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| EMED.OB > SEC Filings for EMED.OB > Form 10QSB on 14-May-2004 | All Recent SEC Filings |
14-May-2004
Quarterly Report
Except for historical information contained herein, the followingdiscussion contains forward-looking statements that involve risks anduncertainties. Such forward-looking statements include, but are not limited to,statements regarding future events and plans and expectations. Actual resultscould differ materially from those discussed herein. Factors that could cause orcontribute to such differences include, but are not limited to, those discussedelsewhere in this Form 10-QSB (incorporated herein Forward-Looking Statements).
OVERVIEW
MedCom USA, Inc. (the "Company") a Delaware corporation was formed inAugust 1991 under the name Sims Communications, Inc. The Company's primarybusiness was providing telecommunications services. In 1996 the Companyintroduced four programs to broaden the Company's product and service mix: (a)cellular telephone activation, (b) sale of prepaid calling cards, (c) sale oflong distance telephone service and (d) rental of cellular telephones using anovernight courier service. With the exception of the sale of prepaid callingcards, these four programs were discontinued in December 1997. During the fiscalyear of 1998, the Company diversified its operations and moved into the area ofmedical information processing.
The Company changed its name to MedCom USA, Inc. in October 1999. Duringthe fiscal years of 1999 and continuing through 2000, the Company directed itsefforts in medical information processing. As of December 31, 2003, the Companycurrently operates the MedCard System (MedCard) that is deployed through apoint-of-sale terminal or personal computer offering electronic transactionprocessing, as well as insurance eligibility verification. The Company hasaggressively focused on its primary operations in Electronic Data Interchange(EDI) and core business in electronic Medical Transaction Processing.
MEDICAL TRANSACTION PROCESSING
MEDCARD SYSTEM
The Company provides innovative technology-based solutions for thehealthcare industry that enable users to efficiently collect, use, analyze anddisseminate data from payers, health care providers and patients. The MedCardSystem currently operates through a point-of-sale terminal or a personalcomputer. The point-of-sale terminals are purchased from Hypercom Corporation(Hypercom). The MedCard System also operates in a PC version and an on-lineversion. The Company is in the process of assessing the feasibility of offeringa service bundled package that would have the capability of processing unlimitedclaims and eligibility verification for monthly service fees.
FINANCIAL SERVICES
The Company's credit card center and check services, provides thehealthcare industry an unprecedented combination of services designed to improvecollection and approvals of credit/debit card payments along with the addedbenefit and convenience of personal check guarantee from financial institutions.
Flex-pay is an accounts receivable management program that allows aprovider to swipe a patient's credit card and store the patient's signature inthe terminals, and bill the patient's card at a later date when it is determinedwhat services rendered were not covered by the patient's insurance. Also, aneasy-pay option is offered which allows patient's the added benefit andconvenience of a one-time payment option or a recurring installment paymentsthat will be processed on a specified date determined by the provider and
patient. These options insure providers that payments are timely processed withthe features of electronic accounts receivable management. These services areall deployed thorough point-of-sale terminals or a personal computer. Using theMedCard system, medical providers are relieved of the problems associated withbillings and account management, and results in lower administrativedocumentation and costs.
PATIENT ELIGIBILITY
The MedCard System is also an electronic processing system thatconsolidates insurance eligibility verification, processes medical claims, andmonitors referrals. The MedCard System allows a patient's primary carephysician to request approval from the patient's insurance carrier or managedcare plan for a referral to a secondary physician or specialist. The secondaryphysician or specialist can use the MedCard system to verify that referrals areapproved by the patient's insurance carrier. The MedCard system's referralcapabilities reduce documentation and administrative costs which results inincreased productivity and greater patient information for the specialist, aswell as a written record of the referral authorization.
