 395,431 $ 856,442
Service 652,373 618,846 1,947,030 1,756,733
------------ ------------ ------------ ------------
688,217 1,190,412 2,342,461 2,613,175
COST OF SALES AND SERVICE: 183,774 221,914 399,563 346,713
------------ ------------ ------------ ------------
GROSS PROFIT 504,443 968,498 1,942,898 2,266,462
OPERATING EXPENSES:
General and administrative 1,225,013 987,350 3,145,621 2,542,575
Sales and marketing 266,149 535,189 605,559 1,110,032
Professional and consulting fees 601,330 334,300 1,231,238 544,300
Royalties 19,409 75,034 64,987 132,889
Depreciation and amortization 560,702 360,916 1,306,643 1,085,149
------------ ------------ ------------ ------------
Total operating expenses 2,672,603 2,292,789 6,354,048 5,414,945
------------ ------------ ------------ ------------
OPERATING LOSS (2,168,160) (1,324,291) (4,411,150) (3,148,483)
------------ ------------ ------------ ------------
OTHER (INCOME) AND EXPENSES
Interest expense 202,292 234,320 643,810 703,726
Interest income (1,058) (3,196) (13,487) (3,196)
Other (income)/expense - 586,641 - 391,818
Loss on disposal of assets - - 25,016 -
------------ ------------ ------------ ------------
Total other (income)/expense 201,234 817,765 655,339 1,092,348
------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (2,369,394) (2,142,056) (5,066,489) (4,240,831)
NET LOSS (2,369,394) (2,142,056) (5,066,489) (4,240,831)
Preferred stock dividend - - - -
------------ ------------ ------------ ------------
TOTAL NET LOSS AVAILABLE TO
COMMON STOCKHOLDERS $(2,369,394) $(2,142,056) $(5,066,489) $(4,240,831)
============ ============ ============ ============
NET LOSS PER SHARE:
Basic:
Total Basic $ (0.04) $ (0.05) $ (0.10) $ (0.11)
============ ============ ============ ============
Diluted:
Total Diluted $ (0.04) $ (0.05) $ (0.10) $ (0.11)
============ ============ ============ ============
Weighted Average Common Shares Outstanding
Basic 53,306,354 41,557,994 53,305,292 38,899,486
============ ============ ============ ============
Diluted 53,306,354 41,557,994 53,305,292 38,899,486
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See the accompanying notes to these unaudited consolidated financial statements.
4
MEDCOM USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 2005 AND 2004
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(5,066,489) $(4,240,831)
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization 1,229,487 1,085,148
Payment of expenses through the issuance of common stock 136,478 1,048,441
Allowance for sales returns - 31,383
Changes in assets and liabilities:
Trade accounts receivable (126,358) (472,867)
Inventories 696,049 (219,631)
Prepaid and other current assets 58,987 (67,799)
Other assets (144,000) -
Accounts payable and accrued liabilities 320,684 (618,118)
Deferred revenue 32,017 (766,644)
------------ ------------
Net cash (used in) operating activities: (2,863,145) (4,220,918)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software upgrades (396,164) (137,575)
Net advances to/(from) affiliate 1,586,514 (1,113,657)
------------ ------------
Net cash provided by (used in) investing activities: 1,190,350 (1,251,232)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on capital leases (1,040,060) (854,020)
Proceeds from sale of common stock 3,478,583 4,770,002
Proceeds from capital sales-leaseback transactions (734,424) 1,589,793
------------ ------------
Net cash provided by financing activities 1,704,099 5,505,775
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INCREASE (DECREASE) IN CASH 31,304 33,625
CASH, BEGINNING OF PERIOD 86,621 54,460
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CASH, END OF PERIOD $ 117,925 $ 88,085
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 643,810 $ 555,896
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Income taxes paid - -
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SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Terminals capitalized under sales/leaseback transactions $ - $ 1,848,904
============ ============
Terminals placed back into inventory at net capitalized cost $ - $ 776,984
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See the accompanying notes to these unaudited consolidated financial statements.
5
MEDCOM USA, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements represent the financial
position of MedCom USA, Inc. ("Company") as of March 31, 2005 and includes
results of operations of the Company for the nine months ended March 31, 2005
and cash flows for the nine months ended March 31, 2005. These statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions for Form 10-QSB.
