SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
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)
N/A
--------------------------------- ---
(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 May 12, 2000 the Company had 31,564,463 shares of Common Stock issued and
outstanding.
<PAGE>
Part 1. Financial Information
Item 1. Index to Financial Statements
MEDCOM USA, INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets at
March 31, 2000 and June 30, 1999 3-4
Consolidated Statements of Operations for the Three and Nine Months
Ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 2000 and 1999 6
Consolidated Statement of Stockholders' Equity
for the Nine Months Ended March 31, 2000 7
Notes to Consolidated Financial Statements. 8-17
Management's Discussion and Analysis of
Financial Condition and Results of Operations. 17-20
Part II Other Information 21
Signatures 22
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
2000 1999
----------- -------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $4,742,409 $189,772
Restricted cash -- 250,000
Accounts receivable, less allowance for
doubtful accounts of $61,279 at March 31,
2000 and $31,811 at June 30, 1999 493,078 250,913
Inventories (Note 5) 251,925 227,033
Prepaid expenses and other current assets 219,773 100,337
Notes receivable, current portion (Notes 2 and 5) 113,000 150,000
------- -------
Total Current Assets 5,820,185 1,168,055
PROPERTY AND EQUIPMENT,
Property and Equipment net of accumulated depreciation of
$2,450,043 at March 31, 2000 and $2,106,053 at June
30, 1999 2,016,705 2,296,643
OTHER ASSETS
Notes receivable, less allowance of
$709,329 and $575,602 At March 31, 2000
and June 30, 1999, respectively
(Notes 2 and 5) 834,171 241,200
Licensing rights, net of accumulated amortization 839,351 885,558
Patents, net of accumulated amortization 273,684 327,299
Royalty advances 673,105 515,907
Goodwill, net of accumulated amortization 520,375 819,299
Other 90,643 120,901
------- -------
Total Other Assets 3,231,329 2,910,164
--------- ---------
Total Assets $11,068,219 $6,374,862
=========== ==========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
2000 1999
--------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 5) $361,175 $649,154
Accrued expenses 266,741 622,820
Borrowing under bank line of credit -- 250,000
Current portion of capitalized lease
obligations (Note 4) 48,000 43,432
Notes and loans payable (Note 3) 95,000 519,119
Current portion of deferred revenue (Note 5) 48,000 --
Dividends payable (Note 7) -- 58,025
------ -------
Total Current Liabilities 818,916 2,142,550
LONG TERM LIABILITIES
Capitalized lease obligations (Note 4) 88,524 125,706
Deferred revenue (Note 5) 727,500 --
------- --------
Total Long Term Liabilities 816,024 125,706
------- -------
Total Liabilities 1,634,940 2,268,256
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 10) -- --
STOCKHOLDERS' EQUITY (Note 7 and 9)
Preferred stock, Series A, B and C $.001
par value, 152,060 shares authorized - 50,000
(A), 100,000 (B) and 2,060 (C), 4,250 and
10,995 shares issued and outstanding at March
31, 2000 and June 30, 1999, respectively
(liquidation preference of $85,000) 4 11
Common stock $.0001 par value 40,000,000
shares authorized:
shares issued and outstanding -
31,402,334 and 16,727,506 at
March 31, 2000 and June 30, 1999,
respectively 3,140 1,673
Additional Paid In Capital 43,022,221 32,093,851
Accumulated Deficit (Note 6) (33,592,086) (27,988,929)
------------ ------------
Total Stockholders' Equity 9,433,279 4,106,606
---------- ---------
Total Liabilities and Stockholders' Equity $11,068,219 $6,374,862
============ ==========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
Revenues
Intelligent Vending Machines $104,548 $297,302 $577,024 $952,120
(Note 8)
Medical Transaction Processing 316,650 215,266 1,634,773 310,465
------- ------- --------- --------
Total Revenues 421,198 512,568 2,211,797 1,262,585
Cost of Services (exclusive of
depreciation and amortization
shown separately below (Note 8):
Intelligent Vending Machines 89,739 121,373 208,596 413,920
------ ------- -------
Medical Transaction Processing 139,610 67,509 564,671 91,258
------- ------ ------- ------
Total Cost of Services 229,349 188,882 773,267 505,178
------- ------- ------- --------
Gross Profit 191,849 323,686 1,438,530 757,407
Operating Expenses
General & Administrative (Note 2,525,155 1,281,725 5,404,922 3,509,693
7)
Depreciation and Amortization 260,266 271,669 1,026,304
749,844
Selling & Marketing 132,403 201,696 534,428 855,159
------- ------- ------- -------
Total 2,917,824 1,755,090 6,965,654 5,114,696
--------- --------- --------- ---------
Expenses
Operating Loss (2,725,975) (1,431,404) (5,527,124)(4,357,289)
Other income (expense)
Interest income 31,090 3,124 65,660 18,814
Interest expense (20,036) (63,584) (71,935) (200,755)
-
Other 6,500
-------------------------- ---------------- -----
-- -- --
11,054 (60,460) (6,275) (175,441)
--------- -------- -- ------- ---------
Loss before income taxes (2,714,921) (1,491,864) (5,533,399) (4,532,730)
Income Tax Provision
10,934 -- 13,334 --
------ -------------- ------ ----------
Net Loss (2,725,855) (1,491,864) (5,546,733)(4,532,730)
Preferred stock dividend
(3,967) -- (56,424) --
------- -------------- -------- ---------
Net loss applicable to common
stockholders $(2,729,822) $(1,491,864) $(5,603,157) $(4,532,730)
============ =========== ============ ============
Basic and diluted net loss per $(.10) $(.13) $(.25) $(.46)
share
Weighted average common shares
outstanding basic and diluted 28,096,336 11,624,838 22,342,194 9,894,920
</TABLE>
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 2000 AND 1999
MARCH 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($5,546,733) ($4,532,730)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and Amortization 1,026,304 749,844
Imputed value of warrants granted for
services and interest 729,578 222,736
Stock issued for services 1,704,294 849,785
Increase in allowance for uncollectable
receivables 286,529 --
Changes in assets and liabilities:
Inventories 45,999 21,780
Accounts receivable (272,165) (63,574)
Prepaid expenses and other current
assets (66,377) (83,097)
Notes receivable (28,000) --
Accounts payable, accrued expenses
and other (507,185) 283,218
Royalty advances (157,198) --
Deferred revenue (34,500) --
--------------------------
NET CASH USED IN OPERATING ACTIVITIES (2,819,454) (2,552,038)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs paid -- (465,454)
Capital expenditures (182,601) (484,046)
Change in other assets 19,545 (409,028)
NET CASH USED IN INVESTING ACTIVITIES (163,056) (1,358,528)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 450,000
Proceeds from exercise of warrants and
options 2,094,546 --
Payments on debt (261,214) (313,691)
Payments on obligations under capital
leases (32,614) (66,876)
Proceeds from capital leases -- 725,940
Payments related to redemption and
dividends on preferred stock (232,446) --
Net proceeds from issuance of common
stock 5,716,875 1,801,686
Net proceeds for issuance of Series "C"
preferred stock -- 1,446,845
