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 December 31, 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)
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 February 11, 2000 the Company had 28,071,863 shares of Common Stock issued
and outstanding.
Page 1 of 20 Pages
<PAGE>
Part 1. Financial Information
Item 1. Index to Financial Statements
MEDCOM USA, INCORPORATED
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets at
December 31, 1999 and June 30, 1999 3-4
Consolidated Statements of Operations for the Three and Six Months
Ended December 31, 1999 and 1998 5
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1999 and 1998 6
Consolidated Statement of Stockholders' Equity
for the Six Months Ended December 31, 1999 7
Notes to Consolidated Financial
Statements. 8-15
Management's Discussion and Analysis of
Financial Condition and Results of Operations. 16-18
Part II 19
Signatures 20
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1999 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $473,845 $189,772
Restricted cash (Note 2) -- 250,000
Accounts receivable, less allowance for doubtful
accounts of $39,529 685,459 250,913
Inventories (Note 5) 436,622 464,074
Prepaid expenses and other current assets 164,103 100,337
Deposit (Note 9) 600,000 --
Notes receivable, current portion (Note 5) 289,750 150,000
------- -------
Total Current Assets 2,649,779 1,405,096
PROPERTY AND EQUIPMENT,
Property and Equipment net of accumulated
depreciation of $2,085,313 at December 31,
1999 and $1,696,194 at June 30, 1999 1,981,987 2,059,602
OTHER ASSETS
Notes receivable, less allowance of $575,062 956,700 241,200
Licensing rights, net of accumulated amortization 854,752 885,558
Patents, net of accumulated amortization 292,139 327,299
Royalty advances 520,725 515,907
Goodwill, net of accumulated amortization 535,683 819,299
Other 98,999 120,901
------- -------
Total Other Assets 3,258,998 2,910,164
Total Assets $7,890,764 $6,374,862
========== ==========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1999 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 5) $737,061 $649,154
Accrued expenses 640,926 622,820
Borrowing under bank line of credit (Note 2) -- 250,000
Current portion of capitalized lease obligations
(Note 4) 45,738 43,432
Notes and loans payable (Note 3) 447,119 519,119
Current portion of deferred revenue (Note 5) 48,000 --
Dividends payable 110,482 58,025
------- --------
Total Current Liabilities 2,029,326 2,142,550
LONG TERM LIABILITIES
Capitalized lease obligations (Note 4) 85,660 125,706
Deferred revenue (Note 5) 745,500 --
------- ----------
Total Long Term Liabilities 831,160 125,706
------- -------
Total Liabilities 2,860,486 2,268,256
--------- ---------
COMMITMENTS (Note 10) -- --
STOCKHOLDERS' EQUITY (Note 7 and 9)
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 and 6,995 shares
issued and outstanding at December 31, 1999 and
June 30, 1999, respectively (liquidation
preference of $1,849,000)(Note 9) 7 11
Common stock $.0001 par value 40,000,000 shares authorized:
shares issued and outstanding - 22,627,165 and
16,727,506 at December 31, 1999 and June 30, 1999,
respectively 2,263 1,673
Additional Paid In Capital 35,465,271 31,668,851
Accumulated Deficit (Note 6) (30,437,263) (27,563,929)
------------ ------------
Total Stockholders' Equity 5,030,278 4,106,606
---------- ----------
Total Liabilities and Stockholders' Equity $7,890,764 $6,374,862
=========== ===========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended December 31, 1999 and 1998
(Unaudited)
Three Months Six Months
Ended December 31 Ended December 31,
1999 1998 1999 1998
Revenues
Intelligent Vending Machines
(Note 8) $176,983 $338,407 $472,476 $ 676,818
Medical Transaction Processing
618,209 56,154 1,490,690 95,199
------- ------ --------- ------
Total Revenues
795,192 394,561 1,963,166 772,017
Cost of Sales 433,421 185,288 716,485 331,796
------- ------- ------- -------
Gross Profit
361,771 209,273 1,246,681 440,221
Operating Expenses
General & Administrative
900,109 946,480 1,681,030 1,863,056
Depreciation and Amortization
247,967 256,288 766,037 478,175
Selling & Marketing
266,865 288,188 402,025 653,463
Equity Based Compensation/Services 904,826 71,150 1,198,737 364,912
------- ------- -------- --------
Total Expenses 2,319,767 1,562,106 4,047,829 3,359,606
--------- --------- --------- ---------
Operating Loss (1,957,996) (1,352,833) (2,801,148) (2,919,385)
Other income (expense)
Interest income
28,550 8,832 34,570 15,690
Interest expense
(21,329) (89,127) (51,899) (137,171)
-------- -------- -------- ---------