Accordingly, they do not include all the information and footnotes required by
generally accepted accounting principles ("GAAP") for audited financial
statements. In the opinion of management, all adjustments to these unaudited
financial statements necessary for a fair presentation of the results for the
interim period presented have been made. The results for the nine months ended
March 31, 2005 may not necessarily be indicative of the results for the entire
fiscal year. These financial statements should be read in conjunction with the
Company's Form 10-KSB for the fiscal year ended June 30, 2004, including
specifically the financial statements and notes to such financial statements
contained therein.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company, and the methods of applying
those policies, which affect the determination of its financial position,
results of operations or cash flows are summarized below:
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents include all short-term liquid investments that are
readily convertible to known amounts of cash and have original maturities of
three months or less. At times cash deposits may exceed government insured
limits.
Concentration of Credit Risk
----------------------------
The Company maintains its operating cash balances in banks in Islandia, New
York, and in Scottsdale, Arizona. The Federal Depository Insurance Corporation
(FDIC) insures accounts at each institution up to $100,000.
Inventories
-----------
Inventories are carried at the lower of cost or market. The Company purchases
hardware from its supplier and records inventory at its original cost. The
Company does not include in inventory any items held under a capital lease.
Such items are included in Terminal Assets on the consolidated balance sheet.
See Note 3.
Property and Equipment
----------------------
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is recorded on a straight-line basis over the estimated useful
lives of the assets ranging from 3 to 5 years. The Company's leaseback
transactions of processing terminals to healthcare providers are generally for a
period of 48 to 60 months. Depreciation expense for the leased terminal assets
are on the straight-line method over the term of the lease in amounts necessary
to reduce the carrying amount of the terminal asset. Estimated and actual
residual values are reviewed on a regular basis to determine that depreciation
amounts are appropriate. Depreciation expense relating to leased terminal assets
was $487,769 for the three months ended March 31, 2005.
6
Assets Held under Capital Leases
--------------------------------
Assets held under capital leases are recorded at the lower of the net present
value of the minimum lease payments or the fair value of the leased asset at the
inception of the lease. Amortization expense is computed using the straight-line
method over the period of the related lease.
Amortization of Leasehold Improvements
--------------------------------------
Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the remaining lease term or the estimated useful
lives of the improvements.
Revenue Recognition
-------------------
The Company recognizes income on monthly service and transaction fees it charges
to customers in the month in which the service is provided. Income on
sale-leaseback transactions is deferred and recognized over the term of the
leaseback.
Comprehensive Income
--------------------
Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under generally accepted accounting principles are
excluded from net income.
Income Taxes
------------
Management determined that because the Company has not yet generated taxable
income it was not appropriate to recognize a deferred income tax asset related
to the net operating loss carry-forward. Therefore, a fully deferred income tax
asset is offset by an equal valuation allowance. If the Company begins to
generate taxable income, management may determine that all of the deferred
income tax asset may be recognized. Recognition of the asset could increase
after tax income in the future. Management is required to make judgments and
estimates related to the timing and utilization of net operating loss
carry-forwards, utilization of other deferred income tax assets, applicable tax
rates and feasible tax planning strategies.
Fair Value of Financial Instruments
-----------------------------------
Financial instruments consist primarily of accounts receivable, and obligations
under accounts payable, accrued expenses, capital lease obligations and notes
payable. The carrying amounts of accounts receivable, accounts payable, accrued
expenses and notes payable approximate fair value because of the short maturity
of those instruments. The carrying value of the Company's capital lease
arrangements approximates fair value because the instruments were valued at the
cost of the equipment at the time the Company entered into the arrangements. The
Company has applied certain assumptions in estimating these fair values. The use
of different assumptions or methodologies may have a material effect on the
estimates of fair values.
Net Loss Per Share
------------------
Net loss per share is calculated using the weighted average number of shares of
common stock outstanding during the year in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share.
7
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
This may 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.
Stock-Based Compensation
------------------------
Statements of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, ("SFAS 123") established accounting and disclosure requirements
using a fair-value based method of accounting for stock-based employee
compensation. In accordance with SFAS 123, the Company has elected to continue
accounting for stock based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." There were no stock based awards granted to employees for
the three and nine months ended March 31, 2005.
