U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
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(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, 2007.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT
For the transition period from N/A to N/A
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Commission File No. 0-25474
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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
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
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The number of shares of the issuer's common equity outstanding as of March
15, 2007 was 90,371,004 shares of common stock.
Transitional Small Business Disclosure Format (check one):
Yes No X
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1
MEDCOM USA INCORPORATED
INDEX TO FORM 10-QSB FILING
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2007
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Condensed Balance Sheet
As of March 31, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statements of Operations
For the Three and Nine months ended March 31, 2007
and 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Statements of Cash Flows
For the Nine months ended March 31, 2007
and 2006. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Financial Statements . . . . . . . . . . . . . . . . . . . 6-12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-18
Item 3. Control and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18-19
PART II
OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities . 20
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . 20
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 5. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
CERTIFICATIONS
Exhibit 31 - Management certification . . . . . . . . . . . . . . . . . . . . . . 20-24
Exhibit 32 - Sarbanes-Oxley Act . . . . . . . . . . . . . . . . . . . . . . . . . 20-24
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
MEDCOM USA, INCORPORATED
CONDENSED BALANCE SHEET
AS OF MARCH 31, 2007
March 31, 2007
(Unaudited)
ASSETS:
CURRENT ASSETS
Cash $ 55,035
Licensing Contracts - ST 991,192
Prepaid expenses and other current assets 162,824
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Total current assets 1,209,051
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PROPERTY AND EQUIPMENT, net 528,909
Licensing Contracts - LT 727,142
Deposits 17,657
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TOTAL ASSETS $ 2,482,758
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LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 142,409
Accrued expenses and other liabilities 59,714
Notes Affiliates 60,000
Dividend payable 23,750
Deferred revenue - current portion 500,235
Licensing obligations - current portion 1,981,132
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Total current liabilities 2,767,240
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Notes from Affiliates -
LICENSING OBLIGATIONS - long-term portion 2,047,785
DEFERRED REVENUE 1,432,310
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Total liabilities 6,247,335
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STOCKHOLDERS' EQUITY:
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, 175,000,000 shares authorized,
90,371,004 issued and 70,317,569 outstanding 9,038
Treasury stock (37,397)
Paid in capital 84,689,076
Accumulated deficit (88,425,327)
Total stockholders' equity (3,764,577)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,482,758
See the accompanying notes to these unaudited condensed financial statements.
3
MEDCOM USA, INCORPORATED
CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2007 AND 2006
Three Months Ended Nine Months Ended
2007 2006 2007 2006
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(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES:
Terminal sales $ 11,200 $ 22,778 $ 41,681 $ 156,216
Service 518,016 890,076 2,338,259 2,642,249
Licensing Fees 175,329 399,052 1,393,102 2,640,509
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704,546 1,311,906 3,773,042 5,438,974
COST OF DELIVERABLES: 266,323 370,809 1,198,330 2,676,198
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GROSS PROFIT 438,222 941,097 2,574,712 2,762,776
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OPERATING EXPENSES:
General and administrative 806,947 1,118,451 2,748,760 4,094,904
Sales and marketing 97,129 341,165 179,878 627,357
Depreciation and amortization 7,055 658,824 770,505 2,000,924
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Total operating expenses 911,130 2,118,440 3,699,142 6,723,185
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OPERATING LOSS (472,907) (1,177,343) (1,124,430) (3,960,409)
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OTHER (INCOME) AND EXPENSES
Interest expense 270,957 111,651 600,546 377,042
Interest Income (98,189) (175,339) (304,116) (449,689)
Early Extinguishment of Debt - (76,208) - (76,208)
Legal Settlement 48,600
Impairment of Assets 27,040
Other Income - (42,585) -
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Total other expense 302,768 (139,896) 519,484 (148,855)
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NET LOSS (645,675) (1,037,447) (1,513,915) (3,811,554)
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NET LOSS PER SHARE:
Basic: $ (0.01) $ (0.02) $ (0.02) $ (0.06)
========================== ==========================
Diluted: $ (0.01) $ (0.02) $ (0.02) $ (0.06)
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Weighted Average Common Shares Outstanding
Basic 89,224,348 64,150,290 82,347,773 60,743,480
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Diluted 89,224,348 64,150,290 82,347,773 60,743,480
========================== ==========================
See the accompanying notes to these unaudited condensed financial statements.
