form10qsb.htm
U.S.
Securities and Exchange Commission
Washington,
D.C. 20549
____________________
FORM
10-QSB
____________________
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|
(Mark
One)
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T
|
Quarterly
Report Pursuant to Section 13 or 15(d) of
|
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the
Securities Exchange Act of 1934
For the
quarterly period ended December 31, 2007.
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£
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Transition
Report Pursuant to Section 13 or 15(d)
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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
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|
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 T No
£
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes £ No
T
The
number of shares of the issuer’s common equity outstanding as of February 12,
2008 was 94,930,217 shares of common stock.
Transitional
Small Business Disclosure Format (check one):
Yes £ No
T
INDEX
TO FORM 10-QSB FILING
FOR
THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
TABLE
OF CONTENTS
PART
I
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FINANCIAL
INFORMATION
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PAGE
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Item
1.
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Financial
Statements
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3
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4
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5
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6 -
9
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Item
2.
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9 -
18
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Item
3.
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18-19
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PART
II
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OTHER
INFORMATION
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Item
1.
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19
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Item
2.
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19
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Item
3.
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20
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Item
4.
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20
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Item
5.
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20
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Item
5.
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20
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CERTIFICATIONS
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Exhibit
31 – Management certification
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Exhibit
32 – Sarbanes-Oxley Act
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PART
I – FINANCIAL INFORMATION
ITEM
1 – FINANCIAL STATEMENTS
CONDENSED
CONSOLIDATED BALANCES SHEETS
AS
OF DECEMBER 31, 2007
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ASSETS:
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|
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December 31, 2007
|
|
|
|
|
(unaudited)
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|
|
CURRENT
ASSETS
|
|
|
|
|
Cash
|
|
$ |
- |
|
|
Licensing
contracts - current portion, net
|
|
|
602,451 |
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|
Prepaid
expenses and other current assets
|
|
|
108,846 |
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Total
current assets
|
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|
711,297 |
|
|
|
|
|
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PROPERTY
AND EQUIPMENT, net
|
|
|
462,517 |
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|
|
|
|
|
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|
Licensing
contracts - long-term portion. net
|
|
|
211,203 |
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|
Note
receivable affiliates
|
|
|
257,755 |
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|
Other
assets
|
|
|
21,507 |
|
|
TOTAL
ASSETS
|
|
$ |
1,664,279 |
|
|
|
|
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LIABILITIES
AND STOCKHOLDERS' DEFICIENCY:
|
|
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CURRENT
LIABILITIES:
|
|
|
|
|
|
Accounts
payable
|
|
$ |
182,899 |
|
|
Bank
overdraft
|
|
|
14,911 |
|
|
Accrued
expenses and other liabilities
|
|
|
43,663 |
|
|
Dividend
payable
|
|
|
23,750 |
|
|
Notes
from affiliates
|
|
|
791,000 |
|
|
Deferred
revenue - current portion
|
|
|
575,818 |
|
|
Licensing
obligations - current portion
|
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|
1,889,279 |
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Total
current liabilities
|
|
|
3,521,320 |
|
|
|
|
|
|
|
|
Licensing
obligations - long-term portion
|
|
|
3,156,789 |
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|
Deferred
revenue
|
|
|