Loss before income taxes (1,950,775) (1,433,128) (2,818,477) (3,040,866)
Income Tax Provision -- -- 2,400 --
--------- ---------- ---------- ---------
Net Loss (1,950,775) (1,433,128) (2,820,877) (3,040,866)
Preferred stock dividend (26,390) -- (52,457) --
-------- ---------- -------- ----------
Net Loss applicable to common
stockholders $(1,977,165) $(1,433,128) $(2,873,334) $(3,040,866)
============ ============ ========== ==========
Basic and diluted net loss per
share $(.10) $(.15) $(.15) $(.32)
Weighted average common shares
outstanding basic and diluted 20,647,575 9,720,650 19,094,823 9,535,471
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
DECEMBER 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($2,820,877) ($3,040,866)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and Amortization 766,037 478,175
Imputed value of warrants granted for
services and interest 456,721 222,736
Stock issued for services 742,016 376,275
Changes in assets and liabilities:
Inventories 27,452 (107,429)
Accounts receivable (434,546) (69,997)
Prepaid Expenses and Other Current Assets (10,707) (97,410)
Notes receivable (82,750) --
Accounts Payable and Accrued Expenses 234,828 431,163
Royalty advances (4,818) --
Franchise and customer deposits -- (10,042)
Other assets 14,760
Deferred Revenue ( 16,500) --
-------------------------
NET CASH (USED IN) OPERATING ACTIVITIES (1,128,384) (1,817,395)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs paid -- (465,454)
Capital expenditures (106,504) (400,070)
Change in other assets -- --
---------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES (106,504) (1,237,591)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 10,000 450,000
Payments on debt (263,000) (307,691)
Payments on obligations under capital leases (37,740) (27,485)
Proceeds from capital leases -- 619,058
Net proceeds from issuance of common stock 2,159,701 1,214,625
Funds paid on deposit to retire Series "C"
preferred stock (600,000) --
Net proceeds for issuance of Series "C"
preferred stock -- 1,246,846
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,268,96 3,195,353
NET INCREASE (DECREASE) IN CASH 34,073 140,367
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 439,772 263,878
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $473,845 $404,245
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the period for interest $ 40,523 $ 70,953
See notes to consolidated financial statements
<PAGE>
<TABLE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
<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 $31,668,851 ($27,563,929) $4,106,606
Net loss - six months ended
December 31, 1999 (2,820,877 (2,820,877)
Issuance of common stock for
cash at prices ranging from
$.45 to $.82 per share net
of $172,260 of expenses 4,118,895 412 2,159,289 2,159,701
Issuance of common stock in
exchange for preferred
stock (4,000) (4) 600 (4)
Issuance of common stock as
required by existing agreements 215,000 21 (21) --
Issuance of common stock for
services and equipment 1,157,500 116 743,068 743,184
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 594,489 594,489
Issuance of common stock to employees
and directors 56,314 6 31,530 31,536
Dividend on Series C Preferred stock (52,457) (52,457)
Issuance of common stock for
conversion of notes payable 94,511 10 81,967 81,977
and accrued interest ____ _____ _____ ______ _________ _____ _______ ________ _______
Balance - December 31, 1999 5,250 $ 5 1,745 $ 2 22,627,165 $2,263 $35,465,271 ($30,437,263) $5,030,278
===== ===== ===== ====== ========== ====== =========== =========== =========
See notes to consolidated financial statements
</TABLE>
<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 six-month period ended December 31,
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,
medical transaction processing 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>
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 terminals and equipment are recognized upon shipment.
Processing fee revenue is recognized at the time the underlying transaction is
processed. Service revenue is recognized when work is completed. Rental revenue
is recognized at the time of the movie rental.
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
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
<PAGE>
Note payable - non-interest bearing, payable in monthly
installments of $1,500 through June, 2000. This note was
converted to common stock in January 2000. 34,500
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
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.