Intangible Assets
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Intangible assets at March 31, 2005 consist of goodwill associated with the
Company's acquisition of MedCard, and the difference between the purchase price
of the acquired business and the fair value of the identifiable net assets.
Research and Development Expenditures
-------------------------------------
Research and development costs are expensed as incurred.
Impairment of Assets
--------------------
The Company performs an assessment of impairment of long-lived assets
periodically whenever there is an indication that the carrying amount of the
asset may not be recoverable. Recoverability of these assets is determined by
comparing the forecasted undiscounted cash flows generated by those assets to
the assets' net carrying value. The amount of impairment loss, if any, is
measured as the difference between the net book value of the assets and the
estimated fair value of the related assets.
3. TERMINALS AND SALE-LEASEBACK TRANSACTIONS
The Company capitalizes the value of the point of sale terminals that are sold
under capital sale-leaseback transactions. The terminals are purchased from
third party vendors and are recorded as inventory at that time. The Company
enters into sale and service agreements with its customers at which time the
terminal is programmed with the Company's proprietary software and is then
installed with the customer. Many of those terminals are the basis for the
sale-leaseback transactions. The terminals are capitalized at the value
determined by the lessor on the basis of the cash flow under the terms of the
sale and service agreements with the customers.
Terminals $ 6,924,567
Less accumulated amortization (3,126,439)
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Terminals, net $ 3,798,128
============
8
During the three months ended March 31, 2005, the Company entered into capital
lease obligations under sale-leaseback transactions totaling $62,115. The total
gain deferred on those transactions was $6,311 for the three months ended March
31, 2005.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and plans and expectations. Actual results
could differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
elsewhere in this Form 10-QSB (incorporated herein Forward-Looking Statements).
OVERVIEW
MedCom USA, Inc. (the "Company") a Delaware corporation was formed in
August 1991 under the name Sims Communications, Inc. The Company's primary
business was providing telecommunications services. In 1996 the Company
introduced four programs to broaden the Company's product and service mix: (a)
cellular telephone activation, (b) sale of prepaid calling cards, (c) sale of
long distance telephone service and (d) rental of cellular telephones using an
overnight courier service. With the exception of the sale of prepaid calling
cards, these four programs were discontinued in December 1997. During the fiscal
year of 1998, the Company diversified its operations and moved into the area of
medical information processing.
The Company changed its name to MedCom USA, Inc. in October 1999. During
the fiscal years of 1999 and continuing through 2000, the Company directed its
efforts in medical information processing. As of December 31, 2004, the Company
currently operates the MedCard System (MedCard) that is deployed through a
point-of-sale terminal or personal computer offering electronic transaction
processing, as well as insurance eligibility verification. The Company has
aggressively focused on its primary operations in Electronic Data Interchange
(EDI) and core business in electronic Medical Transaction Processing.
MEDICAL TRANSACTION PROCESSING
------------------------------
MEDCARD SYSTEM
The Company provides innovative technology-based solutions for the
healthcare industry that enable users to efficiently collect, use, analyze and
disseminate data from payers, health care providers and patients. The MedCard
System currently operates through a point-of-sale terminal or a personal
computer. The point-of-sale terminals are purchased from Hypercom Corporation
(Hypercom). The MedCard System also operates in a PC version and an on-line
version. The Company is in the process of assessing the feasibility of offering
a service bundled package that would have the capability of processing unlimited
claims and eligibility verification for monthly service fees.
FINANCIAL SERVICES
The Company's credit card center and check services, provides the
healthcare industry an unprecedented combination of services designed to improve
collection and approvals of credit/debit card payments along with the added
benefit and convenience of personal check guarantee from financial institutions.
9
Flex-pay is an accounts receivable management program that allows a
provider to swipe a patient's credit card and store the patient's signature in
the terminals, and bill the patient's card at a later date when it is determined
what services rendered were not covered by the patient's insurance. Also, an
easy-pay option is offered which allows patient's the added benefit and
convenience of a one-time payment option or a recurring installment payments
that will be processed on a specified date determined by the provider and
patient. These options insure providers that payments are timely processed with
the features of electronic accounts receivable management. These services are
all deployed thorough point-of-sale terminals or a personal computer. Using the
MedCard system, medical providers are relieved of the problems associated with
billings and account management, and results in lower administrative
documentation and costs.