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,285,147 4,043,904
--------- ---------
NET INCREASE IN CASH (Notes 7 and 11) 4,302,637 133,338
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 439,772 263,878
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,742,409 $397,216
========== ========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 2000
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK COMMON STOCK
SERIES A SERIES C
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 $32,093,851 ($27,988,929) $4,106,606
Net loss - nine months ended
March 31, 2000 (5,546,733) (5,546,733)
Issuance of common stock for cash
at prices ranging from $.45 to $4.00
per share net of $590,075 of expenses 6,137,645 614 5,716,261 5,716,875
Issuance of common stock in
exchange for preferred
stock (5,000) (5) (1745) (2) 3,725,800 372 (118,362) (117,997)
Issuance of common stock as
required by existing agreements 533,331 53 (53) --
Issuance of common stock for
services and equipment 1,561,500 157 1,306,890 1,307,047
Issuance of common stock for
accounts payable and lease payments 256,839 25 186,098 186,123
Imputed value of stock warrant
grants in exchange for consulting
services and other items 867,346 867,346
Exercise of warrants and options 1,809,538 181 2,094,365 2,094,546
Issuance of common stock to employees
and directors 162,629 16 449,993 450,009
Dividend on Series C Preferred stock (56,424) (56,424)
Issuance of common stock for
conversion of notes payable and
accrued interest ____ ______ _____ ______ 487,546 49 425,832 __________ 425,881
---------- ------ ----------- ---------
Balance - March 31, 2000 4,250 $ 4 -- $ -- 31,402,334 $3,140 $43,022,221 ($33,592,086) $9,433,279
===== ========= ========= =========== ========== ======= =========== ============ ==========
</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 nine-month period ended March 31, 2000
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/A.
Principles of Consolidation
The consolidated financial statements include 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, Inc., 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 movie video cassettes, terminals that are held
for sale and other associated miscellaneous parts and are recorded at the lower
of cost or market determined by the first-in, first-out method.
<PAGE>
Note 1 - Organization and Significant Accounting Principles, Continued
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
(Loss) Per Common Share
(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 and royalty income and the
balance is over seven years.
Revenue Recognition
Revenues from the sale of intelligent vending equipment are recognized upon
delivery of the equipment. Revenue related to the providing of technical and
other support related to the One Medical Services Program is recognized as the
services are rendered. Revenue from the sale of MedCard units is recognized upon
shipment. Revenue from the billing services using the MedCard System are
recorded at the time the billing service is rendered at the expected net
realizable value of the Company's share of the monies to be collected. Revenue
is recognized upon the sale of phone cards at the time of the sale. Revenue on
the rental of cellular phones through ACDC machines is recognized at the time
the rental is completed. Processing fees related to medical transactions and
financial processing are recognized as revenue at the time the transaction is
completed. Deferred gross profit on equipment, which has been sold and leased
back is recognized over the term of the resulting lease. Automated movie rental
revenues are recognized at the time of rental and upon usage of prepaid movie
cards (where applicable).
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 - Notes Receivable
The Company had an unsecured note receivable for $150,000 from an unrelated
company, which was guaranteed by the unrelated company's president and majority
stockholder. The unrelated company had been making interest payments and had
stated that they intended to pay the debt in
<PAGE>
Note 2 - Notes Receivable, Continued
full. However, the Company has not received any recent payments and the
Company's legal counsel has been unable to locate the individual. Therefore, the
Company has recorded a reserve for the full amount of the note plus all accrued
interest receivable.
The Company also has a note receivable for $664,000 related to equipment
previously sold to a customer. No payments have been received on this note and
the Company has recorded an allowance of $559,329 reducing the net balance to
$104,671, which approximates the value of the underlying collateral.
The Company advanced DCB Actuaries and Consultants, s.r.o. (see Note 9) $65,000.
This amount is included in notes receivable, current portion on the accompanying
consolidated balance sheet.
Note 3 - Notes and Loans Payable
Notes payable consists of the following at December 31, 1999:
8% Convertible note payable, principal due May 1998. Debt includes
conversion to common stock feature with conversion rate of
$1.25 per share. Currently in default. $25,000
Convertible bridge financing note -bearing interest at 11%,
principal due on November 1, 2000 and interest on demand.
Debt includes conversion to common stock feature at $.70
per share.
70,000
Total $95,000
=======
Note 4 - Capitalized Lease Obligations
The Company leases various equipment under capitalized leases. The leases bear
interest at 13-19% and are payable in monthly installments. At March 31, 2000,
the Company owed $136,524 of which $48,000 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(Licensee) The Company
received $567,000 during the nine months ended March 31, 2000. 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. The deferred
revenue related to this note is being recognized as revenue as the royalties are
earned. $34,500 of revenue has been recognized during the nine months ended
March 31, 2000. The Licensee can convert the moneys paid for royalty and
licensing fee into an eighty-one percent (81%) ownership interest in One Medical
Service. It can acquire the remaining nineteen percent (19%) for the greater of
$132,000 or the fair market value of such interest. The Licensee also
<PAGE>
Note 5 - License and Other Agreements, Continued
agreed to purchase approximately $200,000 of the Company's inventory on an as
needed basis and related accounts payable. Such inventory is being released to
the Licensee as requested at which time the Licensee pays the related accounts
payable. The Licensee acquired approximately $186,000 of this inventory during
the nine months ended March 31, 2000. The Licensee hired the full time employees
involved with this operation. The Company retained as employees those persons
who devoted less than full time to the One Medical Services Network. These
people primarily provide technical support, installations, repairs, maintenance
of the underlying software and billing support. The Company charges the Licensee
for these services on a time and materials basis. The Licensee also assumed
other overhead associated with the One Medical operation.