382,490 |
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TOTAL
LIABILITIES
|
|
|
7,060,599 |
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|
|
|
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STOCKHOLDERS'
DEFICIENCY:
|
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Convertible
preferred stock, series A $.001par value, 52,900 shares designated, 4,250
issued and outstanding
|
|
|
4 |
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Convertible
preferred stock, series D $.01par value, 50,000 shares designated, 2,850
issued and outstanding
|
|
|
29 |
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|
Common
stock, $.0001 par value, 175,000,000 shares authorized, 94,930,217 issued
and outstanding as of December 31, 2007
|
|
|
9,494 |
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Paid-in
capital
|
|
|
85,090,153 |
|
|
Treasury
stock
|
|
|
(37,397 |
) |
|
Accumulated
deficit
|
|
|
(90,458,603 |
) |
|
Total
stockholders' deficiency
|
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|
(5,396,320 |
) |
|
|
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TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
|
$ |
1,664,279 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
|
|
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Three
Months Ended
|
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|
Six
Months Ended
|
|
|
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|
2007
|
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2006
|
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|
2007
|
|
|
2006
|
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|
(unaudited)
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|
(unaudited)
|
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|
(unaudited)
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|
(unaudited)
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REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
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Terminal
sales
|
|
|
- |
|
|
$ |
4,058 |
|
|
$ |
- |
|
|
$ |
30,481 |
|
|
Service
|
|
|
508,044 |
|
|
|
899,498 |
|
|
|
1,171,615 |
|
|
|
1,820,242 |
|
|
Licensing
fees
|
|
|
203,174 |
|
|
|
564,348 |
|
|
|
476,659 |
|
|
|
1,217,772 |
|
|
|
|
|
711,218 |
|
|
|
1,467,904 |
|
|
|
1,648,274 |
|
|
|
3,068,495 |
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|
COST
OF DELIVERABLES
|
|
|
260,080 |
|
|
|
377,436 |
|
|
|
591,685 |
|
|
|
932,007 |
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|
GROSS
PROFIT
|
|
|
451,138 |
|
|
|
1,090,468 |
|
|
|
1,056,589 |
|
|
|
2,136,488 |
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OPERATING
EXPENSES
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
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General
and administrative expenses
|
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|
517,576 |
|
|
|
967,235 |
|
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|
1,138,507 |
|
|
|
1,941,813 |
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Sales
and marketing expenses
|
|
|
16,667 |
|
|
|
52,596 |
|
|
|
33,467 |
|
|
|
82,749 |
|
|
Depreciation
and amortization
|
|
|
- |
|
|
|
321,293 |
|
|
|
- |
|
|
|
763,450 |
|
|
Total
operating expenses
|
|
|
534,243 |
|
|
|
1,341,124 |
|
|
|
1,171,974 |
|
|
|
2,788,012 |
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|
OPERATING
LOSS
|
|
|
(83,105 |
) |
|
|
(250,656 |
) |
|
|
(115,385 |
) |
|
|
(651,524 |
) |
|
|
|
|
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OTHER
(INCOME) AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
36,631 |
|
|
|
291,488 |
|
|
|
236,050 |
|
|
|
389,589 |
|
|
Interest
income
|
|
|
(50,341 |
) |
|
|
(102,324 |
) |
|
|
(119,188 |
) |
|
|
(205,927 |
) |
|
Impairment
of assets
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
27,040 |
|
|
Legal
settlement
|
|
|
- |
|
|
|
9,000 |
|
|
|
- |
|
|
|
48,600 |
|
|
Other
income
|
|
|
- |
|
|
|
(42,585 |
) |
|
|
- |
|
|
|
(42,585 |
) |
|
Total
other (income) expense
|
|
|
(13,710 |
) |
|
|
155,579 |
|
|
|
116,862 |
|
|
|
216,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(69,395 |
) |
|
$ |
(406,235 |
) |
|
$ |
(232,247 |
) |
|
$ |
(868,241 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
WEIGHTED
AVERAGE COMMON SHARES OUTSTANDING:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted:
|
|
|
94,847,174 |
|
|
|
84,448,739 |
|
|
|
94,359,266 |
|
|
|
79,368,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
NET
LOSS PER SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted:
|
|
|
(0 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.00 |
) |
|
$ |
(0.01 |
) |
The
accompanying notes are an integral part of these condensed consolidated
financial statements
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED DECEMBER 31, 2007 AND 2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(232,247 |
) |
|
$ |
(868,241 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
110,592 |
|
|
|
763,450 |
|
|
Issuance
of stock as consideration for services
|
|
|
- |
|
|
|
720,720 |
|
|
Issuance
of stock in lieu of rent expense
|
|
|
8,500 |
|
|
|
- |
|
|
Impairment