PATIENT ELIGIBILITY
The MedCard System is also an electronic processing system that
consolidates insurance eligibility verification, processes medical claims, and
monitors referrals. The MedCard System allows a patient's primary care
physician to request approval from the patient's insurance carrier or managed
care plan for a referral to a secondary physician or specialist. The secondary
physician or specialist can use the MedCard system to verify referrals and
confirm approval by the patient's insurance carrier. The MedCard system's
referral capabilities reduce documentation and administrative costs which
results in increased productivity and greater patient information for the
specialist, as well as a written record of the referral authorization.
The MedCard System can record and track encounters between patients and
health care providers for performance evaluation and maintenance of records.
After examining a patient the physician enters a patient's name, procedure code
and diagnostic code at a nearby terminal. This information is then uploaded to
MedCom's computer network, processed and transmitted back to the provider
formatted in both summary and/or detailed reports, and as a result healthcare
providers' reimbursements are accelerated and account receivables are reduced.
The average time it takes the healthcare providers to collect payments from
insurance carriers and plans decreases from an average of 89 days to 7 to 21
days. Health care providers will benefit from a 100% paperless claim processing
system.
TECHNICAL SUPPORT ASSISTANCE
The Company offers multiple training options for its products and services
and is easily accessed at www.MedcomUSA.com. The online E-learning tools enable
-----------------
health care professionals and health providers an opportunity to familiarize
themselves with the Health Insurance Portability and Accountability Act (HIPAA)
and also the mandates and compliance issues. Onsite training and
teleconferencing, and technical support assistance are also features offered to
health care providers. Also, a 24-hour terminal replacement program and system
upgrades are offered.
MARKETING STRATEGY
MedCard's marketing plan is built around a strategy of expanding its sales
capacity by using experienced external Independent Sales Organizations (ISO) and
putting less reliance on an internal sales force. MedCom has set-up these
Independent Sales Organizations (ISOs) to market and distribute the MedCard
System throughout the U.S. Currently, there are 16 active ISOs promoting the
MedCard system, with an average ISO that contains approximately 10-20 sales
people, some selling the MedCard System exclusively. Financial service
companies comprise an important sales channel that views the healthcare industry
as an important growth opportunity. Only 6% of all healthcare payments are made
with a credit card today, although according to a recent survey 55% of all
consumers would prefer to pay doctor and hospital visits by credit/debit card.
10
SERVICE AGREEMENTS
During December 1998, the Company entered into a service agreement with
WebMD Envoy. This agreement encompasses the process of Electronic Data
Interchange (EDI) and related services. The services provided are complimentary
to the Company's core business, and accomplishes transaction processing services
that allows healthcare providers and payers to process medical transactions
quickly and accurately, and results in reduced administrative costs and an
increase in healthcare reimbursements to healthcare providers.
During January 2002, the Company has entered into a service agreement with
MedUnite. This alliance will encompass the utilization of proprietary
technologies and will enhance the existing network of healthcare constituents.
Strategically both companies share the same vision of transforming the
healthcare transactions systems affecting how healthcare providers, health
plans, and other groups transacting business with one another by significantly
reducing claim and payment processing time, and reducing healthcare
administrative costs.
During February 2004, the Company entered into a service agreement with CDS
Capital. This agreement will enable eligible healthcare providers using the
Medcom terminals to finance their accounts receivables. Health care providers
using the Medcom terminal to secure patient eligibility and process claims will
now be able to receive regular payments for a large percentage of claims
processed from the previous week. This financial management service will
decrease the time and costs associated with accounts receivable collections.
During March 2005, the Company completed an agreement to become a direct
credit card Independent Sales Organization (ISO) for National Processing Company
(NPC) a wholly owned subsidiary of Bank of America for the processing of
credit/debit card transactions (reference Exhibits and Reports on Form 8-K).
This agreement allows the Company to bypass any intermediaries providing credit
card processing and deal directly with the first level of the Merchant Bank's
processors. This will allow the Company more flexibility in engaging strategic
distribution partnerships with major sales organizations, healthcare carriers,
healthcare suppliers and other groups servicing the Medical and Dental
industries.