In November 1998, the Company purchased certain assets of MedCard Management
Systems, Inc., along with the licensing rights to the MedCard name and the
MedCard System software and
network. (See Note 9)
Note 6 - Continuing Operations
The accompanying financial statements have been prepared on a going concern
basis that contemplates the realization of assets and liquidation of liabilities
in the ordinary course of business. The Company has continued to suffer
recurring losses from operations. The consolidated financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern. If the Company is unable to generate profits from
operations or raise additional equity financing, it may not be able to continue
as a going concern. See additional discussion in the Company's Form 10-KSB/A for
the year ended June 30, 1999. If the Company is unsuccessful in obtaining
additional funding for its operations, it would if necessary, either sell assets
or divisions, or scale back and otherwise reorganize its operations to the
extent necessary to reduce costs to be equivalent to its revenues and sources of
capital.
Note 7 - Stockholders' Equity
During the nine months ended March 31, 2000, 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 200,000 shares of common stock at $.56 per share in a private
placement raising $112,000. The Company also issued a five-year warrant to
purchase 40,000 shares of common stock at $.59 per share, with a cost of
$16,481, based upon an imputed value of $.41 per share.
The Company issued 1,111,111 shares of common stock at $.45 per share in a
private placement to a single investor raising $450,000, net of $50,000 in
offering costs. The Company also issued
<PAGE>
Note 7 - Stockholders' Equity, Continued
a three-year warrant to purchase 200,000 shares of common stock at $1.00 per
share, with a cost of $39,581, based upon an imputed value of $.20 per share.
Additionally, the Company issued 300,000 shares of common stock as a penalty for
not having completed its registration statement within the required time frame
pursuant to the private placement agreement. The imputed value of such a penalty
was $442,320.
The Company issued 3,346,833 shares of common stock at $.56 per share in a
private placement raising $1,729,362, net of $153,233 of offering costs. The
Company also issued three-year warrants to purchase 669,367 shares of common
stock at $.59 per share, with a cost of $213,910, based upon an imputed values
of between $.31 and $.34 per share.
The Company issued 100,000 shares of common stock at $.78 per share in a private
placement raising $69,509, net of $8,591 of offering costs. The Company also
issued three-year warrants to purchase 20,000 shares of common stock at $.82 per
share, with a cost of $9,403, based upon an imputed value of $.47 per share.
The Company issued 25,000 shares of common stock at $2.06 per share in a private
placement raising $45,902, net of $5,673 of offering costs. The Company also
issued three-year warrants to purchase 5,000 shares of common stock at $2.17 per
share, with a cost of $6,210, based upon an imputed value of $1.41 per share.
The Company issued 808,750 shares of common stock at $4.00 per share in a
private placement raising $2,879,150, net of $355,850 of offering costs. The
Company also issued three-year warrants to purchase 161,750 shares of common
stock at $4.69 per share, with a cost of $216,360, based upon an imputed value
of $1.34 per share.
The 6,137,645 shares issued during the nine months ended March 31, 2000, were
sold at discounts ranging from 0% to 23% of the then prevailing market price of
the Company's common stock since the shares were restricted from sale in public
markets. None of these shares were issued to the Company's employees. No
compensation expense has been recorded in connection with any of the issuances
below market due to the restrictions.
The Company issued 800 shares of common stock for the conversion of 5,000 shares
of Series A preferred stock.
The Company retired all of its outstanding Series C preferred stock during
January 2000. Outside investors purchased 1,445 shares of the Series C preferred
stock and converted them into 2,890,000 shares of the Company's common stock.
The Company paid $160,567 to the converting former Series C stockholders as
payment in full of all dividends ($94,937) and other amounts to which they were
entitled. The owner of 300 shares of the Series C preferred stock converted its
Series C preferred stock into 600,000 shares of the Company's common stock. The
Company issued an additional 60,000 shares of its common stock and a warrant to
purchase 132,000 of the Company's common stock at a price of $0.75 per share at
any time prior to December 22, 2002 (imputed value of $81,393 or $.62 per share)
to this stockholder as payment in full of all dividends ($19,512) and other
amounts to which it was entitled. For assisting in arranging the conversion of
the preferred shares, the Company issued 175,000 shares of common
<PAGE>
Note 7 - Stockholders' Equity, Continued
stock to a financial consultant and $26,400 was paid to another consultant. The
Company also incurred legal fees totaling $45,478 related to this transaction.
The Company issued 1,561,500 shares of its common stock for $1,307,047 of
services and equipment received. Additionally, the Company issued three-year
warrants to purchase a total of 1,285,000 shares of its common stock at prices
ranging from $.52 to $5.00 per share, with a combined cost of $486,557, based on
imputed values from $.19 to $1.55 per share.
The Company issued 84,571 shares of its common stock in payment of $89,653 of
previously existing accounts payable.
The Company issued 172,268 shares of common stock in payment of $43,412 of
accounts payable related to leased equipment and $53,058 as a prepayment on
future lease payments.
The Company issued 487,546 shares of common stock in payment of $425,881 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 176,334
shares of common stock at prices ranging from $.59 to $1.00 per share to the
holders of the Series C preferred stock and a certain note holder. Warrants to
purchase 60,000 of the shares expire in 2002 and the balance expires in 2004.
$103,317 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 233,331 shares of common stock to an existing stockholder as
required under the original conversion agreement.
