UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
Commission File Number: 0-25474
MEDCOM USA, INCORPORATED
(Name of small business issuer as specified in its charter)
DELAWARE 65-0287558
State of Incorporation IRS Employer Identification No.
7975 NORTH HAYDEN ROAD, SUITE C-260, SCOTTSDALE, AZ 85258
(Address of principal executive offices)
Registrant's telephone number, including Area Code: (480) 675-8865
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.0001 PAR VALUE
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 NO X
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Registrant's revenues for the most recent fiscal year were $547,597
The aggregate market value of the common stock held by non-affiliates computed
based on the closing price of such stock on June 29, 2001, was approximately
$3,789,755.
The number of shares outstanding of the registrant's classes of common stock, as
of August 31, 2001,
was 18,991,440.
PART I
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ITEM 1. Description of Business
ITEM 2. Description of Property
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
PART II
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ITEM 5. Market for Common Equity and Related Stockholder Matters
ITEM 6. Management's Discussion and Analysis or Plan of Operation
ITEM 7. Financial Statements
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.
PART III
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ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
ITEM 10. Executive Compensation
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management
ITEM 12. Certain Relationships and Related Transactions
ITEM 13. Exhibits and Reports
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Except for historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. Such forward-looking statements include, but are not limited to,
statements regarding future events and the Company's plans and expectations.
Actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed elsewhere in this Form 10-KSB or incorporated herein by
reference, including those set forth in Management's Discussion and Analysis or
Plan of Operation.
OVERVIEW
MedCom USA, Inc.(the "Company") a Delaware corporation was formed in August
1991 under the name Sims Communications, Inc. The Company changed its name to
MedCom USA, Inc. in October 1999. The Company's primary business was providing
telecommunications services, and also renting cellular telephones through a
stand-alone dispensing station known as an Automated Communications Distribution
Center.
In 1996 the Company introduced four programs to broaden the Company's
product and service mix: (a) cellular telephone activation, (b) sale of prepaid
calling cards, (c) sale of long distance telephone service and (d) rental of
cellular telephones using overnight courier service. With the exception of the
sale of prepaid calling cards, these four programs were discontinued in December
1997.
During the fiscal year of 1998, the Company diversified its operations and
moved into the area of medical information processing. During the fiscal years
of 1999 and continuing through 2000, the Company directed its efforts in medical
information processing. As of June 30, 2001, the Company currently operates the
MedCard System (MedCard) which is deployed through a point-of-sale terminal or
personal computer offering electronic transaction processing, as well as
insurance eligibility verification. The Company aggressively plans to focus on
its primary operations and core business in electronic Medical Transaction
Processing. During fiscal year 2001, the Company discontinued operations,
specifically in the areas of Healthcare Management Software Development, and the
Intelligent Vending Machines sectors (included herein Discontinued Operations).
The Company's primary operations for its core business is as follows:
MEDICAL TRANSACTION PROCESSING
------------------------------
MEDCARD SYSTEM
In November 1998 the Company acquired from Dream Technologies, LLC (Dream),
a worldwide license for the software programs and related technology known as
the MedCard System. In consideration for this license, Dream received $450,000
in cash, 100,000 shares of the Company's restricted stock and a three-year
warrant to purchase 350,000 shares of the Company's common stock at $1.28 per
share. The warrant had an imputed value of $333,904, using the Black Scholes
option-pricing model.
3
The MedCard System is an electronic processing system that consolidates
insurance eligibility verification, processes medical claims, monitors
referrals, and provides approvals of credit/debit card payments through a small
terminal or personal computer. Using the MedCard system, medical providers are
relieved of the problems associated with eligibility confirmation and billings,
and as a result healthcare providers' reimbursements are accelerated and account
receivables are reduced. The average time it takes the healthcare providers to
collect payments from insurance carriers and plans decreases from months to
weeks.
The MedCard System also allows a patient's primary care physician to
request approval from the patient's insurance carrier or managed care plan for a
referral to a secondary physician or specialist. The secondary physician or
specialist can use the MedCard system to verify that referrals are approved by
the patient's insurance carrier. The MedCard system's referral capabilities
reduce administrative documentation and administrative costs which results in
increased productivity and greater patient information for the specialist, as
well as a written record of the referral authorization.
The MedCard System can record and track encounters between patients and
health care providers for performance evaluation and maintenance of records.