4
MEDCOM USA INCORPORATED.
CONDENSED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2007 AND 2006
2007 2006
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(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,513,915) $(3,811,552)
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization 825,801 2,034,971
Issuance of common stock as compensation for services - net 1,153,985 2,011,552
Impairment of assets 27,040 -
Changes in assets and liabilities:
Licensing and Leasing Contracts (198,453) (922,306)
Prepaid and other current assets 44,767 (133,435)
Other assets - (271,167)
Accounts payable and accrued liabilities (584,400) (829,171)
Deferred revenue (1,687,382) (1,529,514)
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Net cash (used) in operating activities: (1,932,558) (3,450,622)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property & equipment (158,025) (88,334)
Payments for Capital Raised (54,160)
Net advances to affiliate (182,157) -
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Net cash (used) and provided by investing activities: (394,342) (88,334)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on capital leases (1,544,997) (769,072)
Net repayments of to Affiliate (1,312,913) (42,308)
Proceeds from sale of common stock 4,754,324 1,830,698
Proceeds from licensing and leasing transaction 484,373 2,531,054
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Net cash provided by financing activities 2,380,786 3,550,372
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INCREASE IN CASH 53,887 11,416
CASH, BEGINNING OF PERIOD 1,148 10,207
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CASH, END OF PERIOD $ 55,035 $ 21,623
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 189,589 $ 217,207
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Income taxes paid - -
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See the accompanying notes to these unaudited condensed financial statements
5
MEDCOM USA INCORPORATED
NOTES TO CONDENSED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED MARCH 31,
2007 AND 2006
1. BASIS OF PRESENTATION
MedCom USA, Inc. (the "Company") a StateplaceDelaware 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 and cellular telephone activation, the other 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.
2. GOING CONCERN
The accompanying condensed financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
which contemplate continuation of the Company as a going concern. However, the
Company has year end losses from operations and had minimal revenues from
operations the nine months ended March 31, 2007. During nine months ended March
31, 2007 the Company incurred net loss of $1,600,000 and has cumulative losses
of $88,500,000. Further, the Company has inadequate working capital to maintain
or develop its operations, and is dependent upon funds from private investors
and the support of certain stockholders.
These factors raise substantial doubt about the ability of the Company to
continue as a going concern. The condensed financial statements do not include
any adjustments that might result from the outcome of these uncertainties. In
this regard, Management is proposing to raise any necessary additional funds
through loans and additional sales of its common stock. There is no assurance
that the Company will be successful in raising additional capital.
3. INTERIM FINANCIAL STATEMENTS
The accompanying interim unaudited condensed financial information has been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations, although management believes that the disclosures
are adequate to make the information presented not misleading. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company as of March
31, 2007 and the related operating results and cash flows for the interim period
presented have been made. The results of operations of such interim period are
not necessarily indicative of the results of the full fiscal year. For further
information, refer to the financial statements and footnotes thereto included in
the Company's 10-KSB and Annual Report for the fiscal year ended June 30, 2006.
Summary of significant accounting policies
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Summarized below are the significant accounting policies of MedCom USA, Inc.
("we," "MedCom," or the "Company"). Unless otherwise indicated, amounts provided
in these notes to the financial statements pertain to continuing operations
6
Revenue Recognition
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The Company has since upgraded its technology to address its core revenue model
that is the sale of medical software. In recognition of the changes in
technology and certain modifications to its licensing agreements the Company has
adopted a new accounting method effective July 1, 2005, in accordance with SOP
97-2 and EITF 00-21. SOP 97-2 applies to all entities that license, sell,
lease, or market computer software. It also applies to "hosting" arrangements in
which the customer has the option to take possession of the software. Hosting
arrangements occur when end users do not take possession of the software but
rather the software resides on the vendor's or a third party's hardware, and the
customer accesses and uses the software on an as-needed basis over the Internet
or some other connection. It does not, however, apply to revenue earned on
products containing software incidental to the product as a whole or to hosting
arrangements that do not give the customer the option of taking possession of
the software.
SOP 97-2 provides that revenue should be recognized in accordance with contract
accounting when the arrangement requires significant production, modification,
or customization of the software. When the arrangement does not entail such
requirements, revenue should be recognized when persuasive evidence of an
agreement exists, delivery has occurred, the vendor's price is fixed or
determinable, and collectibility is probable.
