SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30,1999
Commission File Number: 0-25474
MEDCOM USA, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 65-0287558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18001 Cowan, Suites C & D, Irvine CA 92614 (address of
principal executive offices) (Zip Code)
(949) 261-6665
(Registrant's telephone number, including area code)
SIMS COMMUNICATIONS, INC.
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) or the Securities Exchange Act of 1934
during the preceding 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____
As of November 12, 1999 the Company had 19,882,907 shares of Common Stock issued
and outstanding.
Page 1 of 17 Pages
<PAGE>
Part 1. Financial Information
Item 1. Index to Financial Statements
MEDCOM USA, INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets at
September 30, 1999 and June 30, 1999 3-4
Consolidated Statements of Operations for the Three Months
Ended September 30, 1999 and 1998 5
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1999 and 1998 6
Consolidated Statement of Stockholders' Equity
for the Three Months Ended September 30, 1999 7
Notes to Consolidated Financial Statements. 8-13
Management's Discussion and Analysis of
Financial Condition and Results of Operations. 14-15
Part II 16
Signatures 17
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1999 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $26,906 $189,772
Restricted cash (Note 2) -- 250,000
Accounts receivable, less allowance for
doubtful accounts of
$28,879 307,751 250,913
Inventories (Note 5) 430,297 464,074
Prepaid expenses and other current assets 103,979 100,337
Notes receivable, current portion (Note 5) 495,000 150,000
------- -------
Total Current Assets 1,363,933 1,405,096
PROPERTY AND EQUIPMENT,
Property & Equipment net of accumulated
depreciation of $1,889,798 at September
30, 1999 and $1,696,194 at June 30, 1999 2,149,185 2,059,602
OTHER ASSETS
Notes receivable, less allowance of $575,062 965,700 241,200
Licensing rights, net of accumulated amortization 870,153 885,558
Patents, net of accumulated amortization 310,594 327,299
Royalty advances 555,880 515,907
Goodwill, net of accumulated amortization 546,580 819,299
Other 103,044 120,901
------- -------
Total Other Assets 3,351,951 2,910,164
Total Assets $6,865,069 $6,374,862
========== ==========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1999 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 5) $517,922 $649,154
Accrued expenses 538,134 622,820
Borrowing under bank line of credit (Note 2) -- 250,000
Current portion of capitalized lease obligations
(Note 4) 45,958 43,432
Current portion of long term debt (Note 3) 458,619 519,119
Current portion of deferred revenue (Note 5) 48,000 --
Dividends payable 84,092 58,025
---------- --------
Total Current Liabilities 1,692,725 2,142,550
LONG TERM LIABILITIES
Capitalized lease obligations (Note 4) 109,958 125,706
Deferred revenue (Note 5) 754,500 --
------- --------
Total Long Term Liabilities 864,458 125,706
------- -------
Total Liabilities 2,557,183 2,268,256
--------- ---------
STOCKHOLDERS' EQUITY (Note 7)
Preferred stock, Series A, B and C $.001 par
value, 152,600 shares authorized - 50,000
(A), 100,000 (B) and 2,060 (C), 10,845
shares issued and outstanding at September 30,
1999 (liquidation preference of $1,927,000) 11 11
Common stock $.0001 par value 40,000,000 shares
authorized: shares issued and outstanding -
17,635,639 and 16,727,506 at September 30,
1999 and June 30, 1999, respectively 1,764 1,673
Additional Paid In Capital 32,766,209 31,668,851
Accumulated Deficit (Note 6) (28,460,098) (27,563,929)
------------ ------------
Total Stockholders' Equity 4,307,886 4,106,606
---------- ----------
Total Liabilities and Stockholders' Equity $6,865,069 $6,374,862
========== ==========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1999 and 1998
SEPTEMBER 30,
1999 1998
Revenues
Intelligent Vending Machines (Note 8) $295,493 $338,411
Medical Transaction Processing (Notes 5 and 8) 872,481 39,045
--------- ----------
Total Revenues 1,167,974 377,456
Cost of Services 283,064 146,508
Gross Profit 884,910 230,948
Operating Expenses
General and Administrative 780,921 916,576
Depreciation and Amortization 518,070 221,887
Selling and Marketing 135,160 365,275
Equity Based Compensation/Services (Note 7) 293,911 293,762
