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) 317,579 464,074
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 5,885,839 1,405,096
PROPERTY AND EQUIPMENT,
Property and Equipment net of accumulated
depreciation of $2,275,697 at March 31, 2000
and $1,696,194 at June 30, 1999 1,951,051 2,059,602
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 42,597,221 31,668,851
Accumulated Deficit (Note 6) (33,167,086) (27,563,929)
------------ ------------
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)
Three Months Ended Nine Months Ended
March 31 March 31,
2000 1999 2000 1999
Revenues
Intelligent Vending
Machines (Note 8) $104,548 $297,302 $577,024 $974,120
Medical Transaction
Processing 316,650 215,266 1,807,340 310,465
------- ------- --------- --------
Total Revenues 421,198 512,568 2,384,364 1,284,585
Cost of Sales 246,495 188,882 962,980 520,678
------- ------- ------- --------
Gross Profit 174,703 323,686 1,421,384 763,907
Operating Expenses
General & Administrative
(Note 7) 2,525,155 1,281,725 5,404,922 3,509,693
Depreciation and
Amortization 243,120 271,669 1,009,158 749,844
Selling & Marketing 132,403 201,696 534,428 855,159
------- ------- ------- -------
Total 2,900,678 1,755,090 6,948,508 5,114,696
--------- --------- --------- ---------
Expenses
Operating Loss (2,725,975) (1,431,404) (5,527,124) (4,350,789)
Other income (expense)
Interest income 31,090 3,124 65,660 18,814
Interest expense (20,036) (63,584) (71,935) (200,755)
-------- -------- -------- ---------
11,054 (60,460) (6,275) (181,941)
-------- -------- -------- ---------
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 $(1,491,864) $(5,603,157 $(4,532,730) $(2,729,822)
Basic and diluted net
loss per share $(.10) $(.13) $(.25) $(.46)
Weighted average common
shares outstanding basic
and diluted 28,096,336 11,624,838 22,342,194 9,894,920
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 1,009,158 749,844
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 63,145 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>
7
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 Captial 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 - 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 $42,597,221 ($33,167,086) $9,433,279
===== ========= ========= =========== ========== ===== =========== =========== =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
23
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.
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 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 intelligent vending equipment are recognized upon
delivery of the equipment. Revenue from the sale of MedCard units is recognized
upon shipment. 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 revenue 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
delivery 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 company's president and majority
stockholder. The company had been making interest payments and had stated that
they intended to pay the debt in 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.
<PAGE>
Note 2 - Notes Receivable, Continued
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
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. 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 monies 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 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 nine months ended March 31,
2000.
<PAGE>
Note 5 - License and Other Agreements
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 for
the year ended June 30, 1999.
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 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.
<PAGE>
Note 7 - Stockholders' Equity, Continued
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. 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 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.
<PAGE>
Note 7 - Stockholders' Equity, Continued
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 no significant services were rendered and the value is not
determinable.
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 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
<PAGE>
Note 7 - Stockholders' Equity, Continued
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.
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:
Net- Cost of Depreciation Segment Profit Identifiable
Revenues Services & Amort. (Loss) Assets
March 31, 2000:
- --------------
Intelligent Vending
Machines $577,024 $225,742 $626,052 $(274,770) $1,751,738
Medical
Transaction
Processing $1,807,340 $737,238 $327,741 $742,361 $4,025,037
<PAGE>
Corporate & Other -- --$ 55,365$ (55,365)$5,291,444
------------------------------------------------------------
Consolidated $2,384,364 $962,980 $1,009,158 $412,226 $11,068,219
========= ======= ========= ==========
Selling, General
& Administrative
and other $5,945,625
Loss Before Income Taxes $(5,533,399)
===========
Note 8 - Business Segments, Continued
March 31, 1999
Intelligent Vending
Machines $974,120 $429,420 $606,567 $ (61,867) $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 $1,284,585 $520,678 $749,844 $14,063 $7,032,474
========= ======= ======= =========
Selling, General
& Administrative and other $4,546,739
---------
Loss Before Income Taxes $(4,532,730)
===========
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 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. Goodwill associated with the acquisition of One
Medical Services was reduced by $291,417 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
<PAGE>
Note 9 - Subsequent Events, Continued
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 this
transaction.
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.
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 not been set for
arbitration.
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.