The largest part of revenues stems from vendors' license fees associated with
software. The Company has recognized revenue from license fees when the software
was shipped to the customer. The amount and timing of revenue recognition is
complicated, however, by multiple-element arrangements that provide for multiple
software deliverables [e.g., software products, upgrades or enhancements,
postcontract customer support (PCS), or other services]. In hosting arrangements
that are within the scope of SOP 97-2, multiple elements might include specified
or unspecified upgrade rights, in addition to the software product and the
hosting service. The software provider often charges a single fee that must be
allocated to the products delivered in the present and in the future.
In an arrangement with multiple deliverables, EITF 00-21 requires that the
delivered items be considered a separate unit of accounting if the delivered
items have value to the customer on a stand-alone basis, if there is objective
and reliable evidence of the fair value of the undelivered items, and if the
arrangement includes a general right of return for the delivered item, or if
delivery or performance of the undelivered items is considered probable and
substantially in the control of the vendor. EITF 00-21 requires allocation of
the vendor's fee to the various elements based on each element's stand-alone
value.
In general, both SOP 97-2 and EITF 00-21 require allocating revenue to all of
the elements of a multiple-deliverable arrangement using the relative fair value
method, where objective and reliable evidence of fair value is present for all
the products contained in the group. Management has established Vendor-Specific
Objective Evidence ("VSOE") for access fee, equipment, provider enrollment fee,
EDI connectivity fee, Payer/Provider fee, benefit verification fee, referral
transfer fee, service authorization fee, claim status, training, support,
program upgrades, carrier editions, and customized reports. Revenue is
accordingly allocated and recognized based on the value of deliverables. VSOE
relates the method of accounting under SOP 97-2 and EITF 00-21.
Vendor-Specific Objective Evidence:
----------------------------------
The Company has nonsoftware and software deliverables which have a specific cost
per customer. The costs of the deliverables are valued at on historical cost
and usage. The company delivers the following VSOE:
Recurring charges - Provider enrollment, EDI Connectivity, Payer/Provider,
Benefit Verification - Govt Billings, Referral Transfers - Govt billing, Benefit
Verification - Commercial, Referral Transfer - Commercial, Claim Status, Service
Authorization, Maintenance, Training, Support, Program Upgrades, Carrier
Editions, and Customized Reports. Many of these deliverables are delivered
electronically. The company assessed its prior electronic costs and estimated
that these costs average between 80 cents to $1.25 per terminal per month.
Management decided to use the average cost of $1.00 to value these deliverables.
One time charges - The Company provides non-software deliverables and has valued
these costs based on the average of purchasing the hardware for outside third
parties. The non-software deliverables are the Billing terminal which cost $400
7
per terminal, pin pads which cost $100, check reader which cost $100, Reader
Printers which cost $100, and Portal Wedge costs $100. The Company has further
estimated the cost per terminal to upgrade and update the software to be in
compliance with the health care industry estimates the per terminal and portal
cost at $250.
4. Equity
During nine months ended March 31, 2007 and 2006:
QUARTER ENDED STOCK ISSUED CASH RECEIVED STOCK ISSUED STOCK ISSUED FOR
FOR CASH FOR SERVICES WARRENTS EXERCISED
September 30, 2005 1,156,999 $ 591,750 685,508 12,997
Decemeber 31, 2005 950,000 $ 380,000 811,500
March 31, 2006 1,584,788 $ 590,949 2,665,848
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Total Issued 3,691,787 $ 1,562,699 4,162,856 12,997
September 30, 2006 7,384,373 $ 2,178,991 1,837,331 -
Decemeber 31, 2006 2,579,331 $ 1,273,333 4,726,870 192,067
March 31, 2007 2,659,000 $ 1,302,000 866,530
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Total Issued 12,622,704 $ 4,754,324 7,430,731 192,067
During the period ended September 30, 2006, the Company issued 7,384,373 shares
of its common stock for $2,178,991. The shares were issued to third parties in
a private placement of the Company's common stock. The shares were sold
throughout the quarter ended September 30, 2006, ranging from $.75 per share at
the beginning of the period to $.25 per share at the end of the period.
Commissions of approximately $350,000 are recorded as a charge in additional
paid in capital as direct costs associated with the raising of equity capital.