of assets
|
|
|
- |
|
|
|
27,040 |
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Prepaid
and other current assets
|
|
|
88,294 |
|
|
|
46,120 |
|
|
Accounts
payable
|
|
|
59,744 |
|
|
|
- |
|
|
Accrued
expenses and other liabilities
|
|
|
(10,779 |
) |
|
|
(662,553 |
) |
|
Deposits
|
|
|
(3,850 |
) |
|
|
|
|
|
Deferred
revenue
|
|
|
(1,093,050 |
) |
|
|
(1,358,728 |
) |
|
Net
cash used in operating activities
|
|
|
(1,072,796 |
) |
|
|
(1,332,192 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchase
of equipment
|
|
|
(28,123 |
) |
|
|
(158,025 |
) |
|
Licensing
contracts - current portion
|
|
|
187,799 |
|
|
|
(433,117 |
) |
|
Licensing
contracts - long-term portion
|
|
|
336,020 |
|
|
|
- |
|
|
Notes
from affiliates
|
|
|
(195,115 |
) |
|
|
(182,157 |
) |
|
Net
cash provided by (used in) investing activities
|
|
|
300,581 |
|
|
|
(773,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Bank
overdraft
|
|
|
14,911 |
|
|
|
- |
|
|
Advances
from related party
|
|
|
486,000 |
|
|
|
- |
|
| Principal
repayments on capital leases |
|
|
- |
|
|
|
(831,944 |
) |
| Net
repayments of (advances) to Affiliate |
|
|
- |
|
|
|
(826,198 |
) |
|
Licensing
obligation - current portion
|
|
|
(446,545 |
) |
|
|
375,475 |
|
|
Licensing
obligation - long-term portion
|
|
|
(200,387 |
) |
|
|
- |
|
|
Cost
of raising capital
|
|
|
(65,975 |
) |
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
958,001 |
|
|
|
3,452,324 |
|
|
Net
cash provided by financing activities
|
|
|
746,005 |
|
|
|
2,169,657 |
|
|
|
|
|
|
|
|
|
|
|
|
(DECREASE)
INCREASE IN CASH
|
|
|
(26,210 |
) |
|
|
64,166 |
|
|
CASH,
BEGINNING OF YEAR
|
|
|
26,210 |
|
|
|
1,148 |
|
|
CASH,
END OF YEAR
|
|
$ |
- |
|
|
$ |
65,314 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid
|
|
$ |
236,000 |
|
|
$ |
298,000 |
|
|
Issuance
of stock for acquisition of assets
|
|
$ |
61,000 |
|
|
$ |
- |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements
NOTES
TO CONDENSED FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED DECEMBER 31, 2007
and 2006
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. The Company changed its name to MedCom USA, Inc.
in October 1999. During the fiscal years of 1999 and continuing
through present, 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 six months ended December 31, 2007.
During six months ended December 31, 2007 the Company incurred a net loss of
$232,247 and has an accumulated deficit of $90,458,603. 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 December
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 periods 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,
2007.
4. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
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.
Revenue
Recognition
Statement
of Position Software Revenue Recognition (“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
allows for revenue to 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 recognizes revenue from license fees when the software is
shipped to the customer. The amount and timing of revenue recognition is based
on the multiple-element arrangements that provide for multiple software
deliverables [e.g., software products, upgrades or enhancements, post contract
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 an
arrangement with multiple deliverables, Emerging Issues Task Force Revenue
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 relative fair value of 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 fees, EDI connectivity fees, payer/provider fees,
benefit verification fees, referral transfer fees, service authorization fees,
claim status, training, support, program upgrades, carrier editions, and
customized reports. Revenue is accordingly allocated and recognized
based on the value of deliverables.
The
Company has substantial expenses such as commission, royalties, software portal,
and the software deliverables and pays those costs at the execution of the
contract. The Company accumulates the entire contract of licensing
and gateway access fees and records it as the licenses and gateway access
fees receivables. The Company recognizes revenue in accordance with
SOP 97-2 when the software is delivered to the professional and recognizes the
remaining portion of the contract over the life of the contract. The
Company recognizes the revenue of the contract at the time of the deliverables
and execution of the contract since the Company has substantial costs for each
element of the multiple deliverables included in the contract. The
remaining portion is recognized monthly in accordance the
agreement. The Company further accrues the prepaid licensing expense,
accrued deliverables under the fixed and determinable licensing
arrangement. The Company only recognizes revenue upon completion of
each deliverable is does not recognized revenue upfront which is not fixed or
determinable.
The
Company has adopted the Securities and Exchange Commission’s Staff Accounting
Bulletin (SAB) No. 104, Revenue Recognition, which provides guidance on the
recognition, presentation and disclosure of revenue in financial
statements.
5.
