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 September 30,1999
Commission File Number: 0-25474
MEDCOM USA, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 65-0287558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18001 Cowan, Suites C & D, Irvine CA 92614 (address of
principal executive offices) (Zip Code)
(949) 261-6665
(Registrant's telephone number, including area code)
SIMS COMMUNICATIONS, INC.
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) or the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes_X___ No____
As of November 12,1999 the Company had 19,882,907 shares of Common Stock issued
and outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Part 1. Financial Information
Item 1. Index to Financial Statements
MEDCOM USA, INC.
CONSOLIDATED FINANCIAL STATEMENTS Page
Consolidated Balance Sheets at
September 30 1999 and June 30, 1999 3-4
Consolidated Statements of Operations for the Three Months
Ended September 30, 1999 and 1998 5
Consolidated Statement of Cash Flows for the
Three Months Ended September 30, 1999 and 1998 6
Consolidated Statement of Stockholders' Equity
for the Three Months Ended September 30, 1999 7
Notes to Consolidated Financial Statements. 8-15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 15-17
Part II. Other Information 18
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1999 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $26,906 $189,772
Restricted cash (Note 2) -- 250,000
Accounts receivable, less allowance for
doubtful accounts of $28,879 307,751 250,913
Inventories (Note 5) 430,297 464,074
Prepaid expenses and other current assets 103,979 100,337
Notes receivable, current portion (Note 5) 495,000 150,000
------- -------
Total Current Assets 1,363,933 1,405,096
PROPERTY AND EQUIPMENT,
Property & Equipment net of accumulated
depreciation of $1,889,798 at September 30,
1999 and $1,696,194 at June 30, 1999 2,149,185 2,059,602
OTHER ASSETS
Notes receivable, less allowance of $575,062 965,700 241,200
Licensing rights, net of accumulated amortization 870,153 885,558
Patents, net of accumulated amortization 310,594 327,299
Royalty advances 555,880 515,907
Goodwill, net of accumulated amortization 546,580 819,299
Other 103,044 120,901
------- -------
Total Other Assets 3,351,951 2,910,164
Total Assets $6,865,069 $6,374,862
========== ==========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1999 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 5) $517,922 $649,154
Accrued expenses 538,134 622,820
Borrowing under bank line of credit (Note 2) -- 250,000
Current portion of capitalized lease
obligations (Note 4) 45,958 43,432
Current portion of long term debt (Note 3) 458,619 519,119
Current portion of deferred revenue (Note 5) 48,000 --
Dividends payable 84,092 58,025
---------- -----------
Total Current Liabilities 1,692,725 2,142,550
LONG TERM LIABILITIES
Capitalized lease obligations (Note 4) 109,958 125,706
Deferred revenue (Note 5) 754,500 --
------- -----------
Total Long Term Liabilities 864,458 125,706
------- -------
Total Liabilities 2,557,183 2,268,256
--------- ---------
STOCKHOLDERS' EQUITY (Note 7)
Preferred stock, Series A, B and C $.001
par value, 152,600 shares authorized -
50,000 (A), 100,000 (B) and 2,060 (C),
10,845 shares issued and outstanding at
September 30, 1999 (liquidation preference
of $1,927,000) 11 11
Common stock $.0001 par value 40,000,000
shares authorized: shares issued and outstanding
- 17,635,639 and 16,727,506 at September 30, 1999
and June 30, 1999, respectively 1,764 1,673
Additional Paid In Capital 32,766,209 31,668,851
Accumulated Deficit (Note 6) (28,460,098) (27,563,929)
------------ ------------
Total Stockholders' Equity 4,307,886 4,106,606
---------- ----------
Total Liabilities and Stockholders' Equity $6,865,069 $6,374,862
=========== ===========
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, 1999 and 1998
SEPTEMBER 30,
1999 1998
Revenues
Intelligent Vending Machines (Note 8) $295,493 $338,411