------- -------
Total Expenses 1,728,062 1,797,500
--------- ---------
Operating Loss (843,152) (1,566,552)
Other income (expense)
Interest income 6,020 6,859
Interest expense (Note 7) (30,570) (48,045)
-------- --------
(24,550) (41,186)
Loss before income taxes (867,702) (1,607,738)
Income tax provision 2,400 --
---------- -----------
Net Loss ($870,102) ($1,607,738)
Preferred Stock Dividend (26,067) --
=========== ===========
Net loss applicable to common stockholders ($896,169) ($1,607,738)
============ ============
Basic and diluted net loss per share ($0.05) ($0.17)
Weighted Average Common Shares Outstanding 17,166,025 9,443,900
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SEPTEMBER 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($870,102) ($1,607,738)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and Amortization 518,070 221,887
Imputed value of warrants granted for
services and interest 160,646 64,804
Stock issued for services 133,265 283,645
Changes in assets and liabilities:
Inventories 33,777 11,568
Accounts receivable (56,838) (457)
Prepaid Expenses and Other Current Assets (7,704) (103,845)
Notes receivable (259,500) --
Accounts Payable and Accrued Expenses (113,779) (46,225)
Royalty advances (39,973) --
Deferred Revenue ( 7,500) --
-------------------------
NET CASH USED IN OPERATING ACTIVITIES (509,638) (1,176,361)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs paid -- (3,300)
Capital expenditures (79,458) (227,667)
Change in other assets -- 5,397
------- -------
NET CASH (USED IN) INVESTING ACTIVITIES (79,458) (225,570)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 10,000 --
Payments on debt (251,500) (100,691)
Payments on obligations under capital leases (13,222) (3,257)
Proceeds from capital leases -- 369,060
Net proceeds from issuance of common stock 430,952 1,214,625
NET CASH PROVIDED BY FINANCING ACTIVITIES 176,230 1,479,737
NET INCREASE (DECREASE) IN CASH (412,866) 77,806
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 439,772 263,878
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,906 $341,684
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the period for interest $ 778 $ 42,585
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK SUBSCRIBED
SERIES A SERIES C COMMON STOCK
NUMBER NUMBER NUMBER ADDITIONAL ACCUMU-
OF OF OF PAID IN LATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
Balance - June 30, 1999 9,250 $ 9 1,745 $ 2 16,727,506 $1,673 $31,668,851 ($27,563,929) $4,106,606
Net loss -3 months ended
September 30, 1999 (870,102) (870,102)
Issuance of common stock for
cash at $.82 per share, net of
$16,728 of expenses 545,951 55 430,897 430,952
Issuance of common stock in
exchange for preferred stock (150) 600
Issuance of common stock for
services and equipment 182,500 18 140,193 140,211
Issuance of common stock for
accounts payable 84,571 8 89,645 89,653
Imputed value of stock warrant
grants in exchange for consulting
services and other items 354,656 354,656
Dividend on Series C Preferred stock (26,067) (26,067)
Issuance of common stock for
conversion of notes payable
and accrued interest _____ ______ _____ ______ 94,511 10 81,967 81,977
------ ------ ---------- ----------- ---------
Balance - September 30, 1999 9,100 $ 9 1,745 $ 2 17,635,639 $1,764 $32,766,209 ($28,460,098) $4,307,886
===== ======= ===== ====== ========== ====== =========== =========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
MEDCOM USA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Significant Accounting Policies
Organization
MedCom USA, Incorporated (the Company) was incorporated in Delaware on August
15, 1991. The Company was incorporated under the name of Sims Communications,
Inc. and its name was changed to MedCom USA, Incorporated in October 1999.
Although the Company was formed as a communications equipment company, the
Company recently changed its primary business focus to the health care industry.
Services provided by the Company include on-line insurance eligibility
verification, electronic processing of medical claims and e-commerce. The
Company also rents motion pictures through automated videocassette dispensing
units.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended June 30, 2000. For further information, refer to the consolidated
financial statements and footnotes included in the Company's annual report on
Form 10-KSB.