PROCESSING TERMINAL LEASING AGREEMENTS
The Company has entered into leasing agreements with LADCO Financial Group
for the purpose of leasing processing terminals. The Company has pledged and
granted for collateral in connection with the lease agreements, one million
restricted common shares. These common shares would be surrendered upon default
of the leasing agreements. This pledge and granting of security interest was
executed on January 2002.
The Company has arranged its terms with this credit facility as an
equipment lessor whereby the Company sells terminals to the lessor when it has
obtained a service contract with a provider. Under these agreements, the
Company is leasing back the processing terminals from the lessor and in turn
leases them to the purchaser for a period of 36-60 months however; the customer
may terminate the agreement after 12 months. The Company is accounting for the
transactions as sale-leasebacks. The leases with the customers are inclusive
with the monthly service contracts and are effectively accounted for as
operating leases. Gains on terminal sales under sale-leaseback transactions are
deferred and are being amortized to income in proportion to amortization of the
assets, generally over the term of the lease with the credit facility generally
for a period of 36 to 60 months. At March 31, 2005, the remaining deferred
equipment gain of $3,327,428 is shown as "Deferred Revenue" in the Company's
Balance Sheet. For the nine months ended March 31, 2005, the total interest
expense incurred by the Company under these leases was $643,810.
11
REVENUES
Revenues from the MedCard system are generated through the sale of
terminals, and processing insurance eligibility/verification, insurance claims,
and financial transaction processing. The Company receives a fixed amount per
terminal, and also receives fees for each transaction processed through the
MedCard System. Revenue sources include fees for financial transactions
processed through the terminal, fees for collection of receivables if the
Company provides billing services, fees associated with reimbursements made by
insurance carriers for submitting claims that are processed electronically, fees
for using the system's referral program and, fees for processing uploaded data.
The Company also markets a complete billing service using the MedCard System for
hospitals and large practice groups. The Company receives a percentage of the
billing amount collected under these arrangements.
ADDITIONAL INFORMATION
Medcom files reports and other materials with the Securities and Exchange
Commission. These documents may be inspected and copied at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. You
can obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. You can also get copies of documents that the
Company files with the Commission through the Commission's Internet site at
www.SEC.gov.
-----------
RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 2005 were $688,217 as compared to the
quarter ended March 31, 2004 of $1,190,412. The Company has divested of all its
business segments other than the MedCard business, which it intends to devote it
full resources. Revenues derived from terminal sales have decreased for quarter
ended March 31, 2005, and is primarily the result of changes in marketing the
Company's product and service offerings.
Cost of sales for the quarter ended March 31, 2005 was $183,774 as compared to
quarter ended March 31, 2004 of $221,914. Overall margins have decreased for the
quarter ended March 31, 2005 attributable to a decrease in sales and changes in
the marketing and sale of terminals.
General and administrative expenses for quarter ended March 31, 2005 was
$1,225,013 as compared to quarter ended March 31, 2004 of $987,350. These
expenses have increased despite the Company instituting cost curtailment
measures.
Selling expenses for the quarter ended March 31, 2005 was $266,149 as compared
to the quarter ended March 31, 2004 of $535,189. This decrease in expenses has
resulted from the Company's alteration of its marketing model, and its use of
outside sales organizations that market the Company's equipment and services.
Interest expense for the quarter ended March 31, 2005 was $202,292 as compared
to quarter ended March 31, 2004 of $234,320. Interest expense has decreased as
the amortized amount of interest expense from our sales-leaseback leasing has
decreased.
No tax benefit was recorded on the expected operating loss for the quarter ended
March 31, 2005 as required by Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. For the quarter ended we do not expect to
realize a deferred tax asset and it is uncertain, therefore we have provided a
100% valuation of the tax benefit and assets until we are certain to experience
net profits in the future to fully realize the tax benefit and tax assets.
12
Net loss for the quarter ended March 31, 2005 was ($2,369,394) compared net loss
for the quarter ended March 31, 2004 of ($2,142,056).