The Company has issued shares of its common stock as consideration to
consultants for services rendered. The value of those shares is determined
based on the trading value of the stock at the dates on which the agreements
were into for the services. During the period ended September 30, 2006, the
Company granted to consultants, 1,837,331 shares of common stock valued between
$.75 - $.25. The value of these shares were expensed and or capitalized during
the year. The Company issues common stock for services to vendors and
consultants in lieu of cash. The Company values those issuances at fair value
in accordance SFAS 143 and SAB 107.
The company values the issuance at the same value that common stock is sold for
cash in a private placement that the company is completing
During the period ended December 31, 2006, the Company issued 2,579,331 shares
of its common stock for $1,273,333. The shares were issued to third parties in
a private placement of the Company's common stock. The shares were sold
throughout the quarter ended December 31, 2006, ranging from $.75 per share at
the beginning of the period to $.25 per share at the end of the period.
Commissions of approximately $151,028 are recorded as a charge in additional
paid in capital as direct costs associated with the raising of equity capital.
The Company has issued shares of its common stock as consideration to
consultants for services rendered. The Company also issued common stock for the
buy out the royalty arrangement in which there is not further obligation to the
holder. The value of those shares is determined based on the trading value of
the stock at the dates on which the agreements were into for the services.
During the quarter ended December 31, 2006, the Company granted to consultants,
1,486,870 shares of common stock valued between $.75 - $.25. The Company
granted to the royalty holders 3,240,000 shares of common stock valued between
$.75 - $.25. The issue of this common stock paid all future royalty obligations
in full and there is no outstanding contingency or payment required. The value
of these shares were expensed and or capitalized during the year.
8
In March 31, 2007 the Company has issued shares of 225,730 common stock as
consideration to consultants for services rendered. The Company also issued an
additional 640,800common stock for the buy out of the royalty arrangement in
which there is no further obligation to the holder. The value of those shares
is determined based on the trading value of the of the stock on the dates on
which the agreements were into for the services. During the quarter ended March
31, 2007, the Company granted to consultants of 866,530 common shares valued
between .35 - .40 cent per share. The Company issued 2,660,000 common shares
for $1,302,000.
The Company issues common stock for services to vendors and consultants in lieu
of cash. The Company values those issuances at fair value in accordance SFAS
143 and SAB 107. The company values the issuance at the same value that common
stock is sold for cash in a private placement that the company is completing
5. RELATED PARTY TRANSACTIONS
The Company's president and chairman is a significant shareholder of the
Company. This individual controls another entity that is also a significant
shareholder of the Company. During the year ended June 30, 2002, the Company
moved its administrative offices into space occupied by this related entity that
is a significant shareholder of the Company of American Nortel Communications,
Inc. The Company shares office space and management and administrative
personnel with this related entity. Certain of the Company's personnel perform
functions for the related entity but there was no allocation of personnel
related expenses to the related entity in the period ended March 31, 2007 and
2006.
The Company frequently receives advances and advances funds to an entity
controlled by the Company's president and which is a significant shareholder of
the Company. The balance due to this affiliate at June 30, 2006 was $794,625
and in the period ended December 31, 2006 the Company repaid the president
$858,000 to pay off the balance due. The Company advanced $168,374 to the
president and the balance remains unpaid. The advances are generally short
term. The Company owes the president $60,000 in unpaid balances for the nine
months ended March 31, 2007.
The Company granted 1,000,000 options to Mr. William Bednarski, Chief Operating
Officer, and 150,000 options were granted to Mr. Paul Snyder. All options are
vested evenly for the next three years. The options are anti-dilutive therefore
there is no proforma effect.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis contains various "forward looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended, regarding future events or the future financial performance of
the Company that involve risks and uncertainties. Certain statements included in
this Form 10-QSB, including, without limitation, statements related to
anticipated cash flow sources and uses, and words including but not limited to
"anticipates", "believes", "plans", "expects", "future" and similar statements
or expressions, identify forward looking statements. Any forward-looking
statements herein are subject to certain risks and uncertainties in the
Company's business, including but not limited to, reliance on key customers and
competition in its markets, market demand, product performance, technological
developments, maintenance of relationships with key suppliers, difficulties of
hiring or retaining key personnel and any changes in current accounting rules,
all of which may be beyond the control of the Company. The Company adopted at
management's discretion, the most conservative recognition of revenue based on
the most astringent guidelines of the SEC in terms of recognition of software
licenses and recurring revenue. Management will elect additional changes to
revenue recognition to comply with the most conservative SEC recognition on a
forward going accrual basis as the model is replicated with other similar
markets (i.e. SBDC). The Company's actual results
11
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth therein.