Medical Transaction Processing (Notes 5 and 8) 872,481 39,045
--------- ----------
Total Revenues 1,167,974 377,456
Cost of Services 283,064 146,508
Gross Profit 884,910 230,948
Operating Expenses
General and Administrative (Note 7) 1,074,832 1,210,338
Depreciation and Amortization 518,070 221,887
Selling and Marketing 135,160 365,275
------- -------
Total Expenses 1,728,062 1,797,500
--------- ---------
Operating Loss (843,152) (1,566,552)
Other income (expense)
Interest income 6,020 6,859
Interest expense (Note 7) (30,570) (48,045)
-------- --------
(24,550) (41,186)
Loss before income taxes (867,702) (1,607,738)
Income tax provision 2,400 --
---------- -----------
Net Loss ($870,102) ($1,607,738)
--------- -----------
Preferred Stock Dividend (26,067) --
======= ========
Net loss applicable to common stockholders ($896,169) ($1,607,738)
======= =========
Basic and diluted net loss per share ($0.05) ($0.17)
Weighted Average Common Shares Outstanding 17,166,025 9,443,900
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
SEPTEMBER 30,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($870,102) ($1,607,738)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and Amortization 518,070 221,887
Imputed value of warrants granted
for services and interest 160,646 64,804
Stock issued for services 133,265 283,645
Changes in assets and liabilities:
Inventories 33,777 11,568
Accounts receivable (56,838) (457)
Prepaid Expenses and Other Current Assets (7,704) (103,845)
Notes receivable (259,500) --
Accounts Payable and Accrued Expenses (113,779) (46,225)
Royalty advances (39,973) --
Deferred Revenue ( 7,500) --
--------- --------
NET CASH USED IN OPERATING ACTIVITIES (509,638) (1,176,361)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition costs paid -- (3,300)
Capital expenditures (79,458)
(227,667)
Change in other assets -- 5,397
------- -------
NET CASH (USED IN) INVESTING ACTIVITIES (79,458)
(225,570)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 10,000 --
Payments on debt (251,500) (100,691)
Payments on obligations under capital leases (13,222) (3,257)
Proceeds from capital leases -- 369,060
Net proceeds from issuance of common stock 430,952 1,214,625
------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 176,230 1,479,737
NET INCREASE (DECREASE) IN CASH (412,866) 77,806
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 439,772 263,878
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,906 $341,684
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid during the period for interest $ 778 $ 42,585
See notes to consolidated financial statements
<PAGE>
MEDCOM USA, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK SUBSCRIBED 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 -3 months ended
September 30, 1999 (870,102) (870,102)
Issuance of common stock for
cash at $.82 per share,
net of$16,728 of expenses 545,951 55 430,897 430,952
Issuance of common stock
in exchange for preferred
stock (150) 600
Issuance of common stock for
services and equipment 182,500 18 140,193 140,211
Issuance of common stock for
accounts payable 84,571 8 89,645 89,653
Imputed value of stock warrant
grants in exchange for consulting
services and other items 354,656 354,656
Dividend on Series C Preferred stock (26,067)
(26,067)
Issuance of common stock for
conversion of notes payable and
accrued interest 94,511 10 81,967 81,977
----- ------ ----- ------ ------- -------- ----------- ----------- --------
Balance - September 30, 1999 9,100 $ 9 1,745 $ 2 17,635,639 $1,764 $32,766,209 ($28,460,098) $4,307,886
===== ======= ===== ====== ========== ====== =========== ============ ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
MEDCOM USA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Significant Accounting Policies
Organization
MedCom USA, Inc. and Subsidiaries (the Company) was incorporated in the State of
Delaware on August 15, 1991. The Company was originally incorporated under the
name of Sims Communications, Inc. and its name was changed to MedCom USA, Inc.