Principles of Consolidation
The consolidated financial statements includes the accounts of MedCom USA,
Incorporated and its wholly owned subsidiaries: Sims Franchise Group, Inc., Sims
Communications International, Inc., JustMed.com, Inc. and Link Technologies Inc.
and its wholly owned subsidiaries New View Technologies, Inc., Link Dispensing
Systems, Inc., and Southeast Phone Card, Inc. The consolidated financial
statements also include the accounts of One Medical Services, Corp., Movie Bar
Company USA and Vector Vision Inc. All intercompany balances and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity
date of three months or less to be cash equivalents.
Inventories
Inventories consists primarily of automated video dispensing units, video
cassette players, movie video cassettes, debitlink data transmission units and
other associated miscellaneous parts and equipment and are recorded at the lower
of cost or market determined by the first-in, first-out method.
<PAGE>
Property and Equipment
Property and equipment are recorded and depreciated over their estimated useful
lives (5-7 years), utilizing the straight-line method. Expenditures for
maintenance and repairs are charged to expense as incurred
Net Gain / (Loss) Per Common Share
Gain/(Loss) per common share is based on the weighted average number of common
shares outstanding during each of the respective periods. Common shares issuable
upon exercise of the convertible preferred stock, common stock options and
common stock equivalents are excluded from the weighted average number of shares
since their effect would be anti-dilutive.
Goodwill
The excess of the cost of the net tangible and identifiable intangible assets of
acquired businesses is stated at cost and a portion is being amortized in
conjunction with the recognition of related licensing income and the balance is
over seven years.
Revenue Recognition
Rental revenue is recognized at the time of the movie rental. Revenues from the
sale of equipment are recognized upon delivery and service revenue is recognized
when work is completed.
Patents
Patent costs are those costs related to filing for patents and the value
allocated to patents based upon the business acquisition of Link Technologies
and subsidiaries. They are amortized on a straight-line basis based on the
expected useful life of seven years.
Note 2 - Bank Line of Credit
The Company had a secured revolving line of credit with a bank for up to
$250,000. The line of credit arrangement was terminated during the quarter ended
September 30, 1999. The balance at June 30, 1999 was $250,000. The line of
credit was secured by a restricted certificate of deposit with a balance at June
30, 1999 of $250,000. Interest on the line was at 5.77% per annum, payable
monthly.
Note 3 - Notes and Loans Payable
A detailed listing of debt at September 30, 1999 is as follows
8% Convertible note payable, principal due May, 1998
Debt includes conversion to common stock feature with
conversion rates ranging from $1.25 per share.
Currently in default. $25,000
Note payable - $10,000 principal, interest at 6%, due
on demand 10,000
<PAGE>
Note payable - non-interest bearing, payable in monthly
installments of $1,500 through June, 2000 36,000
Convertible bridge financing note -bearing interest at 4%,
principal and interest due on July 28, 1999. Debt includes
conversion to common stock feature at $.70 per share. Currently
in default 70,000
Note Payable - franchisee, bearing interest at 10%,
principal and interest due in full on October 31, 1999;
debt includes conversion to common stock feature at
$.875 per share 317,619
-------
Total current maturities $458,61
=======
Note 4 - Capitalized Lease Obligations
The Company leases various equipment, under leases, which are accounted for as
capitalized leases. The leases bear interest at 12-18% and are payable in
monthly installments. At September 30, 1999, the Company owed $155,916 of which
$45,958 represents the current portion. The terms for the leases vary from 48 to
60 months and the leases are collateralized by the underlying equipment.
Note 5 - License and Other Agreements
On July 20, 1999, the Company licensed the exclusive rights to market the One
Medical Service system to an unrelated corporation. The Company received
$300,000 during the quarter ended September 30, 1999 and is scheduled to receive
an additional $267,000 during the remainder of the current year, of which
$83,500 was received during October 1999. The Company also received a 7-year, 8%
unsecured note receivable in the amount of $810,000 as part of the transaction.
The note will be paid by monthly royalty payments due the Company and other
scheduled payment amounts over its term. These amounts will be recognized as
income as the royalties are earned. The corporation also agreed to assume
approximately $200,000 of the Company's inventory and related accounts payable.
The inventory is being released to the corporation as requested at which time
the corporation pays the related accounts payable. The corporation acquired
approximately $31,000 of this inventory during the quarter ended September 30,
1999 and purchased an additional $63,000 of the inventory during October 1999.