The MedCard System can record and track encounters between patients andhealth care providers for performance evaluation and maintenance of records.After examining a patient the physician enters a patient's name, procedure codeand diagnostic code at a nearby terminal. This information is then uploaded toMedCom's computer network, processed and transmitted back to the providerformatted in both summary and/or detailed reports, and as a result healthcareproviders' reimbursements are accelerated and account receivables are reduced.The average time it takes the healthcare providers to collect payments frominsurance carriers and plans decreases from an average of 89 days to 7 to 21days. Health care providers will benefit from a 100% paperless claim processingsystem.
TECHNICAL SUPPORT ASSISTANCE
The Company offers multiple training options for its products and servicesand is easily accessed at www.MedCard.com. The online E-learning tools enable
---------------health care professionals and health providers an opportunity to familiarizethemselves with the Health Insurance Portability and Accountability Act (HIPAA)and also the mandates and compliance issues. Onsite training andteleconferencing, and technical support assistance are also features offered tohealth care providers. Also, a 24-hour terminal replacement program and systemupgrades are offered.
MedCard's marketing plan is built around a strategy of expanding its salescapacity by using experienced external Independent Sales Organizations (ISO) andputting less reliance on an internal sales force. MedCom has set-up theseIndependent Sales Organizations (ISOs) to market and distribute the MedCardSystem throughout the U.S. Currently, there are 16 active ISOs promoting theMedCard system, with an average ISO that contains approximately 10-20 salespeople, some selling the MedCard System exclusively. Financial servicecompanies comprise an important sales channel that views the healthcare industryas an important growth opportunity. Only 6% of all healthcare payments are madewith a credit card today, although according to a recent survey 55% of allconsumers would prefer to pay doctor and hospital visits by credit/debit card.
SERVICE AGREEMENTS
During December 1998, the Company entered into a service agreement withWebMD Envoy. This agreement encompasses the process of Electronic DataInterchange (EDI) and related services. The services provided are complimentaryto the Company's core business, and accomplishes transaction processing services
that allows healthcare providers and payers to process medical transactionsquickly and accurately, and results in reduced administrative costs and anincrease in healthcare reimbursements to healthcare providers.
During January 2002, the Company has entered into a service agreement withMedUnite. This alliance will encompass the utilization of proprietarytechnologies and will enhance the existing network of healthcare constituents.Strategically both companies share the same vision of transforming thehealthcare transactions systems affecting how healthcare providers, healthplans, and other groups transacting business with one another by significantlyreducing claim and payment processing time, and reducing healthcareadministrative costs.
During February 2004, the Company entered into a service agreement with CDSCapital. This agreement will enable eligible healthcare providers utilizing theMedcom terminals to finance their accounts receivables. Health care providersutilizing the Medcom terminal to secure patient eligibility and process claimswill now be able to receive regular payments for a large percentage of claimsprocessed from the previous week. This financial management service willdecrease the time and costs associated with accounts receivable collections.
PROCESSING TERMINAL LEASING AGREEMENTS
The Company has entered into leasing agreements with LADCO Financial Groupfor the purpose of leasing processing terminals. The Company has pledged andgranted for collateral in connection with the lease agreements, one millionrestricted common shares. These common shares would be surrendered upon defaultof the leasing agreements. This pledge and granting of security interest wasexecuted on January 2002.
The Company has arranged its terms with this credit facility as anequipment lessor whereby the Company sells terminals to the lessor when it hasobtained a service contract with a provider. Under these agreements, theCompany is leasing back the processing terminals from the lessor and in turnleases them to the purchaser for a period of 48-60 months however; the customermay terminate the agreement after 12 months. The Company is accounting for thetransactions as sale-leasebacks. The leases with the customers are inclusivewith the monthly service contracts and are effectively accounted for asoperating leases. Gains on terminal sales under sale-leaseback transactions aredeferred and are being amortized to income in proportion to amortization of theassets, generally over the term of the lease with the credit facility generallyfor a period of 48 to 60 months. At March 31, 2003, the remaining deferredequipment gain of $3,449,454 is shown as "Deferred Revenue" in the Company'sBalance Sheet. For the nine months ended March 31, 2003, the total interestexpense incurred by the Company under these leases was $234,320.