in October 1999. The Company was formed as a communications equipment company
and has expanded its focus to include medical claim processing and verification,
telecommunication and prepaid telephone activities. The Company also provides
low cost, turnkey, point of sale (POS) transaction automation solutions to
retailers and pharmacies through its license agreement for its One Medical
System. These solutions include a comprehensive network of transaction
processing applications using its patented, intelligent DebitLink POS terminal
with custom software. Functions include processing on-line credit card and
medical reimbursement approvals, processing automated home medical equipment
product orders and payments, processing credit card and ATM charges and payments
and cash-backs, activating prepaid phone cards, obtaining prepaid cellular
service, securing check guaranties and authorizations and tracking customer
affinity programs. Additionally, the Company rents videocassettes through
automated dispensing units. Most recently, the Company has changed its primary
business focus to the health care industry; whereas the Company's
telecommunications expertise and technology have been applied to the healthcare
industry in general and electronic processing of medical claims, on-line
insurance eligibility verification and e-commerce, specifically.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ended June 30, 2000. For further information, refer to the consolidated
financial statements and footnotes included in the Company's annual Filing
Statement on form 10-KSB.
Principles of Consolidation
The consolidated financial statements includes the accounts of MedCom USA, Inc.
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; additionally, the consolidated
financial statements include the accounts of One Medical Services, Inc.,
<PAGE>
Note 1 - Organization and Significant Accounting Policies (Continued)
Movie Bar Company USA and Vector Vision Inc. All intercompany balances and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with a maturity
date of three months or less to be cash equivalents.
Inventories
Inventories consists primarily of automated video dispensing units, video
cassette players, movie video cassettes, debitlink data transmission units and
other associated miscellaneous parts and equipment and are recorded at the lower
of cost or market determined by the first-in, first-out method.
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 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
<PAGE>
Note 1 - Organization and Significant Accounting Policies (Continued)
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 - Bank Line of Credit
The Company had a secured revolving line of credit with a bank for up to
$250,000. The line of credit arrangement was terminated during the quarter ended
September 30, 1999. The balance at June 30, 1999 was $250,000. The line of
credit was secured by a restricted certificate of deposit with a balance at June
30, 1999 of $250,000. Interest on the line was at 5.77% per annum, payable
monthly.
Note 3 - Notes and Loans Payable
A detailed listing of debt at September 30, 1999 is as follows
8% Convertible note payable, principal due
May, 1998. Debt includes conversion to common
stock feature with conversion rates ranging
from $1.25 per share. Currently in default. $25,000
Note payable - $10,000 principal, interest at
6%, due on demand 10,000
Note payable - non-interest bearing, payable in
monthly installments of $1,500 through June, 2000 36,000
Convertible Bridge Financing Note - corporation,
bearing interest at 4%, principal and interest due
on July 28, 1999. Debt includes conversion to common
Stock feature at $.70 per share. Currently in default 70,000
Note Payable - franchisee, bearing interest at 10%,
principal and interest due in full on October 31, 1999;
debt includes conversion to common stock feature at
$.875 per share 317,619
--------
Total current maturities $458,619
<PAGE>
Note 4 - Capitalized Lease Obligations
The Company leases various equipment, under leases, which are accounted for as
capitalized leases. The leases bear interest at 12-18% and are payable in
monthly installments. At September 30, 1999, the Company owed $155,916 of which
$45,958 represents the current portion. The terms for the leases vary from 48 to
60 months and the leases are collateralized by the underlying equipment.
Note 5 - License and Other Agreements
On July 20, 1999, the Company entered into an agreement with an unrelated
corporation for the exclusive licensing rights to market the One Medical Service
system. The Company received $300,000 during the quarter ended September 30,
1999 and is scheduled to receive an additional $267,000 during the remainder of
the current year, of which $83,500 was received during October 1999. The Company
also received a 7-year, 8% unsecured note receivable in the amount of $810,000
as part of the transaction. The note shall be paid off primarily by monthly
royalty payments to the Company and other scheduled payment amounts over its
term. These amounts will be recognized as income as the royalties are earned.
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 unrelated corporation also agreed to
assume approximately $200,000 of the Company's inventory and related accounts
payable. Such inventory is being released to the corporation as requested at
which time the corporation pays the related accounts payable. The corporation
acquired approximately $31,000 of this inventory during the quarter ended
September 30, 1999 and purchased an additional $63,000 of the inventory during
October 1999.