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>
Note 11 - Supplemental Disclosures of Cash Flows Information
The Company transferred $83,350 of video vending inventory into fixed assets
during the nine months ended March 31, 2000 as such items were placed in service
during this period. Other noncash activities are discussed in Note 7.
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 $1,284,585 during the nine months ended March 31,
1999 to $2,384,364 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 $1,496,875, while the intelligent vending machine
income declined by $397,096 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. 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, 2000 as compared to
the same period of the prior year.
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, as well as revenues of $172,567 relating to the Company's
agreement with SBME (as discussed below). Approximately 95% 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 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.
<PAGE>
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.
The Company continued the process of establishing its distribution channels for
the MedCard System during the quarter ended March 31, 2000. A significant amount
of time was spent in training the outside sales organizations and developing the
necessary infrastructure.
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. As a result of this acquisition
the Company has exclusive ownership and use of the MedCard System.
Management also focused much of its attention on consummating the DCB
acquisition (see below) during the quarter ended March 31, 2000.
Gross profit for the nine months ended March 31, 2000 totaled $1,421,384 with a
margin of 60%. The comparable margin last year was $763,907 or 59%. Gross profit
was $174,703, or 41% 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.
Selling and marketing, and general and administrative expenses were $1,574,498,
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. Offsetting this
amount, 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. Selling and marketing, and general and administrative expenses were
$1,174,137 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.
In April 2000, the Company acquired a 100% interest in DCB Actuaries &
Consultants SRO (DCB), a Czech Republic based company and certain technology and
intellectual property from
<PAGE>
DSM, LLC, a Florida limited liability company. DCB developed and currently
operates a health insurance decision support system with advanced data
structures, which is known as the Health Information Gateway. DCB's advanced
data structures can support the needs of a comprehensive health care delivery
system in a multitude of areas, including: patient services, risk management,
clinical services and administrative functions. Clinical services provided by
DCB's system include electronic patient record systems, critical care pathways
(i.e. treatment programs) and electronic medical documents (i.e. x-rays, lab
results, EKG's, etc.). Administrative functions provided by DCB's system cover
quality assurance, claims management and market/sales analysis. The Company
intends to market DCB's products and services to hospitals, insurance companies
and governmental agencies in the United States and abroad. The Company will
continue to operate DCB as a separate wholly owned subsidiary in the Czech
Republic, while also starting operations for this division in the United States.
The Company continues to concentrate its efforts on the sales and marketing of
the MedCard System and will now also focus on the further development and the
marketing of the Health Information Gateway primarily in the United States,
although existing European markets will also be targeted for the DCB Czech
operations. The Company also believes that there will be a synergy between
certain of the marketing and sales efforts of the DCB Health Information Gateway
and the MedCard System as they both can be sold to the same target market.
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 ($1,009,158) 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.
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 $2,350,000 of its existing cash
to acquire DCB Actuaries and Consultants, s.r.o., including estimated
professional fees.
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.
<PAGE>
The Company expects to incur additional losses during the quarter ending June
30, 2000. The Company is forecasting a profit during the quarter ending
September 30, 2000, before depreciation and amortization and stock based
compensation 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 May 3, 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.
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 May 3, 2000 the Company had approximately $3,000,000 in
cash, of which approximately $350,000 is still owed related to the DCB
acquisition. The Company believes that this amount will be sufficient to fund
its operations and to acquire computer and telecommunications equipment required
for expansion of the MedCard System and the operations of DCB. In the event that
the Company does not have adequate cash to purchase the entire computer and
telecommunications equipment that it expects it will need, the Company is of
opinion that it will be able to acquire a certain amount of the equipment
through leasing arrangements or other financing sources. However, the Company
may 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. The
Company may also be able to obtain such additional funding. There can be no
assurance, however, that the Company will be successful in obtaining additional
funding.
The Company has filed a preliminary proxy statement with the Securities and
Exchange Commission, indicating that it intends to ask its shareholders to
increase the number of authorized shares. If this measure is not approved, it
can significantly impact the Company's ability to raise capital by selling
<PAGE>
additional shares. Management of the Company believes that it will receive the
necessary votes to approve this measure.
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.
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
<PAGE>
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 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 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.
<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/ Mike Malet
----------------------------------------
Mike Malet
Vice-President
/s/ Alan Ruben
-----------------------------------------
Alan Ruben
Principal Financial and Accounting Officer
Date: May 12, 2000
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