After examining a patient a physician enters the patient's name, procedure code
and diagnostic code at a nearby terminal. This information is then uploaded to
MedCom's computer network, processed and transmitted back to the provider
formatted in both summary and/or detailed reports.
The MedCard System is marketed through the Company's sales personnel, and
independent sales representatives and institutions such as EFS National Bank,
Physicians Management Group, and Healthtech Systems. Company sales personnel
generally receive a commission for the initial sale of the terminals, and
collect a portion of residual income for the processing of insurance claims and
verifying insurance eligibility. Independent sales representatives purchase the
terminals directly from the Company and receive residual income.
Revenues from the MedCard system are generated through the sale and/or sale
lease back of terminals, and processing insurance eligibility/verification,
insurance claims, and financial transaction processing. The Company receives a
fixed amount per terminal if sales are not made by the Company's sales
personnel. The Company also receives fees for each transaction processed
through the MedCard System. Revenue sources include fees for financial
transactions processed through the terminal, fees for collection of receivables
if the Company provides billing services, fees associated with reimbursements
made by insurance carriers for submitting claims that are processed
electronically, fees for using the system's referral program and, fees for
processing uploaded data.
The Company also markets a complete billing service using the MedCard
System for hospitals and large practice groups. The Company receives a
percentage of the billing amount collected under these arrangements. As of June
30, 2001, the Company was providing this service to one hospital and one medical
practice group. Currently, the Company seeks prospective profitable business
opportunities with other hospitals and medical practice groups.
The MedCard System currently operates through a point-of-sale terminal or a
personal computer. The point-of-sale terminals are purchased from Hypercom
Corporation (Hypercom).
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The MedCard System also operates in a PC version and an on-line version is under
development. The Company is in the process of assessing the feasibility of
offering a service package that would include an on-line enabled computer that
has the capability of processing unlimited claims and eligibility verification
for monthly fees. This application will be made available after the on-line
version is completed.
As of June 30, 2001 the MedCard system was able to retrieve on-line
eligibility and authorization information from approximately 125 medical
insurance companies and electronically process and submit billings for its
healthcare providers to over 1,650 companies. These insurance providers include
CIGNA, Prudential, Oxford Health Plan, United Health Plans, Blue Cross,
Medicaid, Aetna, Blue Cross/Blue Shield, and Prudential.
COMPETITION
Competing health insurance claims processing and/or benefit verification
systems include WebMD, NDCHealth, Med Diversified. There are similar companies
that compete with the Company with respect to its financial transaction
processing services performed by the MedCard terminal. These companies compete
with the Company directly or to some degree. Many of these competitors are
better capitalized than the Company, and maintain a significant market share in
their respective industries.
REGULATORY COMPLIANCE
With the passage of the Health Insurance Portability and Accountability Act
(HIPAA) of 1996, the United States Congress has mandated the establishment of
standards for the privacy of individually identifiable health information.
Specifically, the regulation entitled, Standards for Privacy of Individually
Identifiable Health Information ("the Privacy Rule") promulgated by the
Department of Health and Human Services (HHS), provides for a comprehensive
federal protection for the privacy of health information. The Privacy Rule
became effective on April 14, 2001. The Rule applies only to health plans,
health care clearinghouses, and certain health care providers, which must comply
with the new requirements by October 2003. The Company's core operating
business is not subject to the Privacy Rule, which defines the Company as a
"business associate". A business associate is an entity that provides certain
functions, activities, or services for or to a covered entity. These entities
typically obtain contractual assurances that the business associate will use the
information only for the purposes for which they were contracted and not for
independent use by the business.
SERVICE AND PRODUCTS
The Company offers its healthcare providers, and health plan groups, a
simple solution to expedite its Healthcare and financial transactions
electronically through a processing terminal, and the Company maintains its
website www.MedCard.com. The features of the terminals are as follows:
---------------
- Benefit Verification - a procedure to verify patients' insurance
eligibility
- Electronic Referrals - allows for the submission and viewing of patients'
referral information
- Claims Processing - 100% paperless claims processing linked to all
insurance payers
- Patient Easy Pay - arranges for signature on-file at the time of service,
for patient self-pay receivable management
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- Check Guarantee - Protects against check fraud and non-sufficient funding
- Credit Cards - handles patient self-pay
- Debit/ATM Cards - accepts patient self-pay with card linked to bank account
LICENSING AGREEMENT
In May 2000 the license agreement with Dream Technologies, LLC, was amended
whereby the Company acquired direct ownership of the MedCard System including
all software programs, intellectual property, trade names and existing
contracts. The amendment effectively terminated the original license agreement,
except for the royalty provisions of the original license agreement.