In November 1998, the Company purchased certain assets of MedCard Management
Systems, Inc., along with the licensing rights to the MedCard name and the
MedCard System software and network. The Company has agreed to fund the
operations of MedCard Management Systems, Inc. during its initial operations,
while the customer base is being expanded and while the on-line version of the
system is being developed. The Company assumed approximately $250,000 of such
expenses of MedCard during the quarter ended September 30, 1999. These expenses
are included in general and administrative, and selling and marketing expenses
in the accompanying consolidated statements of operations.
Effective July 1999, the Company entered into an agreement with MedCard
Management Systems, Inc, whereby Medcard assigned the income earned by its
wholly owned subsidiary, Suffolk County Medical Economics (SBME), in exchange
for the Company agreeing to reimburse MedCard for SBME's expenses. Profits
earned by SBME will then be allocated between the Company and SBME based upon a
predetermined formula. The Company recognized $172,567 of income related to this
agreement during the quarter ended September 30, 1999.
<PAGE>
Note 6 - Continuing Operations
The accompanying financial statements have been prepared on a going concern
basis which contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. In prior years, the Company had
been in the development stage and did not begin earning significant revenues
until the middle of fiscal year ended 1994. During the years ending June 1995,
through June 1999, the Company continued to suffer recurring losses from
operations. In fiscal year ended June 30, 1995, the Company completed an initial
public offering for $5.2 million. In subsequent periods, the Company has
successfully completed the raising of additional capital to help fund its
operations by completing private placements. The consolidated financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern. 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 the Company's Form 10-KSB for the year ended
June 30, 1999.
Note 7 - Stockholders Equity
During the quarter ended September 30, 1999, the following equity transactions
occurred:
The Company issued 545,951 shares of common stock at $.82 per share in a private
placement raising $430,952 net of $16,728 in offering costs. The Company also
issued a five-year warrant to purchase 109,190 shares of common stock at $1.12
per share, with a cost of $69,528, based upon an imputed value of $.64 per
share.
The Company issued 600 shares of common stock for the conversion of 300 shares
of Series A preferred stock.
The Company issued 182,500 shares of its common stock for $140,211 of services
and equipment received.
The Company issued 84,571 shares of its common stock as payment for $89,653 of
previously existing accounts payable.
The Company issued 94,511 shares of common stock as payment for $81,977 of notes
payable and accrued interest.
The Company issued a five-year warrant to purchase 100,000 shares of its common
stock at $1.25 per share in exchange for software development services, with a
capitalized cost of $56,224, based upon an imputed value of $.56 per share.
Additionally, the Company issued warrants to purchase 136,334 shares of common
stock at prices ranging from $.70 to $1.00 per share to the holders of the
Series C preferred stock and a certain note holder. The warrant to purchase
20,000 of the shares expires in July 2002 and the balance expires in July 2004.
$77,184 of expense has been recognized as stock based compensation/services on
the accompanying statements of operations, based on imputed values ranging from
$.52 to $.81 per warrant.
<PAGE>
Note 7 - Stockholders' Equity (Continued)
The Company issued warrants to purchase 550,000 shares of 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, and warrants to purchase 450,000 of the shares are convertible into
the Company's common stock at 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 $.19 to $.58 per share. The
Company also issued an additional, four-year warrant to purchase 1,000,000
shares of JustMed.com's common stock at $2.00 per share to the originator of the
JustMed.com idea. No value is ascribed to this warrant as no significant
services were rendered and the value is not determinable.
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 $293,911 and $293,762 for the quarters ended December 31, 1999
and 1998, respectively.
The Company accounts for stock based compensation in accordance with Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock Based
Compensation," ("FAS 123") which encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options and other
equity instruments to employees. FAS 123 requires the recognition of expense for
such grants, described above, to acquire goods and services from all
non-employees. Additionally, although expense recognition is not mandatory for
issuances to employees, FAS 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and earnings
per share information using the new method.
The Company has adopted the disclosure-only provisions of FAS 123. Accordingly,
no compensation cost has been recognized for the issuances of stock options to
employees. The Company did not issue any stock options to employees of the
Company during the quarter ended September 30, 1999.