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 values ranging from $0.19 to
$0.58 per share. During March 2000, two holders of warrants to purchase 200,000
Justmed.com shares converted them into warrants to purchase of 400,000 shares
the Company's common stock at $8.56 per share, pursuant to the original terms of
the agreement. The Company also issued to an unrelated party (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 was ascribed
to this warrant as the fair value was determined to be $0.
The Company issued 157,679 shares of common stock to employees and directors of
the Company under the Stock Bonus Plan during the nine months ended March 31,
2000, with a total
<PAGE>
Note 7 - Stockholders' Equity, Continued
compensation cost of $430,328. The Company also issued 4,950 shares of common
stock to employees of the Company not under the Stock Bonus Plan during the nine
months ended March 31, 2000, with a total compensation cost of $19,681.
The total value of the above mentioned stock and warrants that is included in
general and administrative expenses in the accompanying consolidated statements
of operations was $1,285,666 and $473,500 for the three months ended March 31,
2000 and 1999, respectively and $2,484,403 and $838,412 for the nine months then
ended.
During the nine months March 31, 2000 the Company received $2,094,546 upon the
exercise of warrants and options to purchase 1,809,538 shares of the Company's
common stock. This included the issuance of 536,668 shares as cashless
exercises.
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 issued five-year options to purchase 1,495,000 shares of
common stock to officers and directors of the Company under the Non-Qualified
Stock Option Plan during the three months ended December 31, 1999. The options
have an exercise price of $.5625 per share (unrecognized imputed charge of
473,522, or $.32 per share). The Company also issued an option to purchase
100,000 shares of common stock to an officer of the Company under the Incentive
Stock Option Plan during the three months ended December 31, 1999. The option
has an exercise price of $1.00 per share and vests ratably over a two-year
period (unrecognized imputed charge of $23,051 or $.23 per share). The Company
issued five-year options to purchase 90,000 under the Incentive Stock Option
Plan and 710,000 shares of common stock to officers and directors of the Company
not under any stock option plans, respectively, during the quarter ended March
31, 2000. These options have an exercise price of $5.00 per share (unrecognized
imputed charge of $1,540,882, or $1.93 per share). 200,000 of the options vest
monthly over one year and the balance are fully vested. The Company also issued
five-year options to purchase 179,000 and 40,000 shares of common stock to
employees of the Company under the Incentive and Non Qualified Plans,
respectively. The options have an exercise price of $5.00 per share
(unrecognized imputed charge of $421,816, or $1.93 per share). 100,000 of the
options vest monthly over two years and the balance vest annually over two
years.
The Company uses the Black Scholes option pricing model to determine the imputed
value of all options and warrants issued, using the following assumptions:
<PAGE>
--------------------------------------------------------------------------------
Quarter Ended Quarter Ended Quarter Ended
September 30, 1999 December 31, 1999 March 31, 2000
--------------------------------------------------------------------------------
Expected life 2 to 3 years 2 to 3 years 2 to 3 years
--------------------------------------------------------------------------------
Volatility 96% 81% 48% to 91%
--------------------------------------------------------------------------------
Risk free interest 6% 6.5% 6.5%
rate
--------------------------------------------------------------------------------
Dividend rate 0% 0% 0%
--------------------------------------------------------------------------------
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 in
Florida and California. The medical transaction segment includes insurance claim
verification and processing, the One Medical licensing and royalty revenue and
other related income. The medical transaction processing segment utilizes a
communication and transaction processing terminal that allows on-line
verification of health insurance and the processing of medical claims with
various health insurance providers.
Operating results and other financial data are presented for the two reportable
segments of the Company for the nine months ended March 31, 2000 and 1999.
Results for the nine months ended March 31, 1999 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 and royalty
revenue. Cost of services includes costs associated with net revenue within the
segments. Segment income (loss) does not include general and administrative,
selling and marketing, and other income (expense) items or income taxes.
Identifiable assets for each operating segment consist of receivables,
inventory, prepaid expenses, net property and equipment and goodwill. Corporate
assets are cash, patents, and notes receivable related to a previously
discontinued segment:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net- Cost of Depreciation Segment Profit Identifiable
Revenues Services & Amort. (Loss) Assets
March 31, 2000:
--------------
Intelligent Vending
Machines $577,024 $208,596 $643,198 $(274,770) $1,751,738
Medical
Transaction
Processing $1,634,773 $564,671 $327,741 $742,361 $4,025,037
Corporate & Other -- -- $ 55,365 $ (55,365) $5,291,444
------------------------------------------------------------
Consolidated $2,211,797 $773,267 $1,026,304 $412,226 $11,068,219
==========
Selling, General
& Administrative and other $5,945,625
---------
Loss Before Income Taxes $(5,533,399)
===========
<PAGE>
Note 8 - Business Segments, Continued
March 31, 1999
Intelligent Vending
Machines $952,120 $413,920 $606,567 $ (68,367) $4,273,506
Medical
Transaction
Processing $ 310,465 $ 91,258 $ 87,912 $ 131,295 $2,413,213
Corporate & Other -- -- $ 55,365 $(55,365) $ 345,755
---------------------------------------------- ----------
Consolidated $1,262,585 $505,178 $749,844 $7,563 $7,032,474
======= =========
Selling, General
& Administrative and other $4,540,293
---------
Loss Before Income Taxes $(4,532,730)
===========
</TABLE>
Medical transaction processing revenues for the nine months ended March 31, 2000
include revenues of $567,000 which represent amounts received or accrued during
the period from the licensing of the Company's One Medical System Goodwill
associated with the acquisition of One Medical Services was reduced by $306,762
and charged to depreciation and amortization during the nine months ended March
31, 2000.
Note 9 - Subsequent Events
The Company issued 125,000 shares of its common stock in April 2000 in a private
placement raising $445,000 net of $55,000 of offering costs. The Company also
issued three year warrants to purchase 25,000 shares of common stock at prices
of $4.69 per share, with a cost of $33,441, based upon an imputed value of $1.34
per share.
In April 2000, the Company acquired a 100% interest in DCB Actuaries &
Consultants, s.r.o. (DCB), a Czech Republic based company, as well as certain
intellectual property from DSM, LLC a Florida Limited Liability Company (DSM).