EQUITY
During
six months ended December 31, 2007 and 2006:
|
Quarter
Ended
|
|
Stock
issued
|
|
|
Cash Received
|
|
|
Stock
issued
|
|
|
|
|
for
Cash
|
|
|
|
|
|
for
Services
|
|
|
September
30, 2006
|
|
|
7,384,373 |
|
|
$ |
2,178,991 |
|
|
|
1,837,331 |
|
|
December
31, 006
|
|
|
2,579,331 |
|
|
$ |
1,273,333 |
|
|
|
4,726,870 |
|
|
Total
Issued
|
|
|
9,963,704 |
|
|
$ |
3,452,324 |
|
|
|
6,564,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2007
|
|
|
1,847,357 |
|
|
$ |
803,001 |
|
|
|
- |
|
|
December
31, 2007
|
|
|
310,000 |
|
|
$ |
155,000 |
|
|
|
|
|
|
Total
Issued
|
|
|
2,157,357 |
|
|
$ |
958,001 |
|
|
|
- |
|
During the six months ended
December 31, 2006, the Company issued 9,963,704 shares of its common stock for
$3,452,324. 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.
The
Company has issued shares of its common stock as consideration to consultants
for the fair value of the 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 entered into for the services and the value of
services rendered. During the period ended December 31, 2006,
the Company granted to consultants, 6,564,201 shares of common stock valued
between $.75 - $.25. The values of these common shares issued were
expensed during the year.
In
December 31, 2007 the Company issued of 2,157,357 shares of its common stock for
$958,001. 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, 2007, ranging from $.35 per share at
the beginning of the period to $.48 per share at the end of the
period. Commissions of approximately $65,975 are recorded as a charge
in additional paid in capital as direct costs associated with the raising of
equity capital.
6. RELATED PARTY
TRANSACTIONS
The
Company’s president and chairman is an 8% shareholder and its sole officer and
director of the Company. The chairman controls American Nortel
Communications, Inc. which is a 22% shareholder in the Company. The
chairman also controls Card Activation Technologies, Inc. (“Card”) in which
MedCom owns 37% of Card. During the year ended June 30, 2002, the
Company moved its administrative offices into space occupied by this related
entity. 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 six months
ended December 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
to cover short-term cash flow deficiencies. In the six months ended
December 31, 2007 the chairman advanced $486,000. The balance due to
this affiliate for the six months ended December 31, 2007 and 2006 was $791,000
and $212,914, respectively. The advances are generally short
term in nature with an interest rate of 9%. The advances of $791,000
still remain outstanding as of December, 2007.
Card’s
operating requirements has been and will be funded primarily from its related
party entity MedCom USA, Inc. Card will use funds advanced by MedCom. Currently,
the Card costs are limited to professional fees and subject to a contingency fee
from our patent litigation attorneys. MedCom will continue to provide funds
through a revolving line of credit of $250,000 which funds will be drawn down on
an as needed basis until Card begin to realize sufficient revenues from royalty
payments. Once Card begins receiving royalties, we expect the
revenues of such royalties shall permit us to be self-funding.
Card has
financed operations by advances from, MedCom USA Incorporated which total
$257,755 through December 31, 2007.
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 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, 2007, 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. The Company
changed its name to MedCom USA, Inc. in October 1999. During the
fiscal years of 1999 and continuing through present, the Company directed its
efforts in medical information processing.
Healthcare Transaction
Processing Business
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-sale terminal or web
portal. The point-of-sale terminals are purchased from Hypercom
Corporation (Hypercom). The Company business plan consists of
offering a service bundled package that would have the capability of processing
unlimited claims and eligibility verification for monthly service
fees.
The
Company’s “web portal” encourages customers to process their medical claims
through an online 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.
Financial Transaction
Services
The
Company’s credit card center and check services provides a 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.
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 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, Easy- Pay
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 web portal. Using the MedCom
system, medical 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 consolidates
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 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 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. In managements’ opinion, 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.
Presently,
the MedCom system was able to retrieve on-line eligibility and authorization
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 providers include CIGNA, Prudential,
Oxford Health Plan, United Health Plans, Blue Cross, Medicaid, Aetna, Blue
Cross/Blue Shield, and Prudential.
Competition
Competing
health insurance claims processing and/or benefit verification systems include
WebMD (HLTH), NDC Health (NDC), 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.
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 telesales strategy to decrease
dependency 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) and
putting less reliance on an internal sales force. MedCom has set-up
these Independent Sales Organizations (ISOs) to market and distribute the MedCom
System throughout the U.S. Financial service companies comprise an
important sales channel that views the healthcare industry as an important
growth opportunity. Also 6% of all healthcare payments are made with
a credit card today. However, according to a recent survey 55% of all consumers
would prefer to pay doctor and hospital visits by credit/debit
card.
MedCom
has been expanding its position with hospitals and working closely with hospital
consultants and targeted seminars. The Company, with its new Online
web portal product and Medicare access, is becoming an increasingly valuable
tool for the outpatient and faculty practice areas of
hospitals. 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.