Forward-looking statements involve risks, uncertainties and other factors, which
may cause our actual results, performance or achievements to be materially
different from those expressed or implied by such forward-looking statements.
Factors and risks that could affect our results and achievements and cause them
to materially differ from those contained in the forward-looking statements
include those identified in the section titled "Risk Factors" in the Company's
Annual Report on Form 10-KSB for the year ended June 30, 2006, as well as other
factors that we are currently unable to identify or quantify, but that may exist
in the future.
In addition, the foregoing factors may affect generally our business, results of
operations and financial position. Forward-looking statements speak only as of
the date the statement was made. We do not undertake and specifically decline
any obligation to update any 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 and cellular telephone activation, the other 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.
HEALTHCARE TRANSACTION PROCESSING
---------------------------------
MEDCOM SYSTEM
The Company provides innovative technology-based solutions for the healthcare
industries that enable users to efficiently collect, use, analyze and
disseminate data from payers, health care providers and patients. The MedCom
System currently operates through a point-of-service terminal or web based
portal application. The point-of- service terminals are purchased from Hypercom
Corporation (Hypercom). The MedCom System also operates a web based IP version
known as the medcomconnect.com web portal. . The Company offers a service
bundled package that has the capability of processing unlimited claims and
eligibility verification for a fixed monthly service fee.
The Company's "portal" system encourages customers to process their medical
claims through a web-based internet portal. Many customers purchase the
terminal for the front office and the portal system for the back office to take
advantage of the ease of both products. The data processed through the portal
is secured through a third party ASP (Application Service Provider)
FINANCIAL TRANSACTION SERVICES
------------------------------
12
The Company's revenue cycle management services, provides the healthcare
industry a combination of solutions designed to improve collection at the point
of service. The system also affords healthcare providers the added benefit of
accepting payment through credit, debit, healthcare savings accounts (HSA) and
check services. These financial processes are all processed through third party
financial institutions.
Patient Easy-Pay is an accounts receivable management program that allows a
provider to swipe a patient's credit card and store the patient's signature on
file. When the patient portion of the bill is determined, at a later date,
Patient Easy-Pay allows the healthcare provider to bill the patient's credit
card with a pre-determined amount not to exceed the amount which is not covered
by the patient's insurance. Another Patient Easy Pay option is a recurring
installment payment program 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-service terminals or the MedComConnect web portal. Using the MedCom
system, healthcare providers are relieved of many of the problems associated
with billings and account management, and results in lower administrative
documentation and costs.
PATIENT ELIGIBILITY
The MedCom System is also an electronic processing system that simplifies the
process of insurance eligibility verification, processes medical claims, and
monitors referrals. The MedCom 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 MedCom system to verify that referrals are approved by
the patient's insurance carrier. The MedCom 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 MedCom System can record and track claims 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 or web portal. This information is then
transmitted to MedCom's secure network, through IP or dial-up, then, processed
and transmitted to the appropriate insurance payer for payment directly to the
healthcare provider. These results in healthcare providers' reimbursements being
accelerated and outstanding 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 7-21 days. Health care
providers will benefit from a 100% paperless claim processing system.
As of June 30, 2005 the MedCom system expanded on-line eligibility and benefit
information from approximately 450 medical insurance companies and plans.
Included in this group is the newly activated Medicare Part A & B eligibility
for all 50 states. This gives us access to over 42 million lives. The system
also electronically processes and submits claims for its healthcare providers to
over 1,700 companies. These insurance payers include but are not limited to:
CIGNA, Oxford Health Plan, United Healthcare, Blue Cross plans throughout the
U.S., Medicaid, Aetna, Humana, to name a few.
PATENT
The Company has the ability to market and sell licensing opportunities for the
MedCom proprietary patented technology for Activating Phone card and Gift Card
at retail. The patent covers the technology and process for taking a card with
magnetic strip or other data capture mechanism and activating the card by
downloading a determined monetary value onto the card for use at a later date
for different types of transactions. This process
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can be utilized for prepaid phone cards, gift cards, and affinity cards. New
View Technologies, which was acquired by MedCom USA, developed the patent and
all patents were assigned.