Total consideration paid for these acquisitions was $5,000,000, which consisted
of $1,900,000 paid to the former owners of DCB and the member of DSM, $250,000
to be paid as bonuses to the employees of DCB and $2,850,000 of Series D
preferred stock. The Series D preferred stock is convertible into common shares
at a conversion rate of $4.94 per share of common stock based upon the face
value of the preferred stock. The stock has an annual cumulative dividend rate
of 4%. The Company paid a fee of $250,000, which was comprised of $100,000 and
37,128 shares of the Company's common stock to the individual that functioned as
the broker for these transactions, plus approximately $140,000 of other
professional fees related to these transactions.
<PAGE>
Note 9 - Subsequent Events, Continued
In May 2000 the Company acquired from the original Licensor all rights to the
MedCard System including all programs, intellectual property, trade names and
existing contracts. This acquisition effectively terminates the original License
Agreement, except that the royalty provisions of the original License Agreement
remain in effect for the same period of time. In consideration for this
acquisition, the former Licensor received 100,000 shares of the Company's
restricted stock and a three-year warrant to purchase 400,000 shares of the
Company's common stock at $3.57 per share, with a cost of $449,446 based upon an
imputed value of $1.12 per share.
The value of the options issued subsequent to March 31, 2000 were determined
using the Black Scholes option pricing model with the following variables:
expected life - 2 years; volatility - 48%; risk free rate of interest - 6.5%;
and annual dividend rate - 0%.
Note 10 - Commitments & Contingencies
A consultant has informed the Company that it intends to take legal action
against the Company regarding the non-issuance of 200,000 shares of the
Company's common stock, which the consultant alleges it earned. The Company
believes that this claim is without merit, as the consultant did not perform any
of the required services. The Company intends to vigorously defend this matter
if it should arise. In March 2000, the Company received a notice that the
consultant filed a demand for arbitration. The matter has been scheduled for
arbitration for July 31, 2000.
A former member of the Company's Board of Directors filed a claim against the
Company in March 2000 claiming that he should have received 25,000 shares of the
Company's restricted common stock and options to purchase 75,000 shares of the
Company's common stock at prices ranging from $.01 to $2.20 per share. The
Company believes the claim is without merit, and as such, it intends to actively
dispute this matter.
In December 1998, an individual filed a complaint against the Company seeking
$250,000 plus interest and legal costs related to loans made to the Company in
1994. The matter was inactive until March 2000, at which time the plaintiff
began to pursue the matter. The Company is actively defending the claim. The
Company believes the claim is without merit as the loans had either been repaid
or converted into franchises for sale of ACDC units.
In March 2000, the Company was served with a summons naming it as a cross
defendant in an action between a former owner of One Medical Services, Inc. and
a third party. The former One Medical Services, Inc. owner had originally sued
the third party for collection of amounts he alleges he was due. The third party
then filed a counter claim for $300,000 plus costs against this individual,
while also naming the Company as a co-defendant. The Company believes that it
should not be a party to this matter as it had no involvement with the issue.
The former One Medical Services, LLC owner has indemnified the Company against
any losses it may incur as a result of this entire matter, other than the
Company's initial legal costs incurred in its attempt to be removed from the
claim.
<PAGE>
The Company is also involved in various legal matters that arise during the
normal course of business. The Company believes that none of the items referred
to above will have a material adverse effect on the Company's financial position
or results of operations.
Note 11 - Supplemental Disclosures of Cash Flows Information
Cash paid for interest and income taxes was as follows:
Nine Months Ended March 31,
2000 1999
----- ----
Interest $69,246 $128,370
Income taxes $13,334 --
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three and Nine Months Ending March 31, 2000
Total revenues increased from $1,262,585 during the nine months ended March 31,
1999 to $2,211,797 during the nine months ended March 31, 2000. All of this
increase is attributed to the medical transaction processing, which actually
accounted for an increase of $1,324,308, while the intelligent vending machine
income declined by $375,096 during these periods. The Company is in a state of
transition with its expansion and focus on the Medical Transaction Processing
Segment. Conversely, there has been a decline in the emphasis on intelligent
vending machine income. Total revenue decreased from $512,568 to $421,198 during
the three months ended March 31, 1999 and 2000, respectively. Medical
transaction processing income increased from $215,266 to $316,650 and
intelligent vending machine revenues decreased from $297,302 to $104,548 during
the three months ended March 31, 1999 as compared to March 31, 2000.
Medical transaction processing revenues for the nine months ended March 31, 2000
include revenues of $601,500 which represent amounts received or accrued during
the period from the licensing of the Company's One Medical System and related
royalty income
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 $567,000 was received by
February 2000. The remainder ($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
$15,309 and $306,726 and charged to depreciation and amortization during the
three and nine months ended March 31, 2000, respectively.
Cost of services for the medical transaction processing segment increased in
total dollars from $91,258 to $564,671, during the nine months ended March 31,
1999 and 2000, and from $67,509 to $139,610 for the three months then ended,
respectively. These numbers reflect an increase in cost of sales as a percentage
of revenue from 29% to 34% and from 31% to 44% for the nine and
<PAGE>
three months then ended. The change in the cost of sales percentage was the
result of this segment not being fully operational during the comparable period
of the prior year, the inclusion of the One Medical Services licensing revenue
in the current year as discussed above, and the mix in the levels of sales of
terminals versus processing revenues. Cost of services of the intelligent
vending machines decreased form $413,920 to $208,596, and from $121,373 to
$89,739 for the nine and three months ended March 31, 1999 and 2000,
respectively. This change in cost of sales percentage is the result of the
phasing out of certain aspects of the intelligent vending machine segment during
the year ended June 30, 1999.
Gross profit for the nine months ended March 31, 2000 totaled $1,438,530 with a
margin of 65%. The comparable margin last year was $757,407 or 60%. Gross profit
was $191,849, or 46% for the three months ended March 31, 2000, as compared to
$323,686, or 63% for the three months ended March 31, 1999. The decline is a
result of the shift from intelligent vending transactions to the medical
transaction processing segment.