In November 1998, the Company purchased certain assets of MedCard Management
Systems, Inc., along with the exclusive licensing rights to the MedCard name and
the MedCard System software and network. The Company has agreed to fund the
operations of MedCard Management Systems, Inc. during its initial operations,
while the customer base is being expanded and while the on-line version of the
system is being developed. The Company assumed approximately $250,000 of such
expenses of MedCard during the quarter ended September 30, 1999. These expenses
are included in general and administrative, and selling and marketing expenses
in the accompanying consolidated statements of operations.
<PAGE>
Effective July 1999, the Company entered into an agreement with Medcard
Management Systems, Inc, whereby Medcard assigned the revenues to its wholly
owned subsidiary, Suffolk County Medical Economics (SBME), in exchange for the
Company's agreement to reimburse Medcard for SBME's expenses. Any profits earned
by SBME will be allocated between the Company and SBME based upon a
predetermined formula. The Company recognized $172,567 of income related to this
agreement during the quarter ended September 30, 1999 and a comparable amount of
expense which was included in cost of sales for the period. Pursuant to the
terms of the agreement with SBME, the Company was not entitled to any of SBME's
profits during the quarter ended September 30, 1999.
Note 6 - Continuing Operations
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. In prior years, the Company had
been in the development stage and did not begin earning significant revenues
until the middle of fiscal year ended 1994. During the years ending June 1995,
through June 1999, the Company continued to suffer recurring losses from
operations. In fiscal year ended June 30, 1995, the Company completed an initial
public offering for $5.2 million. In subsequent periods, the Company raised
additional capital to help fund its operations through the sale of its
securities in private placements. The consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern. See the Company's Form 10-KSB for the year ended
June 30, 1999.
Note 7 - Stockholders' Equity
During the quarter ended September 30, 1999, the following equity transactions
occurred:
The Company issued 545,951 shares of common stock at $.82 per share in a private
placement raising $430,952 net of $16,728 in offering costs. The Company also
issued a five-year warrant to purchase 109,190 shares of common stock at $1.12
per share, with a cost of $69,528, based upon an imputed value of $.64 per
share.
The Company issued 600 shares of common stock for the conversion of 300 shares
of Series A preferred stock.
The Company issued 182,500 shares of its common stock for $140,211 of services
and equipment received.
The Company issued 84,571 shares of its common stock in payment of $89,653 of
previously existing accounts payable.
The Company issued 94,511 shares of common stock in payment of $81,977 of notes
payable and accrued interest.
The Company issued a five-year warrant to purchase 100,000 shares of its common
stock at $1.25 per share in exchange for developmental services, with a
capitalized software development cost of $56,224, based upon an imputed value of
$.56 per share. Additionally, the Company issued warrants to purchase 136,334
<PAGE>
shares of common stock at prices ranging from $.70 to $1.00 per share to the
holders of the Series C preferred stock and a certain note holder. The warrant
to purchase 20,000 of the shares expires in July 2002 and the balance expires in
July 2004. $77,184 of expense has been recognized as stock based
compensation/services on the accompanying statements of operations, based on
imputed values ranging from $.52 to $.81 per warrant.
The Company issued warrants to purchase 550,000 shares of the common stock of
its wholly owned subsidiary, JustMed.com, Inc. at $5.00 per share in exchange
for services and capitalized software development costs. The warrants expire in
three years. Warrants for the purchase of 450,000 of the Justmed.com shares may,
at the option of the warrant holder, be exercised for 650,000 shares of the
Company's common stock at an exercise price equal to 125% of the closing price
of the Company's common stock at the date of conversion. The value of these
warrants, which was based upon the value of the underlying services provided,
was determined to be $221,248, based upon imputed valued ranging from $0.19 to
$0.58 per share. The Company also issued to the originator of the JustMed.com
concept an additional four-year warrant to purchase 1,000,000 shares of
JustMed.com's common stock at $2.00 per share No value is ascribed to this
warrant as no significant services were rendered and the value is not
determinable.
The Company accounts for stock based compensation in accordance with Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock Based
Compensation," ("FAS 123") which encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees. FAS 123 requires the recognition of expense for
such grants, described above, to acquire goods and services from all
non-employees. Additionally, although expense recognition is not mandatory for
issuances to employees, FAS 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and earnings
per share information using the new method.