Subsequently, on January 14, 2002, the Company changed the terms of the
royalties included in the original agreement with Dream Technologies, and as a
result past royalties were waived in good faith, for the exception of $30,000,
which was agreed would be payable in equal monthly installments. In connection
with the past royalties, Dream Technologies, LLC was issued a certificate
representing one-million unregistered shares of common stock with a par value of
$.001.
The Company is required to pay royalties to Dream equal to twenty percent
of the first $1,000,000 of net monthly revenue and ten percent of net monthly
revenue in excess of $1,000,000. The term net revenues is defined as gross
revenues received from the use of the MedCard software programs less (a)
terminal lease costs (b) commissions payable to agents that place terminals with
end users (c) network costs that include: i) claim fees payable to data vendors,
ii) charges for verification of insurance coverage iii) similar
telecommunications charges related to obtaining claims processing and/or
benefits verification information; and (d) cost of the terminal and
shipping/handling.
GROWTH STRATEGY
The Company's strategy is to become one of the dominant electronic
transaction processing vendors in the Healthcare markets. MedCom USA will focus
on providing Health Plan Administrators, Healthcare Clearinghouses, and
Healthcare Providers, financial as well as verification electronic transaction
processing solutions. The Company's strategy to date has included large select
markets for its products and services, however the Company will work with
strategic partners who will ensure the national distribution of its products and
services.
The Company as of June 30, 2001 has ceased operations or sold business
sectors that were unprofitable. Management believes these sectors directed its
focus away from its strategy, and discontinued operations so it may concentrate
its efforts and resources on being a meaningful player in electronic transaction
processing.
ADDITIONAL INFORMATION
The Company has been delinquent in its filings to the Securities and
Exchange Commission attributed to changes in management and discontinued
operations, subsequently trading is now performed on the over-the-counter
bulletin board (OTCBB) Pink Sheets'.
6
The Company files reports and other materials with the Securities and
Exchange Commission. These documents may be inspected and copied at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.,
20549. You can obtain information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330. You can also get copies of
documents that the Company files with the Commission through the Commission's
Internet site at www.sec.gov.
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ITEM 2. DESCRIPTION OF PROPERTY.
As of fiscal year end June 30, 2001, the Company maintained its executive
offices in Irvine, California. Subsequently, during July 2001 the Company's
executive offices were relocated and are currently located in Scottsdale,
Arizona. The Company leases 1,317 square feet of office space for approximately
$28,000 annually. The Company entered into a three-year lease in May 2002 for
the Scottsdale facility. The Company also maintains a monthly lease in Irvine,
California, for executive office space for approximately $550 monthly. The
Company also leases 5,906 square feet of office space in Islandia, New York, for
approximately $104,389 annually; the lease expires March 31, 2008. In
conjunction the Company maintains a sub-lease as of December 1, 2001, for
approximately $24,000 annually.
As of fiscal year end June 30, 2001, the Company had 35 employees.
Subsequent to fiscal year end the Company has 46 employees of which
approximately 25 are full-time equivalent employees as of May 31, 2002.
ITEM 3. LEGAL PROCEEDINGS.
Prior to July 29, 1999, Richard Niemerow, a former employee and an owner of
One Medical Services, LLC prior to acquisition by the Company, filed a legal
action against an unrelated party attempting to collect funds he alleged was
owed to him. On July 29, 1999, Fitsum Worrede, Samuel Petros and Westside Home
Medical Equipment, Inc. filed a cross complaint against Richard Niemerow and the
Company in Los Angeles Superior Court seeking recovery of $300,000 plus interest
from August 1998 and attorney fees. The Company was served with a summons for
this matter on March 2, 2000. The Company was not a party to the original claim
filed by Mr. Niemerow. The Company believes it should not be a party to this
litigation and is actively working to be dismissed from the claim. If the
Company is not successful with the dismissal, Mr. Niemerow has agreed to
indemnify the Company for all costs it incurs in any future proceedings.