General and administrative expenses were $1,895,229, higher for the nine months
ended March 31, 2000 compared to the same period last year primarily related to
an increase in equity based compensation for services, which increased from
$838,412 to $2,484,403, or $1,645,991. General and administrative expenses were
$1,243,430 higher during the three months ended March 31, 2000 as compared to
the same period last year. Of this increase, $812,166 was the result of an
increase in equity based compensation during the current three month period as
compared to the same period of the prior year. The Company also recorded a 100%
reserve against a note receivable in the amount of $150,000 during the quarter
ended March 31, 2000, as the Company and its legal counsel have been unable to
locate the borrower and increased the reserve on another note by $104,671. These
amounts were included in general and administrative expenses during the three
months ended March 31, 2000.
Depreciation and amortization increased form $749,844 to $1,026,304 during the
nine months ended March 31, 1999 and 2000, primarily related to the $280,521 of
amortization recorded related to the One Medical Services goodwill during the
quarter ended September 30, 1999. Aside from that item, depreciation and
amortization have remained consistent from year to year, with the additional
expense related to new assets and the MedCard License being offset by asset
dispositions, including the 520 scrip terminals sold in June 1999.
Selling and marketing expenses declined from $855,159 to $534,428 and from
$201,696 to $132,403 during the nine and three months March 31, 1999 as compared
to the periods ended March 31, 2000, respectively. The declines were the result
of several factors. First, during the prior year, the Company expended moneys on
marketing the Link scrip terminals, which were sold in June 1999. Second, the
Company stopped its sales and marketing efforts, including applicable salaries,
related to the One Medical Services in July 1999. Also, during the current
fiscal year, the Company was more focused on developing new products and
services, and integrating its existing technology, than on sales and marketing
of its older products.
Interest income increased during the current quarter and on a year to date basis
because of the higher cash balances maintained by the Company and the note
receivable related to the One Medical transaction.
<PAGE>
Interest expense declined by $128,820 and $43,548 during the nine and three
months ended March 31, 2000 as compared to the same period of the prior year
because of the reduction of notes payable and capital lease obligations, which
decreased from $1,605,114 at March 31, 1999 to $231,524 at March 31, 2000.
Income taxes recorded during the quarter ended March 31, 2000 related to
previously unrecorded taxes owed for prior years.
The Company incurred dividends related to the Series C preferred stock totaling
$56,424 and $3,967 during the nine and three months ended March 31, 2000,
respectively. There were no comparable amounts for the prior year as the Series
C preferred stock was not outstanding at that time. The number was lower during
the quarter ended March 31, 2000 because the Series C preferred stock was
retired during January 2000.
In May 2000, the Company acquired from the Licensor all rights to the MedCard
system, including all programs, intellectual property, trade names and existing
contracts. This acquisition effectively terminated the original License
Agreement, except that the royalty provisions of the original License Agreement
remain intact. The Company believes the acquisition of the associated rights to
the technology and the other aspects, along with the simultaneous termination of
the License Agreement will ensure its exclusive and perpetual use of the MedCard
System. In consideration for this acquisition, the former Licensor received
100,000 shares of the Company's restricted stock and a three-year warrant to
purchase 400,000 shares of the Company's common stock at $3.57 per share, with a
cost of $449,446 based upon an imputed value of $1.12 per share, using the Black
Scholes method. The acquisition did not alter the royalty arrangements of the
original License Agreement. The Company did not pay any royalties to the
Licensor during the quarter ended December 31, 1999.
In April 2000, the Company acquired 100% of the stock of DCB Actuaries &
Consultants SRO (DCB), a Czech Republic based company and certain technology and
intellectual property from DSM, LLC (DSM), a Florida limited liability company.
DCB developed and currently operates a health insurance decision support system
with advanced data structures. The purchase price of DCB was approximately
$2,500,000 and was comprised of the following:
Purchase price - preferred stock - Series D $ 494,000
Purchase price - cash 1,403,848
Direct costs of acquisition - cash (estimated) 135,763
Direct costs of acquisition - 12,880 shares
of common stock 52,037
Excess of liabilities over assets of DCB 412,480
Total acquisition value $2,498,128
==========
The purchase price of the technology and intellectual property acquired from DSM
was approximately $3,305,000 and was comprised of the following:
<PAGE>
Purchase price - preferred stock - Series D $2,356,000
Purchase price - cash 746,153
Direct costs of acquisition - cash (estimated) 104,488
Direct costs of acquisition - 24,249 shares
of common stock 97,963
Total acquisition value $3,304,604
==========
Each of the 2,850 shares of Series D preferred stock issued related to the
acquisition of DCB and the DSM technology are convertible into 202.4 shares of
the Company's common stock at any time at the option of the holder, for a total
of 576,923 shares of common stock. The Company can convert the Series D
Preferred shares into shares of Medcom's common stock, in the manner described
above, at any time after April 15, 2001 so long as the bid price of Medcom's
common stock exceeds $4.94 and the shares of common stock issuable upon the
conversion of the Series D Preferred shares are either covered by an effective
registration statement or are eligible for sale pursuant to Rule 144 of the
Securities and Exchange Commission.
DCB is a member of an international network of actuarial consulting firms,
Woodrow Milliman, an international network of actuarial and consulting firms
represented in 34 countries, employing over 3,000 people worldwide. DCB was
formed in 1991 and currently employs approximately 65 professionals in the Czech
Republic, primarily highly qualified software engineers, actuaries and
consultants.
DCB developed and operates a Health Information Gateway, which is a state of the
art, web-based infrastructure, featuring advanced data mining capabilities,
designed to meet the information needs of the worldwide health care industry in
a real time basis. The Health Information Gateway can be a valuable tool for
healthcare entities of almost any size, from the small physician group to the
large hospital chain or insurance company and plan.
There are four main components, each targeting a different group of users. They
include:
o Risk Management - Actuarial analysis and PMPM predictions (per member per
month predicted cost) are provided. These features are ideal for the
insurance company or managed care plan, as well as for a hospital
concerned with controlling its costs. This segment is of particular
interest to those involved with the financial implications of operating a
healthcare facility or insurance concern.
o Clinical Services - Electronic patient record system, critical care
pathways and electronic medical documents are available. On-line documents
include x-rays, diagnostic results, lab reports, EKGs and physician notes.