REVENUES
Revenues from the MedCard system are generated through the sale ofterminals, and processing insurance eligibility/verification, insurance claims,and financial transaction processing. The Company receives a fixed amount perterminal, and also receives fees for each transaction processed through theMedCard System. Revenue sources include fees for financial transactionsprocessed through the terminal, fees for collection of receivables if theCompany provides billing services, fees associated with reimbursements made byinsurance carriers for submitting claims that are processed electronically, feesfor using the system's referral program and, fees for processing uploaded data.The Company also markets a complete billing service using the MedCard System forhospitals and large practice groups. The Company receives a percentage of thebilling amount collected under these arrangements.
ADDITIONAL INFORMATION
Medcom files reports and other materials with the Securities and ExchangeCommission. These documents may be inspected and copied at the Commission'sPublic Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. Youcan obtain information on the operation of the Public Reference Room by callingthe Commission at 1-800-SEC-0330. You can also get copies of documents that theCompany files with the Commission through the Commission's Internet site atwww.SEC.gov.-
RESULTS OF OPERATIONS
Revenues for the quarter ended March 31, 2004 were $1,190,412 as compared to thequarter ended March 31, 2003 of $679,016. The Company has divested of all itsbusiness segments other than the MedCard business, which it intends to devote itfull resources. Revenues are primarily derived from monthly service feescollected and revenues related to the leasing of terminal assets.
Cost of sales for the quarter ended March 31, 2004 was $221,914 as compared toquarter ended March 31, 2003 of $41,935. Overall margins have decreased as theCompany has decreased its service offerings and divested unprofitable businesssectors. As a result, the Company's focus on medical transaction processing hasincreased its costs due to volume increases in benefit verification transactionprocessing.
General and administrative expenses for quarter ended March 31, 2004 was$987,350 as compared to quarter ended March 31, 2003 of $755,919. These expenseshave increased despite the Company instituting cost curtailment measures.
Selling expenses for the quarter ended March 31, 2004 was $535,189 as comparedto the quarter ended March 31, 2003 of $237,348. These expenses have increasedand are directly attributed to the Company's aggressive marketing and outsidesales organizations that market the Company's equipment and services.
Interest expense for the quarter ended March 31, 2004 was $234,320 as comparedto quarter ended March 31, 2003 of $125,140. Interest expense has increased asa result of volume increases of leased terminal assets by the Company.
Other expense of $586,641 for the three and nine month periods ended March 31,2004, Relates to a settlement with a shareholder and investor. This shareholderhad invested in the Company in 2001 and interpreted its investment agreement toprovide certain dilution protection. The Company and the investor came to anagreement and settled as to the number of shares necessary to provide thatprotection. In connection therewith, the Company issued an addition 266,655shares of common stock. Those shares were valued at the trading price of $2.20.
No tax benefit was recorded on the expected operating loss for the quarter endedMarch 31, 2003 as required by Statement of Financial Accounting Standards No.109, Accounting for Income Taxes. For the quarter ended we do not expect torealize a deferred tax asset and it is uncertain, therefore we have provided a100% valuation of the tax benefit and assets until we are certain to experiencenet profits in the future to fully realize the tax benefit and tax assets.
Net loss for the quarter ended March 31, 2004 was ($2,142,056) compared net lossfor the quarter ended March 31, 2003 of ($838,708).
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the nine months ended March 31, 2004, was($4,220,918) as compared to cash used in operating activities for the ninemonths ended March 31, 2003 of ($2,249,864). Overall terminal sales haveincreased; specifically in the areas of direct sales and sales-leasebacktransactions, and has resulted in increases in inventory purchases.
Cash used in investing activities for the nine months ended March 31, 2004 was($1,251,232) as compared to cash provided by investing activities for the ninemonths ended March 31, 2003 of $628,774. Terminal software upgrade expenseshave been incurred, and also repayments on advances from affiliate.