Currently in default. 317,619
-------
Total $447,119
========
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 December 31,
1999, the Company owed $131,398 of which $45,738 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
$475,250 during the six months ended December 31, 1999 and received an
additional $91,750 during February 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 royalty payments are received.
$16,500 of revenue has been recognized during the six months ended December 31,
1999. 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 $186,000 of
this inventory during the six months ended December 31, 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 $500,000 of such
expenses of MedCard during the six months ended December 31,
<PAGE>
Note 5 - License and Other Agreements, Continued
1999. These expenses are included in general and administrative, and selling and
marketing expenses in the accompanying consolidated statements of operations.
Effective July 1999, the Company entered into an agreement with Medcard
Management Systems, Inc, whereby the owners of Medcard assigned the revenues of
Suffolk Bureau of 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 three months 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 three months ended September 30, 1999. This agreement was
subsequently rescinded in October 1999.
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. See additional discussion in the Company's Form
10-KSB for the year ended June 30, 1999.
Note 7 - Stockholders' Equity
During the six months ended December 31, 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 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 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 100,000 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 $64,800.
<PAGE>
Note 7 - Stockholders' Equity, Continued
The Company issued 2,261,833 shares of common stock at $.56 per share in a
private placement raising $1,166,749, net of $105,532 of offering costs. The
Company also issued three-year warrants to purchase 452,367 shares of common
stock at $.59 per share, with a cost of $140,404, based upon an imputed value of
$.31 per share.
The Company issued 600 shares of common stock for the conversion of 4,000 shares
of Series A preferred stock.
The Company issued 1,157,500 shares of its common stock for $743,184 of services
and equipment received. Additionally, the Company issued two three-year warrants
to purchase a total of 1,050,000 shares of its common stock at $1.00 per share,
with a combined cost of $213,700, based upon imputed values of $.19 and $.46 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 94,511 shares of common stock in payment of $81,977 of notes
payable and accrued interest.
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 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 115,000 shares of common stock to an existing stockholder,
with an imputed value of $74,520 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. 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 is
ascribed to this warrant as no significant services were rendered and the value
is not determinable.
<PAGE>
Note 7 - Stockholders' Equity, Continued
The Company issued 56,314 shares of common stock to employees and directors of
the Company under the Stock Bonus Plan during the six months ended December 31,
1999, with a total compensation cost of $31,536.
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 six 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 Qualified
Stock Option Plan during the six 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).
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 six months ended December 31, 1999 and 1998.
Results for the six months ended December 31, 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 and royalty
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
<PAGE>
Note 8 - Business Segments, Continued
each operating segment consist of receivables, inventory, prepaid expenses, net
property and equipment and goodwill. Corporate assets are cash, patents, deposit
relating to the retirement of the preferred stock 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 & Amortization (Loss) Assets
December 31, 1999:
Intelligent Vending
Machines $472,476 $118,857 $420,349 $(66,730) $2,234,154
Medical
Transaction
Processing $1,490,690 $597,628 $308,778 $584,284 $4,125,906
Corporate & Other -- -- $ 36,910 $(36,910) $1,530,704
-----------------------------------------------------------------------------
Consolidated $1,963,166 $716,485 $766,037 $480,644 $7,890,764
========== ======== ======== ======== ==========
December 31, 1998
Intelligent Vending
Machines $676,818 $308,047 $387,553 (18,782) $4,065,332
Medical
Transaction
Processing $ 95,199 $ 23,749 $ 53,712 $ 17,738 $2,356,393
Corporate & Other -- -- $ 36,910 $(36,910) $ 918,455
--------------------------------------------------------------------------
Consolidated $772,017 $331,796 $478,175 $ (37,954) $7,340,180
======== ======== ======== ========== ==========
</TABLE>
Medical transaction processing revenues for the six months ended December
31, 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 $291,417 and charged
to depreciation and amortization during the six months ended December 31, 1999.
Note 9 - Subsequent Events
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
<PAGE>
Note 9 - Subsequent Events, Continued
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 and other amounts to which they were entitled.
The owner of 300 shares of the Series C preferred stock converted its Series C
shares into 600,000 shares of the Company's common stock. The Company issued an
additional 60,000 shares of its common stock to this stockholder as payment in
full of all dividends and other amounts to which it was entitled. The Company
incurred additional fees totaling approximately $200,000 related to this
transaction.