The electronic medical documents feature allows a healthcare provider to
review these patient critical documents on-line, possibly from home or the
office. More than one physician in multiple locations can also review the
records simultaneously. This has significant implications regarding the
ability to provide quick and effective consultations. This aspect can be
used by healthcare providers of any size, while improving the care given to
the patient. The critical care pathways can indicate a standard treatment
regimen based upon the patient's particular background and symptoms, as
compared to the actual course of action being followed. The Clinical
Services segment is
<PAGE>
geared towards the physicians and improving the overall standard of care and the
ability to enhance the ease by which it is given.
o Administrative and Management Functions - The Gateway can assist with
quality assurance and management, as well as claims analysis. Market and
sales scrutiny can also be accomplished. This aspect covers not only
certain of the financial concerns, but also enables the healthcare provider
(from the small physician practice to the large hospital organization or
insurance company) to review its performance, against its own goals or the
results of other similarly sized or located organizations. It provides a
barometer of their overall performance. The reporting features can be
tailored to meet the information needs of the user, whether they are a
small independent practitioner or a large healthcare chain.
o Patient Services - The patients will also benefit from the Health
Information Gateway. They will be able to monitor personal health
profiles, in addition to their own medical treatment histories. Early
warning and reminder alerts will also be available on line.
The Company intends to market DCB's Health Information Gateway to hospitals,
insurance companies, governmental agencies and consultants in the United States
and abroad. The Company will offer the Health Information Gateway in two
formats, a direct license of the technology to the end user, as well as
providing the service under an Application Service Provider (ASP) relationship.
By offering both alternatives, the Company believes it will be able to capture a
larger market share, since it will be able to accommodate the needs of different
sized organizations with varying budgetary constraints. The ASP center is
currently under construction in a newly leased facility in Florida.
DCB's has other products related to healthcare, pensions and medical insurance.
One such product is its "VFlex" product. VFlex stands for Virtual Flexible
Benefits. Using VFlex, employees will have the ability to administer their own
benefits over a company's intranet from anywhere in the world. The Company
anticipates marketing this program to large companies with multi-national
operations.
The Company continues to concentrate its efforts on the development of the
MedCard and DCB operations, The continued development of these business
applications will contribute to the majority of the Company's revenue in the
future.
Liquidity and Sources of Capital
During the nine months ended March 31, 2000, the Company's operating cash
requirement was $2,819,454, attributable to a net loss of ($5,546,733) mitigated
by non-cash charges for depreciation and amortization ($1,026,034) and the
issuance of stock and options for services ($2,433,872), which was done
primarily to preserve cash. This shortfall was funded by the sale of common
stock for $5,716,875, the proceeds of $2,094,546 from the exercise of warrants
and options to purchase common stock and the $567,000 licensing fee collected
that related to One Medical Service. Partially offsetting this funding were
capital expenditures of $182,601, the cash payment of $94,937 for dividends and
cash outlays related to the retirement of the Series C preferred stock of
$137,509.
<PAGE>
Because of the proceeds received from the sale of its common stock and the
exercise of options and warrants, the Company's cash balance as of March 31,
2000 was $4,742,409. During the nine months ended March 31, 2000, the Company
reduced its current liabilities from $2,142,550 to $818,916. Approximately
$560,000 of this reduction was the result of the conversion of notes payable and
other liabilities into common stock. The balance was the result of the payment
of the Company's debt, including $250,000 that was used to pay its line of
credit. The Company will have used approximately $2,400,000 of its existing cash
to acquire DCB Actuaries and Consultants, s.r.o., and the technology from DSM,
LLC, including estimated professional fees.
At March 31, 2000 the Company's stockholders' equity totaled $9.43 million and
net tangible assets was $8.91 million, compared to $4.11 million and $3.29
million, respectively as of June 30, 1999. When compared to June 30, 1999, the
Company's working capital went form a deficit of $974,495 to a positive
$5,001,269.
The $4,532,730 net loss for the nine months ended March 31, 1999 was funded by a
$1,072,521 charge for equity based compensation (to conserve cash) and proceeds
of $1,801,686 from the private sales of the Company's common stock and proceeds
of $1,446,845 from the sale of the Company's Series C preferred stock.
The Company expects to incur additional losses during the quarter ending June
30, 2000. The Company is forecasting a profit during the quarter ending December
31, 2000, for its MedCard division. The DCB division, including the Czech based
subsidiary, is expected to generate losses until the middle of the Company's
next fiscal year, as the Company begins an extensive marketing and promotion
campaign in the United States and develops the necessary personnel and
technological infrastructure. MedCom will incur significant costs related to the
start up of domestic operations for DCB. The Company is forecasting a
Company-wide net profit for the quarter ending December 31, 2000. Improvement in
operating results is expected to be the result of increased revenues from the
MedCard transaction system and the release of an on-line version of MedCard
system, as well as revenues from the sale or licensing of DCB technology and
services.
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.
Between April 1, 2000 and June 30, 2000, the Company raised approximately an
additional $445,000, net of expenses of $55,000 from the issuance of 125,000
shares of common stock at a price of $4.00 per share. All of these shares were
issued at prices below market because they were restricted from sale in public
markets. Additionally, the Company has received approximately $85,000 upon the
exercise of warrants to purchase 56,670 shares of the Company's common stock at
prices ranging from $1.50 to $1.54 per share.
The Company's auditors stated in their report on the Company's financial
statements for the year ended June 30, 1999 that due to MedCom's recurring
losses form operations there is substantial doubt as to MedCom's ability to
continue in business. The existence of such an explanatory paragraph in the
auditor's opinion can make it more difficult for the Company to raise or borrow
additional funds.