Service
Agreements
During
June 2005, the Company entered into a service agreement with TESIA-PCI,
Inc. This agreement was to replace and service and support, at a
minimum 1,500 POS terminals inclusive of eligibly, claims processing, credit
card processing for TESIA’s dental providers.
Patent
Card
Activation Technologies Inc. (“Card”) is a Delaware corporation headquartered in
Chicago, Illinois that owns proprietary patented payment transaction technology
used for electronic activation of phone, gift and affinity
cards. MedCom owns 60,000,000 shares of common stock of Card which
represents 41% of the issued and outstanding shares of Card.
The
patent was transferred to Card by MedCom on the formation of Card and in
exchange for 146,770,504 shares of Common Stock.
Card was
incorporated in August 2006 in order to own and license, the assigned patent
which covers payment transaction technology and the process for taking a card
with a magnetic strip or other data capture mechanism and processing
transactions or activating the card. This process is utilized for prepaid phone
cards, gift cards, and debit-styled cards. As of the date of this
report, Card has entered into a license agreement with McDonald’s
Corporation. Card has one principal asset, the patented payment transaction
technology assigned from MedCom, and one full time and one part-time employee.
Card does not expect to commence full scale operations or generate additional
revenues until late 2007. Since incorporation, Card has not made any significant
purchases or sale of assets, nor has Card been involved in any mergers,
acquisitions or consolidations. Card has filed four lawsuits to enforce its
patented technology and has sent license agreement requests to a number of
companies in order to obtain license agreements with entities that Card believes
are infringing its patent.
Card has
the ability to market and sell licensing opportunities for the patented
technology of processing debit-styled transactions, including processing
transactions with debit, phone and gift cards and also activating and adding
value to those debit-styled cards. New View Technologies, which was
acquired by MedCom USA, developed the patent and all patents were ultimately
assigned to Card.
Revenues
A sales
staff meets with a dental or medical professional. During that
initial meeting a demo is displayed so the professional has first hand knowledge
of the software and its use. At the time of the meeting a
noncancellable licensing agreement is executed along with a service
agreement. The license agreement indicates the life of the agreement
if the customer wants check readers, pin pads, portal wedge, etc. with the
software. These units allow the professional to swipe a credit card
and medical card for the software to read.
The
professional executes the licensing agreement which states the terms for a
period of 24 – 60 month agreements, number of portal/units needed, at which
location the portals will be used, the monthly licensing amount, (which varies
per contract) type of contract whether dental or medical, the amount of the
gateway access fee (usually $24.95 per month which includes provider
enrollment), EDI connectivity, a the monthly maintenance charges that are billed
when used as commercial benefit verification, Referral transactions, claims
status, service authorizations, maintenance, training, support, programs
upgrades, carrier additions, and customized reports. The professional
then provides MedCom a voided check or credit card number to automatically
withdraw or charge the licensing fee and gateway access fees on a monthly
basis. Also those automatic withdrawals include the maintenance
charges based upon usage. The professional also agrees to allow
MedCom to provide merchant services for Visa/MasterCard. MedCom
further agrees that the monthly fees charged for gateway access and licensing
fees will commence with in 10 day so of the execution of the noncancellable
agreements.
MedCom
has substantial expenses for each element is delivers such as commission,
royalties, software portal, and the software deliverables and pays those costs
at the execution of the contract. The Company accumulates the entire
contract of licensing and gateway access fees and record as the licenses and
gateway access fees receivables. The Company recognizes revenue in
accordance with SOP 97-2 when the software is delivered to the professional and
recognizes the remaining portion of the contract over the life of the
contract. The Company recognizes the revenue of the contract at the
time of the deliverables and execution of the contract since the Company has
substantial costs to be recognized at the time of the multiple deliverables of
each element. The remaining portion is recognized monthly in
accordance with the agreement. The Company further accrues the
prepaid licensing expense, accrued deliverables under the fixed and determinable
licensing arrangement.
The
Company continues to recognize transaction fees as they receive
them. The Company collects other fees based upon usage of the
software and are not fixed fees such as gateway access and licensing fees and
are part of the deliverables such as 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. The Company calls
these fees transaction fees, they are not a fixed and determinable,
therefore are not accrued but are recognized when used by the
customer.