Cash provided by financing activities was $5,505,775 for the nine months endedMarch 31, 2004 compared to cash provided by financing activities for the ninemonths ended March 31, 2003 of $1,692,048. The Company continued with itsefforts in marketing and obtained proceeds from common stock sales. The Companyhas financed its terminal equipment though the leasing-back of terminals and asa result has received proceeds. Proceeds provided by financing activities havebeen utilized for working capital requirements, marketing, and additionalinventory purchases.
ADVANCES TO AFFILIATE
The Company has relied upon a significant shareholder to fund its operatingcash flow deficiencies since June 2001. This funding in the past wasaccomplished in the form of loans to the Company. At March 31, 2004, theCompany has a note receivable of $ 1,112,000, due from this affiliatedshareholder and is due upon demand. This note is unsecured and bears interestat 3%. During the quarter ended March 31, 2004, this note payable has become areceivable and has been classified as current in the accompanying Balance Sheet,because repayment is anticipated during the next year.
As described above, the Company has secured an arrangement with a thirdparty leasing company to provide funds upon the execution of a rental andservice agreement with a customer. Generally, the health care provider customerwill enter into an agreement with the Company to rent a terminal and subscribeto the transaction processing and insurance verification service. At that time,the Company will sell the terminal associated with the service contract to thelessor and then leaseback that terminal. The leasing transactions provide forfunding to the Company to cover its cost of the terminal, placement of theterminal with the customer and a profit margin. The Company is generallyrequired to pay the lease rentals to the lessor from 48 to 60 months. The sourceof funds for those repayments is the rental payments from the health careprovider customer.
Management believes that current trends in its electronic transactionprocessing to the health care industries will provide cash flow in the nearfiscal period to be self-sustaining from operations. The amount of such will bedependent upon the rate of growth experienced and demand for the Company'sproduct and services.
OTHER CONSIDERATIONS
There are numerous factors that affect our business and the results of itsoperations. Sources of these factors include general economic and businessconditions, federal and state regulation of business activities, the level ofdemand for the Company's product or services, the level and intensity ofcompetition in the medical transaction processing industry, the Company'sability to develop new services based on new or evolving technology and themarket's acceptance of those new services, the Company's ability to timely andeffectively manage periodic product transitions, the services, customer andgeographic sales mix at any particular period, and the ability to continue toimprove the infrastructure (including personnel and systems) to keep pace withthe growth in its overall business activities.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Form 10-QSBcontains express or implied forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933 and Section 21E of the Exchange Act.
The Company intends that such forward-looking statements be subject to the safeharbors created thereby. The Company may make written or oral forward-lookingstatements from time to time in filings with the SEC, in press releases, orotherwise. The words "believes," "expects," "anticipates," "intends,""forecasts," "project," "plans," "estimates" and similar expressions identifyforward-looking statements. Such statements reflect the current views withrespect to future events and financial performance or operations and are only asof the date the statements are made.
Forward-looking statements involve risks and uncertainties and readers arecautioned not to place undue reliance on forward-looking statements. TheCompany's actual results may differ materially from such statements. Factorsthat cause or contribute to such differences include, but are not limited to,those discussed elsewhere in this Form 10-QSB, as well as those discussed inForm 10-KSB which is incorporated by reference in this Form 10-QSB.
Management believes that the assumptions underlying the forward-lookingstatements are reasonable, any of the assumptions could prove inaccurate and,therefore, there can be no assurance that the results contemplated in suchforward-looking statements will be realized. The inclusion of suchforward-looking information should not be regarded, as a representation that thefuture events, plans, or expectations contemplated will be achieved. The Companyundertakes no obligation to publicly update, review, or revise anyforward-looking statements to reflect any change in expectations or any changein events, conditions, or circumstances on which any such statements are based.Our filings with the Securities Exchange Commission, including the Form 10-KSB,and may be accessed at the SEC's web site, www.SEC.gov.
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