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the nine months ended March 31, 2005, was
($2,863,145) as compared to cash used in operating activities for the nine
months ended March 31, 2004 of ($4,220,918). This decrease has resulted from
the Company not issuing common stock for payment of expenses as it has in prior
periods.
Cash provided by investing activities for the nine months ended March 31, 2005
was $1,190,350 as compared to cash used in investing activities for the nine
months ended March 31, 2004 of ($1,251,232). Terminal software upgrade expenses
have been incurred.
Cash provided by financing activities was $1,704,099 for the nine months ended
March 31, 2005 compared to cash provided by financing activities for the nine
months ended March 31, 2004 of $5,505,775. The Company has financed its
terminal equipment though the leasing-back of terminals and as a result has
received proceeds, and also the Company has been advanced from an affiliate in
the form of loans to fund operations for deficiencies in operating cash
requirements.
SOURCES OF CAPITAL
The Company has secured an arrangement with a third party leasing company
to provide funds upon the execution of a rental and service agreement with a
customer. Generally, the health care provider customer will enter into an
agreement with the Company to rent a terminal and subscribe to the transaction
processing and insurance verification service. At that time, the Company will
sell the terminal associated with the service contract to the lessor and then
leaseback that terminal. The leasing transactions provide for funding to the
Company to cover its cost of the terminal, placement of the terminal with the
customer and a profit margin. The Company is generally required to pay the
lease rentals to the lessor from 36 to 60 months. The source of funds for those
repayments is the rental payments from the health care provider customer.
OTHER CONSIDERATIONS
There are numerous factors that affect our business and the results of its
operations. Sources of these factors include general economic and business
conditions, federal and state regulation of business activities, the level of
demand for the Company's product or services, the level and intensity of
competition in the medical transaction processing industry, the Company's
ability to develop new services based on new or evolving technology and the
market's acceptance of those new services, the Company's ability to timely and
effectively manage periodic product transitions, the services, customer and
geographic sales mix at any particular period, and the ability to continue to
improve the infrastructure (including personnel and systems) to keep pace with
the growth in its overall business activities.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-QSB
contains express or implied forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act.
The Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The Company may make written or oral forward-looking
statements from time to time in filings with the SEC, in press releases, or
otherwise. The words "believes," "expects," "anticipates," "intends,"
"forecasts," "project," "plans," "estimates" and similar expressions identify
forward-looking statements. Such
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statements reflect the current views with respect to future events and financial
performance or operations and are only as of the date the statements are made.
Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. The
Company's actual results may differ materially from such statements. Factors
that cause or contribute to such differences include, but are not limited to,
those discussed elsewhere in this Form 10-QSB, as well as those discussed in
Form 10-KSB which is incorporated by reference in this Form 10-QSB.
Management believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded, as a representation that the
future events, plans, or expectations contemplated will be achieved. The Company
undertakes no obligation to publicly update, review, or revise any
forward-looking statements to reflect any change in expectations or any change
in events, conditions, or circumstances on which any such statements are based.
Our filings with the Securities Exchange Commission, including the Form 10-KSB,
and may be accessed at the SEC's web site, www.SEC.gov.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
MedCom is involved in various legal proceedings and claims as described in
our Form 10-KSB for the year ended June 30, 2004. No material developments
occurred in any of these proceedings during the quarter ended March 31, 2005.
The costs and results associated with these legal proceedings could be
significant and could affect the results of future operations.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in this report is recorded, processed,
accumulated, and reported to its management, including the chief executive
officer, to allow timely decisions regarding the required disclosure. Within
the 90 days prior to the filing date of this report, MedCom's management, with
the participation of its chief executive officer performed an evaluation of the
effectiveness of the design and operation of these disclosure controls and
procedures. Management has concluded that such disclosure controls and
procedures are effective at ensuring that required information is disclosed in
the Company's reports.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
evaluation date.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a). The following report on Form 8-K was filed during the quarter ended
March 31, 2005.
- Report on Form 8-K filed on March 23, 2005 pursuant to which the
Registrant announced the execution of an agreement with National Processing
Company (NPC).
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, there unto duly authorized.
EXHIBIT INDEX
Exhibit Number Description of Exhibit
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Exhibit 31 Management Certification
Exhibit 32 Sarbanes-Oxley Act Certification
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