The
Company enters into a long term debt and long term receivable for the life of
the license agreement which is non cancelable agreement. The Company
collects the monthly licensing and gateway access fees every 30 days over the
life of the contract. The Company does not collect the entire
contract within 30 days but over the terms of the agreement therefore records
deferred revenue for the portion of the contract that is recognized over the
contract.
The
Company finances the licensing fees agreement while the gateway access fees are
received over the life of the contract. The license fees are financed
through Ladco in prior periods and in fiscal 2006 and 2007 through
LeeCo. The Company has a standard financing the agreement
through LeeCo through the term of the contract.
Revenues
from the MedCom system are generated through the sale of the portal software,
software terminals, and processing insurance benefit eligibility/verification,
insurance claims, and financial transaction processing. The Company
receives a fixed amount per software portal and software 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. The Company also markets a complete
billing service using the MedCom System for hospitals and large practice
groups. The Company receives a percentage of the billing amount
collected under these arrangements.
The
Company has adopted the Securities and Exchange Commission’s Staff Accounting
Bulletin (SAB) No. 104, which provides guidance on the recognition, presentation
and disclosure of revenue in financial statements.
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 100 F Street, NE, Washington, DC
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 three months ended December 31, 2007 decreased to $711,218 from
$1,467,904 for the three months ended December 31, 2007 2006. Revenues for the
six months ended December 31, 2007 decreased to 1,648,274 from $3,068,495 for
the six months ended December 31, 2006. This was a 48% reduction in
revenues three months ended December 31, 2007 and a 54% for the six months ended
December 31, 2007. This decrease in revenue is directly the result of
changes in the Company's strategic direction in core operations. The
Company continues to aggressively pursue and devote its resources and focus its
direction in electronic medical transaction processing. The
Company’s agreement with its credit facility in connection with the licensing of
terminals and portal transactions therewith, the Company must defer revenue on
licensing agreement of the terminals and portal software. The decline
in revenues is directly related in 2006 the Company executed large licensing
agreements with large hospital groups such as Mount Sinai, St. Vincent, Beth
Israel, and Continuum Partners. The large hospital groups that
licensed our portals licensed at a minimum of 35 portal systems per
group. In the case of St. Vincent our portal system is used
exclusively by all of their hospital facilities. However, in December
31, 2007 the Company was licensing to more individual doctor and dental groups
that were directly related to our decrease in revenues.
The
Company further refocused its sales to large practice management groups to sell
multiple web portals and further has expanded its exposure and future sales with
a large dental group. The Company is negotiating and developing
relationships with the practice management and dental groups and the Company
will not realize those efforts until fourth quarter fiscal year
2008.
Cost of
deliverables for three months ended December 31, 2007 increased to $260, 080
from $377,436 for three months ended December 31, 2006. Cost of
deliverables for six months ended December 31, 2007 decreased to $591,685 from
$932,007 for the six months ended December 31, 2006. This
was a 69% reduction in cost of deliverables three months ended December 31, 2007
and a 63 % for the six months ended December 31, 2007. The Company
has developed the MedComConnect portal package that will decrease the cost of
each element of the multiple 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. The decrease in cost of deliverables is
directly related to the decrease in revenues from the two quarter ended December
31, 2007. Also the decrease is related to the decrease then
elimination of 25% royalty payments to third parities. Further the
Company no longer pays commission on future revenues from its noncancellable
licensing agreements. Commissions are paid at inception of the
licensing agreement at a 10% rate and there are no future payments on residuals
revenues from gateway access fees and licensing fees. 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.
Selling
expenses for three months ended December 31, 2007 decrease to $16,667 from
$52,596 for three months ended December 31, 2006. Selling expenses
for six months ended December 31, 2007 decreased to $33,467 from $82,749 for the
six months ended December 31, 2006. This was a 32% reduction in
selling expenses three months ended December 31, 2007 and a 40% for the six
months ended December 31, 2007. . 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 introduced the telesales marketing strategy
for less expensive sales force and more effective in the future.
General
and administrative expenses for the three months ended December 31, 2007
decreased to $517,576 from $967,235 for three months ended December 31,
2006. General and administrative expenses for six months ended
December 31, 2007 decreased to $1,138,507 from $1,941,813 the six months ended
December 31, 2006. This was a 54% reduction in general and
administrative expenses three months ended December 31, 2007 and a 58% for the
six months ended December 31, 2007. 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 manually.