On March 21, 2000, George Pursglove, a former director of the Company,
filed a complaint against the Company in the Seventeenth Judicial Circuit Court,
Broward County Florida. The complaint seeks the issuance of options to purchase
the Company's common stock in the following increments: 50,000 shares at $1.50
per share; 50,000 shares at $2.20 per share; and 25,000 shares at $0.01 per
share. Mr. Pursglove is also seeking the issuance of 25,000 "restricted" shares
of common stock. Except for the first option to purchase 50,000 shares at $1.50
per share, which is reflected as outstanding options in the Company's financial
statements, the Company is vigorously disputing the claim as it believes it is
without merit.
Subsequent to June 30, 2001, several former employees filed complaints
against the Company alleging unpaid payroll and breach of employment agreements.
The total known claims being sought by the former employees at June 30, 2001 was
7
approximately $175,000. The Company has accrued $104,000 associated with these
claims at June 30,2001. The Company believes that it has offsets to negotiate
amounts lower than what the actual claims seek.
Several landlords are seeking damages from the Company due to defaulting on
several lease agreements. Certain landlords have obtained legal judgments
against the Company. The total amount of such claims is $634,000 at June 30,
2001. The Company and its legal counsel believe that ultimate settlement will
result in a much lower payout. The Company has accrued $208,000 associated with
these claims at June 30, 2001, however there is no assurance the Company will
have available cash to pay these claims. This amount was estimated on the basis
of advice from legal counsel whom has settled several similar suits.
The Company had obligated shares of the Company's common stock and warrants
exercisable into common stock under numerous consulting and fund raising
agreements. Some such agreements obligated shares in cases of the occurrence of
substantial dilution or price drop in the trading value of the Company's common
stock. Management believes that it has fulfilled all such obligations as of
June 30, 2001. The Company has not received additional claims related to these
matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company on May 7, 2001 submitted to a vote of its security holders to
reverse split the outstanding shares of the Company's common stock such that
each five-shares of the Company's issued and outstanding common stock will be
automatically converted into one-share of common stock effective May 9, 2001. A
quorum was present representing 26,027,367 shares in person or by proxy after a
motion duly made and seconded, a total of 24,532,236 shares were voted in favor
as noted in Special Meeting of Shareholder minutes.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MedCom common stock is traded in the over-the-counter market, and quoted in
the National Association of Securities Dealers Inter-Dealer Quotation System
("Electronic Bulletin Board") under the symbol "EMED." At the current time
quotes are provided from the Pink Sheets' electronic quotation service.
The following table sets forth for the periods indicated the high and low
bid quotations for MedCom's common stock. These quotations represent
inter-dealer quotations, without adjustment for retail markup, markdown or
commission and may not represent actual transactions.
FISCAL 2001 HIGH BID LOW BID
----------- --------- --------
Quarter Ended June 30, 2001 $ 0.85 $ 0.72
Quarter Ended March 31, 2001 0.31 0.18
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Quarter Ended December 31, 2000 0.65 0.50
Quarter Ended September 30, 2000 2.15 1.68
FISCAL 2000 HIGH BID LOW BID
----------- --------- --------
Quarter Ended June 30, 2000 $ 6.69 $ 1.31
Quarter Ended March 31, 2000 9.00 0.75
Quarter Ended December 31, 1999 1.13 0.50
Quarter Ended September 30, 1999 1.50 0.63
At June 30, 2001, there were 12,888,773 shares of common stock of MedCom
outstanding and there were approximately 387 shareholders of record of the
Company's common stock.
MedCom has never paid dividends on any of its common stock shares. MedCom
does not anticipate paying dividends at any time in the foreseeable future and
any profits will be reinvested in MedCom's business. MedCom's Transfer Agent
and Registrar for the common stock is Corporate Stock Transfer located in
Denver, Colorado.
SALES OF UNREGISTERED SECURITIES
During the fiscal year ended June 30, 2001, the Company granted 1,804,650
options to key employees. These options vest at 30% immediately and the
remaining 70% over one year. These options were granted at an exercise price of
$0.47 to $3.00, the fair market value of the underlying shares on the date of
grant. The options expire five years from date of grant.
Common stock shares of approximately 1,442,182 were issued or sold during
year ended June 30, 2001 and were issued or sold in reliance upon the exemption
provided by Section 4(2) of the Act. The persons who acquired these shares gave
consideration of undetermined amounts for various services performed and 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.