Note 8- Business Segments
The Company has two reportable segments: intelligent vending machines and
medical related processing. The medical segment includes the insurance claim
verification and processing, the One Medical licensing revenue and other related
income and the SBME income. The intelligent vending machines 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. Additionally, they all
utilize the same technology, the Company's intelligent "Debit Link" system, a
monetary transaction processing platform. Telecommunications include the sale
and processing of cellular telephone rentals and prepaid cellular phone cards
and other telecommunications related services. The automated movie section rents
videocassettes through automated dispensing units in hotels, located primarily
in Florida and California. The medical
<PAGE>
Note 8- Business Segments (continued)
transaction processing segment utilizes a communication and transaction
processing platform which allows pharmacies to access on-line credit card and
medical reimbursement approval and automated product ordering and payment. This
segment also includes the verification of health insurance and the processing of
medical claims with the various health insurance providers.
Operating results and other financial data are presented for the two reportable
segments of the Company for the three months ended September 30, 1999 and 1998.
Results for the three months ended September 30, 1998 have been combined into
the two segments to reflect the current method of operations. Net revenue
includes sales to external customers within the segment and related licensing
revenue. Cost of goods sold includes costs associated with net revenue within
the segments. Segment income (loss) does not include general and administrative
expenses, selling and marketing, and other
income (expense) items or income taxes. Identifiable assets for each operating
segment consist of cash, receivables, inventory, prepaid expenses, net machinery
and equipment and goodwill. Corporate assets are cash, patents and notes
receivable related to a previously discontinued segment:
Segment
Net- Cost of Depreciation Profit Identifiable
Revenues Services & Amortization (Loss) Assets
September 30, 1999:
Intelligent Vending
Machines $295,493 $76,167 $208,957 $10,369 $2,119,517
Medical
Transaction
Processing- $872,481 $206,897 $290,658 $374,926 $4,212,040
Corporate & Other- -- -- $ 18,455 $ (18,455) $ 533,512
----------------------------------------------------------
Consolidated $1,167,974 $283,064 $518,070 $366,840 $6,685,069
========== ======== ======== ========== ===========
Selling, General &
& Adminstrative $1,234,542
----------
Loss Before Income Taxes $ (867,702)
===========
<PAGE>
Segment
Net- Cost of Depreciation Profit Identifiable
Revenues Services & Amortization (Loss) Assets
September 30, 1998:
Intelligent Vending
Machines $338,411 $132,685 $183,920 $ 21,806 $3,854,737
Medical
Transaction
Processing- $ 39,045 $ 13,823 $ 19,512 $ 5,710 $1,071,004
Corporate & Other- -- -- $ 18,455 $ (18,455) $ 874,349
------------------------------------------------------------
Consolidated $377,456 $146,508 $221,887 $ 9,061 $5,800,090
======== ======== ======== ========== ===========
Selling, General
& Administrative $1,616,799
-----------
Loss Before Income Taxes $(1,607,738)
===========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations-Three Months Ending September 30, 1999
During the three month period ended September 30, 1999, total revenues amounted
to $1,167,974 versus last year's revenue of $377,456. The Company is in a state
of transition with its expansion and focus on the Medical and Financial
Transaction Processing Segment. This business segment produced revenue of
$872,481 for the quarter ended September 30, 1999, as compared to $39,045 for
the quarter ended September 30, 1998. Conversely, there has been a gradual
decline in the emphasis on intelligent vending machine income with revenues of
$295,493 during the quarter ended September 30, 1999 versus $338,411 in the
prior period.
The Company entered into the agreement with MedCard Management Systems, Inc.
regarding its wholly owned subsidiary SBME because management believes that
involvement with SBME will lead to additional opportunities to promote and sell
the MedCard service. Plus, the SBME services readily align themselves with the
MedCard system.
Gross profit for the three months ended September 30, 1999 totaled $884,910 with
a margin of 76% due to the introduction of the higher gross margin of the new
business segments and the licensing revenue related to the One Medical System.