Interest
expense for three months ended December 31, 2007 decrease to $36,631 from
$291,488 for the three months ended December 31, 2006. Interest
expenses for six months ended December 31, 2007 decrease to $236,050 from
$389,589 for the six months ended December 31, 2006. This was a 49%
reduction in interest expense three months ended December 31, 2007 and 61% for
the six months ended December 31, 2007. This decrease is a result of
renegotiation of the Company’s credit facility with Ladco. Also,
expenses were incurred and paid on notes the Company has outstanding with
LeeCo. Further the Company’s renegotiation has reduced the accrual of
interest below 3% until paid in full in 2009. 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 represented a high
interest rate and the Company has systematically reduced the Ladco
debt. Interest income for the three months ended December 31, 2007
decreased to $50,341 from $102,324 for the three months ended December 31,
2006. Interest income for the six months ended December 31, 2007
decreased to $119,188 from $205,927 for the six months ended December 31,
2006. This was a 49% reduction in interest income three months ended
December 31, 2007 and 58% for the six months ended December 31,
2007. The decrease is due to the reduction in current sales of the
portal software from our license agreements. The licensing agreements
are noncancellable licensing of our portal software in which we charge interest
expense and interest income related to the life of the licensing
agreement.
The loss
for three months ended December 31, 2007 decreased to ($69,395) from ($406,235)
for the three months ended December 31, 2006. The loss for the six
months ended December 31, 2007 decreased to ($232,247) from ($868,241) for the
six months ended December 31, 2006. This was a 17% reduction in loss
three months ended December 31, 2007 and 27% for the six months ended December
31, 2007. The decrease is due to the reduction in revenue, sales
force, royalty expense, commissions, and reduction in operations in our New York
facility.
No tax
benefit was recorded on the expected operating loss for December 31, 2007 and
2006 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, medical, and dental professionals and sales
of the Company’s common stock. During the six months ended December
31, 2007, the Company’s net proceeds from the licensing of the Company’s
software portals were $251,267 as compared to 2006 of $375,473. The
Company received $958,001 as compared to 2006 of $3,452,324 in 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
(used) operating activities for the six months ended December 31, 2007 was
($1,072,796) compared to ($1,332,192) for 2006. The Company’s focus
on core operations results in an increase in licenses receivable. The
Company receives payments from customers automatically through electronic fund
transfers. Collection cycles of the monthly noncancellable licenses
are generally paid monthly. The Company has grown its operations to
begin to reduce the deficit cash flow positions. However the Company
is still operating in a deficit. The Company reduced its expenses by
exercising a put option to buyout the royalty payments to third
parties. The Company issued common stock valued at for six months
ended December 31, 2007 of $8,500 as compared to $720,720. The
Company had depreciation and amortization expenses for the six months ended
December 31, 2007 of $110,592 as compared to 2006 of $763,450. The
reduction in deprecation is directly related to the write off of the terminal
asset capitalized in prior fiscal periods.
Cash
provided by (used in) investing activities was $300,581 for six months ended
December 31, 2007, compared to ($773,299) for 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 for six months ended December 31, 2007 of ($28,123)
as compared to ($158,025) for December 31, 2006. The Company advanced
proceeds to its affiliate company Card Activation Technologies, Inc. for the six
months ended Decmeber 31, 2007 of ($195,115) as compared to ($182,157) for
December 31, 2006.
Cash
provided by financing activities was $746,005 for the six months ended December
31, 2007 as compared to $2,620,380 for 2006. Financing activities
primarily consisted of proceeds from the increase in the financing of our
licensing agreement through LeeCo. 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
periods. The Company received proceeds from the sale of common stock
for six months ended December 31, 2007 of $958,001 as compared to 2006 of
$3,452,324. The Company decrease the cost of raising capital was
$65,975 for the six months ended December 31, 2007 as compared to $0 for
2006. The six months ended December 31, 2007 the chairman advanced
funds of $486,000 as compared to $375,473 for 2006.
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 Licensing. The funding groups accept contracts and
adopt the same terms and conditions that the Company and Licensing have
agreed. In prior years Ladco required to personally guarantee the
licensing 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 licensing 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 services fees which
include transaction processing, benefit claims processing, direct terminal
sales, and credit card processing. The decrease in cost of deliverables is
directly related to the 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 fee per month on all transactions with a
15 cent per transaction fee in fiscal 2008.
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 26% in
the original note. The Company originally owed $3,015,063 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
LeeCo
agreement adopts the agreement that the Company executes with the
customer. LeeCo collects all funds through ACH and is paid from those
proceeds. The excess of those proceeds are collected by the
Company. LeeCo holds as collateral all the proceeds from the customer
leases, access fees and all cash collections and is secured from all assets of
the Company.