<PAGE>
Although the Company has reduced its cash requirements for normal operations
through the sale of the Link assets and the license of the One Medical Services
Network, it will still need cash to fund operating losses during the year ending
June 30, 2000. As of June 30, 2000 the Company had approximately $1,900,000 in
cash. The Company projects that it may need to obtain an additional $1,000,000
to fund its operations before its cash inflows equal its cash outflows,
depending upon whether the Company is able to finance some of its equipment
acquisitions. The Company is currently attempting to obtain such equipment
financing. The Company may also seek additional funding to be able to capitalize
upon the existing opportunity for both the MedCard System and DCB's health
Information Gateway. Obtaining this additional funding will allow the Company to
fully implement its business plan and to capitalize on the market potential in a
faster manner. There can be no assurance, however, that the Company will be
successful in obtaining additional funding. If the Company is unsuccessful in
obtaining additional funding for its operations, the Company will, if necessary,
either sell certain assets or divisions, reduce its operations or otherwise
reorganize its operations so that its operating expense would be less than its
revenues.
The $70,000 note payable was converted to 100,000 shares of the Company's common
stock in June 2000.
The Company had $25,000 of convertible notes payable that were in default as of
March 31, 2000 as the Company is unable to locate the lender.
Year 2000 Issue
The Company did not experience any issues related to the year 2000 issue.
However, the Company continues to monitor operations to identify any potential
problems. The Company believes that to the extent issues are subsequently
identified, if any, they will not have a material impact on the Company's
financial position or results of operations.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In March 2000 the Company was named as a defendant in a counter-claim
filed by Fitsum Worrede, Sammuel Petros and Westside Home Medical Equipment,
Inc. (collectively referred to as "Westside") in the Los Angeles, California
Superior Court. Westside's counter-claim requests damages of $300,000 and also
names Richard Neimerow, a former owner of the Company's One Medical Service
Division, as a defendant. The counter-claim was brought in response to a
complaint filed by Mr. Niemerow against Westside seeking a judgement for amounts
which Mr. Niemerow claims are owed to him by Westside. The Company does not
believe it has any liability to Westside and Mr. Neimerow has indemnified the
Company against any losses it may suffer as a result of Westside's claim.
On March 21, 2000 George Pursglove, a former director of the Company,
filed a complaint against the Company in the Circuit Court of Broward County,
Florida. In his complaint, Mr. Pursglove, a former director of the Company,
contends that in October 1998 the Company's Board of Directors adopted a
resolution granting Mr. Pursglove options to purchase 75,000 shares of the
Company's common stock as well as a bonus of 25,000 shares of common stock. The
Company has denied that its Board of Directors ever adopted the resolution
referred to in Mr. Pursglove's complaint.
See Item 3 to the Company's annual report on Form 10-KSB/A for the year
ended June 30, 1999 for information concerning the Company's other legal
proceedings.
Item 2. Changes in Securities.
Note 7 to the financial statements included as part of this report
discloses the shares of the Company's common stock that were issued or sold
during the nine months ended March 31, 2000. With the exception of the shares
issued pursuant to the Stock Bonus Plan, none of securities described in Note 7
were registered under the Securities Act of 1933.
The shares issued pursuant to the Stock Bonus Plan were registered by
means of a registration statement on Form S-8.
The shares issued upon the conversion of the Series A and Series C
preferred stock and in settlement of the notes payable were issued in reliance
upon the exemption provided by Section 3(a)(9) of the Act.
The remaining shares issued or sold during the quarter were issued or sold
in reliance upon the exemption provided by Section 4(2) of the Act. The persons
who acquired these shares were either accredited or sophisticated investors. The
shares of common stock were acquired for investment purposes only and without a
view to distribution. The persons who acquired these shares were fully informed
and advised about matters concerning the Company, including the Company's
business, financial affairs and other matters. The persons acquired these shares
for
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their own accounts. The certificates representing the shares of common stock
bear legends stating that the shares may not be offered, sold or transferred
other than pursuant to an effective registration statement under the Securities
Act of 1933, or pursuant to an applicable exemption from registration. The
shares are "restricted" securities as defined in Rule 144 of the Securities and
Exchange Commission.
In April 2000 Medcom issued 2,850 Series D Preferred shares in connection
with the acquisition of DCB Actuaries & Consultants and the technology from DSM
LLC.
Each Series D Preferred share is convertible at any time at the option of
the holder into 202.43 shares of Medcom's common stock. The Series D Preferred
shares will, at Medcom's option, convert into shares of Medcom's common stock,
in the manner described above, at any time after April 15, 2001 so long as the
bid price of Medcom's common stock exceeds $4.94 and the shares of common stock
issuable upon the conversion of the Series D Preferred shares are either covered
by an effective registration statement or are eligible for sale pursuant to Rule
144 of the Securities and Exchange Commission.
The Series D Preferred shareholders are entitled to receive cumulative
annual cash dividends of $40.00 per share payable each year on March 31. At
Medcom's option dividends may be paid in cash or in shares of Medcom's common
stock. For dividends paid in shares of common stock, the number of shares to be
issued will be determined by dividing the dollar amount of the dividends by the
average price of Medcom's common stock for the ten trading days ending three
days prior to the dividend payment date.
Each Series D Preferred share is entitled to 202.43 votes on any matter
submitted to Medcom's shareholders for their consideration and approval.
In the event of any liquidation, dissolution or winding up (voluntary or
involuntary) of Medcom, the holders of the Series D Preferred shares are
entitled to receive out of Medcom's assets available for distribution to
shareholders, and before any distribution of assets is made to holders of
Medcom's common stock, liquidating distributions in the amount of $1,000 per
share plus accumulated and unpaid dividends.
Item 6. Exhibits and Reports on Form 8-K:
Exhibit 4.5 Certificate of Designation of (1)
the Powers, Preferencesand Relative, -------
Participating, Option and Other Special
Rights of Preferred Stock and
Qualifications, Limitations and
Restrictions thereof, relating to Series D
Cumulative Convertible Preferred
Stock.
Exhibit 27 Financial Data Schedule
(1) Incorporated by reference to the same exhibit filed with the Company's 8-K
Report dated April 15, 2000.
Reports on Form 8-K:
During the three months ending March 31, 2000, the Company did not file any
reports on form 8-K.
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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
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Mark Bennett
President
/s/ Alan Ruben
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Alan Ruben
Principal Financial and Accounting Officer
Date: July 14, 2000