The comparable margin last year was $230,948 or 61%. Selling and marketing, and
general and administrative expenses are lower for the quarter ended September
30, 1999 compared to the same period last year ($1,209,992 vs. $1,578,613) as a
<PAGE>
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 line of business focus and the expansion of
its other business segments. Expenses related to prior operations and agreements
in place, which were being assuaged, compounded an increase in general and
administrative expenditures.
The Company continues to invest its human and financial resources in the
development of its auction site, Medstore and JustMed on-line verification and
billing system through its Justmed.com health portal. The continued development
of these business to business on-line applications will contribute to the
majority of the Company's revenue in the future.
Liquidity and Sources of Capital
During the quarter ended September 30, 1999, the Company's operating cash
requirement was $509,638, attributable to a net loss of $870,102 mitigated by
non-cash charges for depreciation and amortization ($518,070) and stock and
option based services ($293,930). This shortfall was primarily funded by the
sale of common stock for $430,952 and the $300,000 of the licensing fee received
related to One Medical Service. Partially offsetting this funding were capital
expenditures of $79,458.
The Company used its previously restricted cash to pay off its line of credit.
This accounts for $250,000 of the decrease in cash during the period. (See Note
2 to the accompanying financial statements).
The $1,607,738 net loss for the comparable prior period was funded by a $283,645
charge for stock based compensation (to conserve cash) and proceeds of
$1,214,625 in private placement of the Company's common stock.
Between October 1, 1999 and April 3, 2000, the Company raised approximately an
additional $5,700,000, net of expenses of approximately $642,000, from the
issuance of 6,016,694 shares of common stock at prices ranging from $.45 to
$4.00 per share. A total of 2,544,861 of these shares were issued at prices
below market because these shares were restricted from sale in the public
markets. Additionally, the Company has received approximately $2.1 million upon
the exercise of options and warrants to purchase approximately 1.8 million
shares of the Company's common stock at prices ranging from $.44 to $5.00 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 April 3, 2000 the Company had approximately $5,000,000 in
<PAGE>
cash. The Company believes that this amount will be sufficient to fund its
operations, to purchase computer and telecommunications equipment required for
expansion of the MedCard System, and the acquisition and operations of DCB as
discussed in below. In the event that the Company does not have adequate cash to
purchase all of the computer and telecommunications equipment which 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. The Company may also be able to obtain additional funding, if
necessary, by selling additional shares of its common stock. There can be no
assurance, however, that the Company will be successful in obtaining additional
funding.
In April 2000, the Company acquired 100% of the stock of DCB Actuaries &
Consultants SRO (DCB), a Czech Republic based company and certain technology and
intellectual property from DSM, LLC, a Florida limited liability company. DCB
developed and currently operates a health insurance decision support system with
advanced data structures. 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 had $95,000 of convertible notes payable that were in default as of
September 30, 1999, including a note for $70,000, the due date of which was
subsequently extended to November 1, 2000. The balance, $25,000, remains in
default as the Company is unable to locate the lender. Of the remaining notes
payable, approximately $19,714 was paid and $343,905 was converted to common
stock during the quarter ended March 31, 2000.
Year 2000 Issue
The Year 2000 issue does not materially affect the Company's computer systems,
software or other business systems. The Company has conducted a review to
identify areas that could be affected and has developed an implementation plan
to ensure compliance. The Company believes that with modifications to existing
software the issue will not pose significant operational concerns nor have a
material impact on financial position or results of operations. The costs of
modifications are not expected to be material and will be expensed as incurred.
The Company has requested that its major independent suppliers and providers
confirm that they will be Year 2000 compliant.
<PAGE>
PART II
Other Information
Item 1. Legal Proceedings.
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 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 which were issued or sold
during the quarter ended September 30, 1999, none of which were registered under
the Securities Act of 1933.
With respect to the foregoing, 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, INC.
By: /s/ Mark Bennett
Mark Bennett, President
/s/ Alan Ruben
Alan Ruben, Principal Financial and
Accounting Officer
Date: April 18, 2000