9
STOCK SPLITS
Share data in this report have been adjusted to reflect the following stock
splits relating to the Company's common stock: June 1995: 2-for-1 forward split,
February 1996: 1-for-10 reverse split, February 1998: 1-for-4 reverse split, May
2001: 1-for-5 reverse split.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Management's discussion and analysis contains statements that are
forward-looking and involve risks and uncertainties. Several factors could
cause actual results to differ materially from those described in such
forward-looking statements. This includes the Company's ability to manage
growth, involvement in litigation, competition in the health electronic
transaction processing, ongoing contractual relationships, dependence upon key
personnel, changes in customer demand for product and services, and the adoption
of new, or changes in, accounting policies, practices and estimates and the
application of such policies, practices, and estimates, and federal and state
governmental regulation, specifically in the areas of electronic transaction
processing in the health care industries.
The following financial data should be read in conjunction with the
consolidated financial statements of MedCom USA and related notes and other
financial information appearing elsewhere in this report.
Statement of Operations Data:
----------------------------
Years Ended June 30,
---------------------------
2001 2000
------------- ------------
Revenues $ 547,597 $ 1,881,417
Cost of Services (113,399) (973,871)
Operating and other
Expenses (14,115,732) (8,021,436)
Loss from Discontinued Operations (11,884,346) (1,117,138)
------------- ------------
Net Loss $(25,565,880) $(8,231,028)
============= ============
Balance Sheet Data:
-------------------
June 30,
---------------------------
2001 2000
------------- ------------
Current Assets $ 316,407 $ 2,927,673
Total Assets $ 3,024,399 $13,094,615
Current Liabilities $ 3,733,012 $ 1,114,753
Non-Current Liabilities $ 42,514 $ 829,666
Total Liabilities $ 3,775,526 $ 1,944,419
Working Capital (Deficit) $ (3,416,605) $ 1,812,920
Shareholders' Equity (Deficit) $ (751,127) $11,150,196
The Company has declared no common stock dividends since its inception.
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FISCAL 2001 OPERATIONS
------------------------
General. The Company's operations changed in June 2001; these changes are
attributed directly to the Company's focus on its primary operations and core
business in electronic medical transaction processing. As of June 30, 2001, the
Company currently utilizes the MedCard System that is deployed through a
terminal or personal computer offering electronic transaction processing to the
health care industries.
Management Changes. In July 2001, Mark Bennett resigned as the President and
member of the Board of Directors. In July 2001, Michael Malet resigned as
Executive Vice President and member of the Board of Directors. In May 2001,
Alan Ruben resigned as Chief Accounting and Financial Officer. In June 2001,
David Robinson resigned as Vice President of Healthcare Information Gateway and
member of the Board of Directors. In June 2001, Vladimir Havlena resigned as
Managing Director - DCB Actuaries and Consultants, s.r.o. In June 2001, David
Breslow resigned as a member of the Board of Directors. In June 2001, Julio
Curra resigned as a member of the Board of Directors. In June 2001, Robert
Stevens resigned as Director of Development and Information Technology. In May
2001, Julie Signorille resigned as Director of Operations for the Company's
MedCard sector. In July 2001, William P. Williams became the sole Director and
sole Executive Officer of the Company.
Discontinued Operations. For fiscal year ended 2001 the Company ceased
operations in the following areas:
ONE MEDICAL SERVICES
In May 1998 the Company acquired One Medical Services, LLC in consideration
for 142,350 shares of common stock and 187,500 warrants exercisable at $2.00 per
share at any time prior to May 30, 2003. The warrants had an imputed value of
$213,870 using the Black Scholes option-pricing model. The One Medical Service
network provides a financial processing and communications network for the Home
Medical Equipment (HME) industry. In addition to processing information and
verifying insurance medical cards, this network connects HME buyers with a
network of HME vendors. This proprietary network had been designated for the
medical and managed healthcare market.
In July 1999 the Company licensed its rights to the One Medical Service
Network to an unrelated third party (Licensee) for $1,377,000 management decided
this business sector was not profitable. The Licensee agreed to purchase
approximately $200,000 of certain inventory as needed, and paid the related
accounts payable. The Licensee purchased approximately $186,000 of inventory.