The Company has formed a new wholly owned subsidiary; Card Activations
Technology, Inc. and has spun off the Company's holdings in its proprietary
patented technology for the gift and phone cards. Card Activation Technology,
Inc. is not effective with the Securities and Exchange Commission requirements
and awaits finalization.
COMPETITION
Competing health insurance claims processing and/or benefit verification systems
include Emdeon Business Services (HLTH), Medical Manager, Spot Check and Per-se
Technologies (PSTI). There are similar companies that compete with the Company
with respect to its financial transaction processing services performed by the
MedCom system. These companies compete with the Company directly or to some
degree. Many of these competitors are better capitalized than the Company, and
maintain a significant market share in their respective industries.
TECHNICAL SUPPORT ASSISTANCE
The Company offers multiple training options for its products and services and
is easily accessed at www.MedComUSA.com. 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
MedCom has broadened marketing strategy to reduce cost and increase efficiency.
The Company has employed a telesales strategy, where as there is less dependence
on individual sales personnel. The Company just completed its final phase of its
portal software development which has broadened the sales model to both a
terminal and portal sale. The company has entered into telesales agreements
which have implemented the new marketing strategy. The completion of the portal
will increase sales to hospitals which results in multiple sales. In addition,
the portal has become popular for individual doctors, dentist, and other
healthcare professionals which often results in a single or possibly multiple
sales. The Company has focused its sales to hospitals as a growing revenue
source.
In the past the Company built its marketing around a strategy of expanding its
sales capacity by using experienced external Independent Sales Organizations
(ISO's) and putting less reliance on an internal sales force.
MedCom has been expanding its position with Hospitals. Working closely with
Hospital consultants and targeted seminars. The Company, with its new web based
portal product and Medicare access, is becoming an increasingly valuable tool
for the outpatient and faculty practice areas of hospitals. By expanding the
solutions for Patient Access in the hospitals, MedCom has the opportunity of
selling multiple systems through a single
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source. While the ISO groups focus on individual doctors, dentists and clinics,
our hospital team is focusing on multiple unit sales opportunities with
hospitals around the country. Medcom has focused is efforts on practice
management groups and larger hospitals and has not focused on the telesales
efforts and traditional sales methods.
SERVICE AGREEMENTS
During June 2005 and 2006, the Company entered into a service agreement with
Tesia-PCI. This agreement to replace and service and support at a minimum of
1,500 POS terminals inclusive of eligibly, claims processing, credit card
processing for Tesia's dental providers.
REVENUES
Revenues from the MedCom system are generated through the sale of the web based
portal software, POS terminals, and processing insurance benefit
eligibility/verification, insurance claims, and financial transaction
processing. The Company receives a fixed amount per web portal and POS
terminal, and also receives fees for each transaction processed through the
MedCom System. Revenue sources include fees for financial transactions
processed through the software portal and software 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.
Due to changes in technology and certain modification to the licenses
agreements, the Company has adopted a new method of accounting and revenue
recognition in accordance with SOP 97-2 and EITF 00-21 (See "Revenue
Recognition")
CARD ACTIVATION TECHNOLOGIES, INC.
The Company has formed a new wholly owned subsidiary, Card Activation
Technologies, Inc. for the purpose of spinning off the Company's holdings in its
proprietary patented technology for the gift and phone cards. The company has a
revolving line of credit extended to Card Activation Technologies to provide for
accounting and legal services need to maintain compliance with the Securities
and Exchange Commission.
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.
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RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 2007 decreased to $704,546 as compared
to quarter ended March 31, 2006 of $1,311,906. This decrease in revenue is
directly the result of decrease sales of the Company. The three
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months ended comparisons reports a spike in revenues from the larger vendor
contracts with Tesia that continued through out the first and second quarter
2005. The company has changes in the Company's strategic direction in core
operations. This included discontinuing declining or unprofitable business
sectors. The Company continues to aggressively pursue and devote its resources
and focus its direction in electronic transaction processing. The Company's
agreement with its credit facility in connection with the sale of terminals and
portal transactions therewith, the Company must defer revenue gains on the sale
of the terminals, portal software and various deliverables.