The Company has adopted the disclosure-only provisions of FAS 123. Accordingly,
no compensation cost has been recognized for the issuances of stock options to
employees. The Company did not issue any stock options to employees of the
Company during the quarter ended September 30, 1999.
Note 8- Business Segments
The Company has two reportable segments: intelligent vending machines and
medical transaction processing. The intelligent vending machines segment include
telecommunications, automated movie rentals and financial transaction
processing. These components were previously considered separate segments,
however, they are now combined to reflect the Company's new and increased
emphasis in the health care segment of the business. Telecommunications include
cellular telephone rentals, the sale of prepaid phone cards and other
telecommunications related services. The automated movie section rents
videocassettes through automated dispensing units in hotels, primarily Florida
and California. The medical transaction segment includes insurance claim
verification and processing, the One Medical licensing revenue and other related
income. The medical transaction processing segment utilizes a communication and
transaction processing terminal which allows on-line verification of health
insurance and the processing of medical claims with various health insurance
providers.
<PAGE>
Operating results and other financial data are presented for the two reportable
segments of the Company for the three months ended September 30, 1999 and 1998.
Results for the three months ended September 30, 1998 have been combined into
the two segments to reflect the current method of operations. Net revenue
includes sales to external customers within the segment and related licensing
revenue. Cost of services includes costs associated with net revenue within the
segments. Segment income (loss) does not include general and administrative
expenses, other income (expense) items or income taxes. Identifiable assets for
each operating segment consist of receivables, inventory, prepaid expenses, net
machinery and equipment and goodwill. Corporate assets are cash, patents and
notes receivable related to a previously discontinued segment:
Net- Cost of Depreciation Segment Profit Identifiable
Revenues Services & Amort (Loss) Assets
September 30, 1999:
Intelligent Vending
Machines $295,493 $76,167 $208,957 $10,369 $2,119,517
Medical
Transaction
Processing- $872,481 $206,897 $290,658 $374,926 $4,212,040
Corporate & Other -- -- $18,455 $(18,455) $ 533,512
-------------------------------------------------------------
Consolidated $1,167,974 $283,064 $518,070 366,840 $6,685,069
========== ========= ======== ======= ==========
September 30, 1998
Intelligent Vending
Machines $338,411 $132,685 $183,920 $ 21,806 $3,854,737
Medical
Transaction
Processing- $ 39,045 $ 13,823 $ 19,512 $ 5,710 $1,071,004
Corporate & Other- -- -- $ 18,455 $(18,455) $ 874,349
---------------------------------------------- -----------
Consolidated $377,456 $146,508 $221,887 $ 9,061 $5,800,090
======== ======== ======== ========= ==========
Medical transaction processing revenues for the three months ended
September 30, 1999 include revenues of $567,000 which represent amounts received
or accrued during the period from the licensing of the Company's One Medical
System as well as revenues of $172,567 relating to the Company's agreement with
SBME. Expenses of approximately $172,000, which were associated with SBME
agreement, are included in cost of sales for the period. See Note 5. Goodwill
associated with the acquisition of One Medical Services was reduced by $280,521
and charged to depreciation and amortization during the quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operation-Three Months Ending September 30, 1999
During the three month period ended September 30, 1999, total revenues amounted
to $1,167,974 versus last year's revenue of $377,456. The Company is in a state
of transition with its expansion and focus on the Medical Transaction Processing
Segment. This business segment produced revenue of $872,481 for the quarter
ended September 30, 1999, as compared to $96,546 for the quarter ended September
30, 1998. Conversely, there has been a gradual decline in the emphasis on
intelligent vending machine income with revenues of $295,493 during the quarter
ended September 30, 1999 versus $338,411 in the prior period. Medical
transaction processing revenues for the three months ended September 30, 1999
include revenues of $567,000 which represent amounts received or accrued during
the period from the licensing of the Company's One Medical System as well as
revenues of $172,567 relating to the Company's agreement with SBME.
In July 1999 the Company licensed its rights to the One Medical Service Network
to an unrelated third party for $1,377,000 of which $300,000 was paid by
September 30, 1999, $267,000 of which is to be paid by January 5, 2000 and the
remainder of which ($810,000) will be paid in accordance with the terms of an
unsecured promissory note which is payable prior to July 2006. Goodwill
associated with the acquisition of One Medical Services was reduced by $280,521
and charged to depreciation and amortization during the quarter.