The Company deposited $600,000 into an escrow account to facilitate the
retirement of the Series C preferred stock. The Company deposited an additional
$105,000 during January 2000. $509,000 of these funds will be subsequently
remitted to the Company in 2000 and the balance was used as settlement of the
required payoff to the former Series C stockholders and related legal fees.
The Company issued 1,310,000 shares of its common stock in January 2000 in
private placements raising $776,229 net of $67,498 of offering costs. The
Company also issued three year warrants to purchase 262,000 shares of common
stock at prices ranging from $.59 to $2.17 per share. The Company also issued
133,333 shares in January 2000 to existing shareholders as required pursuant to
the original purchase and conversion agreements.
As disclosed in Note 3, the Company converted debt totaling approximately
$30,000 to common stock in January 2000.
Note 10 - Commitments
A consultant has informed the Company that it may 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. 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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three and Six Months Ending December 31, 1999
The Company is in a state of transition with its expansion and focus on the
Medical Transaction Processing Segment. Conversely, there has been a gradual
decline in the emphasis on intelligent vending machine income. Medical
transaction processing revenues for the six months ended December 31, 1999
include revenues of $583,500 which represent amounts received or accrued during
the period from the licensing of the Company's One Medical System and related
royalty income, as well as revenues of $172,567 relating to the Company's
agreement with SBME. Substantially all of these revenues were recognized during
the three months ending September 30, 1999.
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 required to be
paid during the first six months according to a predetermined schedule. The
Company has received all of the initial cash payments ($567,000) 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 $10,896
and $291,417 and charged to depreciation and amortization during the three and
six months ended December 31, 1999, respectively.
Effective July 1999, the Company entered into an agreement with MedCard
Management Systems, Inc, whereby the owners of Medcard assigned the revenues of
Suffolk Bureau 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 three
months 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
three months ended September 30, 1999. This agreement was rescinded in October
1999.
Gross profit for the six months ended December 31, 1999 totaled $1,246,681 with
a margin of 63% due to 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 $440,221 or 57%. Gross profit was $361,771, or 45% for the three
months ended December 31, 1999, as compared to $209,273, or 53% for the three
months ended December 31, 1998.
Selling and marketing, and general and administrative expenses were $433,464
lower for the six months ended December 31, 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. These expenses were $67,694 lower for
the three months ended December 31, 1999 as compared to the same period last
year.
<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 and the expansion of the existing MedCard
transaction system. The continued development of these operations for business
on-line applications will contribute to the majority of the Company's revenue in
the future.
Liquidity and Sources of Capital
During the six months ended December 31, 1999, the Company's operating cash
requirement was $1,128,384, attributable to a net loss of $(2,820,877) mitigated
by non-cash charges for depreciation and amortization ($766,037) and the
issuance of stock and options for services ($1,198,737). This shortfall was
funded by the sale of common stock for $2,159,701. Partially offsetting this
funding were capital expenditures of $106,504.
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 $3,040,866 net loss for the six months ended December 31, 1998 was funded by
a $376,275 charge for stock based compensation (to conserve cash) and proceeds
of $1,214,625 from the private sale of the Company's common stock and proceeds
of $1,246,846 from the sale of the Company's Series C preferred stock.
The Company expects to incur additional losses during the quarter ending March
31, 2000. The Company is forecasting a profit during the quarter ending June 30,
2000, before depreciation and amortization and stock based compensation. The
Company is forecasting a net profit for the quarter ending September 30, 2000.
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, and the implementation of the auction site.
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.
The Company retired its Series C Preferred stock during January 2000. The
Company believes that the retirement of this stock will increase the Company's
ability to continue to raise capital through the sale of common stock by
removing the downward pressure resulting from the conversion feature of the
preferred stock.
The Company raised $776,229 during the month of January 2000 from private
placements. The Company believes that it will be successful at raising
additional funds that it may need to fund operations until such time as the
Company's operations generate positive cash flow. However, there can be no
assurance that the Company will continue to be able to raise the capital
necessary to fund its operations.
<PAGE>
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 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 six months ended December 31,
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, unless they were
issued pursuant to one of the Company's stock plans.
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 December 31, 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: February 11, 2000
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