The Company further refocused is sales to large practice management groups to
sell multiple web portals and further have expanded its exposure and future
sales with a large dental group. In third quarter the negotiations and
relationship with the practice management and dental groups were being fostered
and the company will not realize those efforts until fourth quarter of this
fiscal year 2007.
Cost of deliverables for the quarter ended March 31, 2007 decreased to $266,323
as compared to quarter ended March 31, 2006 of $370,809. The decrease in cost
of deliverables is directly related to the decrease in royalty payments to third
parities. The company paid the future royalty obligation and commitment and is
no longer obligated to pay royalties now and in the future. In the prior period
comparative there was a spike in costs with Tesia a larger vendor contract. The
company has developed the MedComConnect portal package that will decrease the
cost of deliverables as the company focuses on the sale of the portal software
which rendered the medical terminals sales no longer the core revenue model for
the Company.
Selling expenses for the quarter ended March 31, 2007 decreased to $97,129 as
compared to quarter ended March 31, 2006 of $341,165. This decrease is
primarily the result of marketing efforts and includes commissions paid to
internal sales personnel to market the Company's products and services. The
Company has discontinued with its use of outside independent sales organizations
to generate sales of its product. The company has introduced the telesales
marketing strategy for less expensive sales force and more effective in the
future. The company has been focused on the practice management and large
dental groups and should see the results of their efforts in fourth quarter.
General and administrative expenses for the quarter ended March 31, 2007
decreased to $806,947 as compared to quarter ended March 31, 2006 of $1,118,451.
This decrease is attributed to the Company's reduction of workforce in their New
York operations as the company has streamlined overall employee use. That is the
company has implemented and advanced its in-house software to perform many of
the services the prior employees were performing. The decrease is related to
settling outstanding litigation which resulted decrease in legal fees. The
company does not expect additional expense related to this expense in the
future. This decrease is attributed to the Company's change in marketing
strategy to telesales rather than individual sales personal. The telesales
personal still will require technical support for our products and services in
relation to increases in sales. The company has issued stock for services for
its royalty expenses buy down. The company will no longer have any further
royalty payments as the liability has been paid in full. Vendors have accepted
stock for services reduces the burden of cash flow maintained.
Interest expense for the quarter ended March 31, 2007 increased to $270,957 as
compared to quarter ended March 31, 2006 of $111,651. This increase is a result
of renegotiation of the Company's credit facility. Also, expenses were incurred
and paid on notes the Company has outstanding. Further the Company has been
accelerating payments to Ladco and renegotiated the remaining balance of its
financing arrangements. We have also have been paying down the LeeCo obligation
which has grown from the increase in financing through LeeCo Financial Inc. The
payments to Ladco represent a high interest rate and it has been a Company
initiative to reduce the Ladco debt. Interest income for the quarter ended
March 31, 2007 decreased to $98,189 as compared to quarter ended March 31, 2006
of $175,339. The decrease is due to the reduction in current sales of the portal
software from our license agreements.
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The loss for the quarter ended March 31, 2007 decreased to ($645,675) as
compared to quarter ended March 31, 2006 of ($1,037,447). The decrease is due
to the reduction in sales force and reduction in operations in our New York
facility. Further the payment of our royalty obligation in full to streamline
our costs.
No tax benefit was recorded on the expected operating loss for the quarter ended
March 31, 2007 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating requirements have been funded primarily on its sale of
licensing agreements with hospitals and medical professional and sales of the
Company's common stock. During the quarter ended March 31, 2007, the Company's
net proceeds from the sale of the terminals and software portals were $704,546.
The company received $1,302,000in proceeds from the sale of common stock. The
Company believes that the cash flows from its monthly service and transaction
fees are inadequate to repay the capital obligations and has relied upon the
sale of common stock through a private place to sustain its operations.
Cash provided (used) in operating activities for the quarter ended March 31,
2007 was ($1,932,558) compared to ($3,450,622) for quarter ended March 31, 2006.
The Company's focus on core operations results in a higher accounts receivable.
The Company receives payments from customers automatically through electronic
fund transfers. Collection cycles are generally less than thirty days. The
company has grown its operations to reduce the deficit cash flow positions.
Cash used in investing activities was ($394,342) for the quarter ended March 31,
2007, compared to $(88,334) for quarter ended March 31, 2006. Streamlining
operations and capital budget curtailment practices promoted a reduction in
equipment purchases for the Company. However, the company continues to employ
software development teams that are upgrading the existing proprietary software
in our terminal and portal licensing agreement sold. The company purchased
equipment and developed its portal software of $158,025, advanced funds to the
chairman and chief executive officer of $182,157 and payments for capital
raising efforts of $54,160.