Effective July 1999, the Company entered into an agreement with MedCard
Management Systems, Inc, whereby Medcard assigned the revenues to its wholly
owned subsidiary, Suffolk County Medical Economics (SBME), in exchange for the
Company's agreement to reimburse MedCard for SBME's expenses. Any profits earned
by SBME will be allocated between the Company and SBME based upon a
predetermined formula. The Company recognized $172,567 of income related to this
agreement during the quarter ended September 30, 1999 and a comparable amount of
expense which was included in cost of sales for the period. Pursuant to the
terms of the agreement with SBME, the Company was not entitled to any of SBME's
profits during the quarter ended September 30, 1999.
Gross profit for the three months ended September 30, 1999 totaled $884,910 with
a margin of 76% due to the introduction of the higher gross margin of the new
business segments and the licensing revenue related to the One Medical System.
The comparable margin last year was $230,948 or 61%.
Selling and marketing, and general and administrative expenses are lower for the
quarter ended September 30, 1999 compared to the same period last year as a
result of several factors. The Company realized the benefits of cost reductions
made during the latter part of the prior fiscal year and during the current
fiscal year. Additionally, in the prior year, the Company incurred significant
start-up costs related to its new lines of business and the expansion of its
other business segments.
<PAGE>
The Company continues to concentrate its efforts on the development of its
auction site, Medstore and Justmed on-line verification and billing system
through its Justmed.com health portal. The continued development of these
operations to business on-line applications will contribute to the majority of
the Company's revenue in the future.
Liquidity and Sources of Capital
During the quarter ended September 30, 1999, the Company's operating cash
requirement was $509,638, attributable to a net loss of $(870,102) mitigated by
non-cash charges for depreciation and amortization ($518,070) and stock and
option based services ($293,911). This shortfall was primarily funded by the
sale of common stock for $430,952. Partially offsetting this funding were
capital expenditures of $79,458.
The Company used its previously restricted cash to pay its line of credit,
resulting in the $250,000 decrease in cash during the period. (See Note 2 to the
accompanying financial statements).
The $1,607,738 net loss for the nine months ending September 30, 1998 was funded
by a $283,645 charge for stock based compensation (to conserve cash) and
proceeds of $1,214,625 from the private sale of the Company's common stock.
The Company expects to incur additional losses during the quarters ending
December 31, 1999 and March 31, 2000, although the Company is forecasting a
profit before depreciation and amortization for the quarter ending March 31,
2000. The Company is forecasting a profit during the quarter ending June 30,
2000, both before and after depreciation and amortization. Improvement in
operating results is expected to be the result of increased revenues from the
MedCard transaction system and the release of an advanced version of MedCard
system which will allow the Medcard system to operate on-line, thereby
eliminating the need for a separate processing terminal. The Company believes
that it will be able to raise additional capital to fund operating losses
through the private sale of its securities.
There can be no assurance that the Company's projections in this regard will be
accurate or that the Company will ever earn a profit.
Year 2000 Issue
The Year 2000 issue does not materially affect the Company's computer systems,
software or other business systems. The Company has conducted a review to
identify areas that could be affected and has developed an implementation plan
to ensure compliance. The Company believes that with modifications to existing
software the issue will not pose significant operational concerns nor have a
material impact on financial position or results of operations. The costs of
modifications is not expected to be material and will be expensed as incurred.
The Company has requested that its major independent suppliers and providers
confirm that they will be Year 2000 compliant.
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Note 7 to the Company's accompanying financial statements describes the
issuances of the Company's securities during the three months ended September
30, 1999. The Company relied upon the exemption provided by Section 4 (2) of the
Securities Act of 1933 in connection with the sale of its securities. The shares
and warrants described in Note 7 are "Restricted Securities" as that term is
defined in Rule 144 of the Securities and Exchange Commission.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits are filed with this report
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
MEDCOM USA, INCORPORATED
By: /s/ Mark Bennett
Mark Bennett, President
/s/ Alan Ruben
Alan Ruben
Chief Financial Officer
Date: November 16, 1999
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