The
licensing agreement is executed between the professional and the
MedCom. During the course of the agreement the Company ACH’s the
accounts of the professionals and LeeCo collects the fees and reduces the
liability for the licensing fees collected and returns any excess transaction
fees to the Company. The professional does not finance their
agreement with LeeCo, the Company finances the agreement. LeeCo is
not a related party of the Company. The financing of the licensing
agreement is calculated as part of our revenue recognition process as the
monthly collection of the licensing fee is recorded against the outstanding
balance. Revenue is not recognized in excess of the cash received
from our financing of the likening agreement in accordance with SAB
101. The guarantees that are provided in connection with the hospital
agreements have not changed our revenue recognition process except the accrual
of the interest expense related to the unpaid balances.
The
Company has a fixed and determinable licensing fee and gateway access
fees. The Company has all customer agreements over a period of 24 -60
months. This period the Company updates software, and provides
various transaction fees outlined as deliverables. The Company
receives payments through out the term of the agreement. The Company
incurs and recognizes expenses in the initial software installation that is
outlined in the multiple deliverables and continues to service the customer with
the remaining deliverables through out the terms of the
contract. Revenue is recognized when the customer pays the ongoing
payment through out the term of the contract. Revenue is recognized
at the initial installation based upon the cost of deliverables at the time of
installation.
The
Company has a fixed and determinable licensing arrangement as the Company
enforces all licensing agreements as they are noncancellable, the Company has
never altered the terms of the agreement with the original licensing agreement,
the Company has incremental risk in this arrangement. The Company
recognizes revenue over the terms of the agreement and further recognizes
revenue based upon the costs of deliverable that is required in the initial
installation of the software and continues to provide deliverables in accordance
with the terms of the agreement.
The
Company has a standard practice to enter into a financing arrangement with LeeCo
and does not provide a concession which makes it fixed and determinable
licensing arrangement. MedCom has incremental risk in the financing
arrangement with LeeCo and thus has fixed and determinable licensing
arrangement.
The
customer does not arrange any financing of the software. The Company
has recourse in the financing arrangement. The Company recognizes
revenue upon delivery of the software elements and over the term of the
agreement based up on the deliverables delivered under the terms of the
agreement.
The
Company participates in the financing of the customers’ term
contract. The Company recognizes revenues to the extent of the
expenses paid for the multiple elements of each deliverables and then recognizes
revenue over the term of the contract. The Company defers any revenue
of the contract and recognizes that deferred revenue over the remaining term of
the contract.
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
During
the Quarter ended December 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.
PART
II – OTHER INFORMATION
MedCom is
involved in various legal proceedings and claims as described in our Form 10-KSB
for the year ended June 30, 2007. No material developments occurred in any of
these proceedings during the quarter ended December 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
There
were no changes in securities and small business issuer purchase of equity
securities during the period ended December 31, 2007, except the company issued
2,157,357 common shares for $958,001 in a private placement. We have
sold or issued the following securities not registered under the Securities Act
by reason of the exemption afforded under Section 4(2) of the Securities Act of
1933, within the last quarter. Except as stated below, no underwriting discounts
or commissions were paid with respect to any of the following transactions. The
offer and sale of the following securities was exempt from the registration
requirements of the Securities Act under Rule 506 insofar as
(1) except as stated below, each of the investors was accredited within the
meaning of Rule 501(a); (2) the transfer of the securities were restricted
by the company in accordance with Rule 502(d); (3) there were no more
than 35 non-accredited investors in any transaction within the meaning of
Rule 506(b), after taking into consideration all prior investors under
Section 4(2) of the Securities Act within the twelve months preceding the
transaction; and (4) none of the offers and sales were effected through any
general solicitation or general advertising within the meaning of Rule
502(c). Also, was a Form D filed and blue sky filings made (if a
private placement)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There
were no defaults upon senior securities during the period ended December 31,
2007.
There
were no matters submitted to the vote of securities holders during the period
ended December 31, 2007.
None
Exhibits
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Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act
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Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act.
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Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act.
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Certification
of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act.
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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.
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Registrant
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MedCom
USA Incorporated
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Date:
February 14, 2008
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By:
/s/ William P. Williams
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William
P. Williams
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Chairman,
President Chief Executive Officer (Principle Executive Officer, Principle
Financial Officer)
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