Cash provided by financing activities was $2,380,786 the quarter ended March 31,
2007, as compared to $3,550,372 for quarter ended March 31, 2006. Financing
activities primarily consisted of proceeds from the sale of the terminal and
software portal transactions through our licensing agreements with hospitals and
medical and dental professionals. The company does not have adequate cash flows
to satisfy its obligations although have improved cash flow and anticipates have
adequate cash flows in the upcoming fiscal period.
The Company has used funds advanced from an affiliated entity that is controlled
by the Company's chairman and chief executive officer. As of June 30, 2006 the
Company maintained a note payable from this entity for the amount of $794,626
including accrued interest. However in the quarter ended December 31, 2006 the
company was able to repay the remaining obligation in the amount of $826,197.
The company owes $60,000 to the president as all other obligations have been
paid in full.
The company has funding agreements with LeeCo Financial Service Inc. and Ladco
Financial Group who provide exclusive funding for the License agreement between
the Company and Customer. The funding groups accept contracts and adopt the
same terms and conditions that the Company and Customer have agreed. In prior
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years Ladco required to personally guarantee the customer agreements which were
a financial burden to the company. In fiscal 2006, the company no longer sought
funding through Ladco and has consistently sought the funding of LeeCo. LeeCo
does not require personal guarantees of customer agreements other then hospital
agreements. LeeCo requires the company to personally guarantee the hospital
agreements due to the size and volume of transaction with the terminal and web
portals.
The company expects increased cash flow from its existing accounts receivables,
transaction processing, benefit claims processing, direct terminal sales, and
credit card processing. The increase in cash flow is directly related to the
increase in sales through our telesales. Further we anticipate increase income
from our Tesia-PC contracts that have a higher volume of credit card processing
in which we receive a minimum of $28.50 per month on all transactions with a 15
cent per transaction fee.
The company is looking at expanding the market for its services and considering
prospective acquisitions that would complement the existing revenue model.
On September 14, 2006 the company renegotiated the Ladco debt. The company
agreed to pay penalties and late fees of $268,585.73 in exchange the
renegotiated balance would only carry an interest rate of 3% reduced from 21% in
the original note. The Company originally owed $3,015,063.45 and renegotiated
the balance to $3,880,500 which included the accrued penalties and late fees.
Further the company would be able to pay the remaining balance of the note for
39 months at $99,500 payments per month until paid in full. Under the
renegotiated note the note matures on October 2009. The Company has paid
$1,237,812 toward the unpaid balance of $2,671,279 of the Ladco obligation.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
a) Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Principal Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act"). Disclosure controls and procedures
are the controls and other procedures that we designed to ensure that we record,
process, summarize and report in a timely manner the information we must
disclose in reports that we file with or submit to the Securities and Exchange
Commission under the Exchange Act. Based on this evaluation, our Chief Executive
Officer and our Principal Financial Officer concluded that our disclosure
controls and procedures were effective as of the end of the period covered by
this report.
Disclosure controls and procedures are controls and procedures that are designed
to ensure that information required to be disclosed in our reports filed or
submitted under the Securities Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our principal executive
officer and our principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
b) Changes in Internal Control over Financial Reporting
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During the Quarter ended March 31, 2007, there was no change in our internal
control over financial reporting (as such term is defined in Rule 13a-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
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 and the pricing
pressures that may result, 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 of any particular
period, and the ability to continue to improve 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 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, 2006. No material developments occurred
in any of these proceedings during the quarter ended March 31, 2007. The costs
and results associated with these legal proceedings could be significant and
could affect the results of future operations.
ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES
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There were no changes in securities and small business issuer purchase of equity
securities during the period ended March 31, 2007.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the period ended March 31,
2007.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to the vote of securities holders during the
period ended March 31, 2007.
ITEM 5. OTHER INFORMATION
None
Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act.
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act.
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934 the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Registrant
Date: May 15, 2007 Medcom USA Incorporated
By: /s/ William P. Williams
----------------------------
William P. Williams
Chairman, President Chief Executive Officer
(Principle Executive Officer, Principle
Financial Officer)
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