The Licensee hired employees involved with this operation. The Company retained
as employees those persons who devoted less than full-time to the One Medical
Services Network. Those people primarily provided technical support,
installations, repairs, and maintenance of the underlying software and billing
support. The Company charges the Licensee for these services on a time and
materials basis. As a result of the license agreement, income related to the One
Medical Network was in the form of license fee, sale of inventory and providing
the various support services. Subsequently, the Licensee has ceased operations,
and the Company has expensed any outstanding unpaid principal and interest for
fiscal year ended June 30, 2001.
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JUSTMED.COM
The JustMed.com website became fully operating on July 1, 1999. The
website advertised healthcare products and services that were available to the
general public and provided medical information. Persons in need of healthcare
products and services were able to access the website and order products (see
"MedStore" below) or transfer to the more detailed websites maintained by the
companies that provide the products and services. The Company anticipated
generating revenues from this website by charging providers of healthcare
products and services fees for advertising on the website. The Company also
anticipated receiving fees when a user transfers from the Company's website to
the websites maintained by a provider of healthcare products or services. For
fiscal year ended June 30, 2001, the Company is not currently marketing the web
site, and has not generated any revenue from the website. The Company has made
this site inactive. Management has determined the JustMed.com website, and the
-----------
MedStore is not complimentary to the Company's present primary core operations
and does not anticipate pursuing future operations.
MEDSTORE
The MedStore was a feature of the website that allowed consumers and
physicians to purchase, from their own computers, a variety of healthcare
products and services supplied by unrelated manufacturers and healthcare service
providers. Items available for purchase included canes, crutches, walkers, bath
chairs, blood pressure units, cold therapies, exercise equipment and hot and
cold packs. The MedStore became operational on July 1, 1999. The Company is
not currently marketing the MedStore, and has not generated any significant
revenue from the MedStore.
Accredited Homecare Pharmacy and Accredited Medical Services were
responsible for filling orders for products or services purchased from the
MedStore. The services can be terminated at the discretion of either party As
of June 2001, the Company has ceased operations of this service so that it can
focus fully on its MedCard sector.
HEALTHCARE MANAGEMENT SOFTWARE DEVELOPMENT
------------------------------------------
DCB ACTUARIES & CONSULTANTS
In April 2000, the Company acquired 100% of the stock of DCB Actuaries &
Consultants, s.r.o. (DCB), a Czech Republic based company. DCB developed and
currently operates a health insurance decision support system with advanced data
structures known as the Health Information Gateway. DCB developed and operated
a Health Information Gateway, which is a web-based infrastructure; featuring
advanced data retrieval capabilities designed to meet the information needs of
the worldwide health care industry on a real-time basis.
The Company also acquired certain intellectual property from DSM, LLC
(DSM), a Florida limited liability company. The intellectual property acquired
was used by DCB in its Health Information Gateway and other products. The
intellectual property enables the software to operate and communicate with other
programs and hardware. It provided the backbone to the Health Information
Gateway. It was originally licensed from DSM, LLC to DCB.
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In August 2001, the Company ceased operations of DCB Actuaries &
Consultants Health Information Gateway. Management has determined slow economic
growth, and long sales cycles in this area are not in the Company's primary
business operations. However, the Company has signed a licensing agreement,
which will permit the Company to get a royalty fee for the use of
the Health Information Gateway software system. The Company is not anticipating
significant or material revenues from this licensing agreement in the near
future.
INTELLIGENT VENDING MACHINES
------------------------------
The Company operated three types of intelligent vending machines; video
vending machines, ATM script machines, and phone card dispensing machines. The
Company previously operated Automated Communication Distribution Centers, but
the Company decided to discontinue this aspect of the business in May 2000. The
three intelligent vending machines are described below:
MOVIE VISION
In January 1998 the Company issued 550,000 shares of its common stock to
the shareholders of Moviebar Company USA and Vectorvision, Incorporated in
consideration for the acquisition of businesses known collectively as "Movie
Vision." Movie Vision rents videocassettes, primarily containing motion
pictures, through automated dispensing units in hotels. Movie Vision had
videocassette dispensing machines in approximately 110 hotels and time-share
facilities in the United States. The machines were located in approximately
twenty states with the largest concentration in Florida and California. The
Company has sold this sector to a former employee for consideration of cash and
cash equivalents in the amount of $50,000, and $50,000 in payables, in August
2001.
SCRIPT TERMINALS
In December 1996 the Company acquired all the issued and outstanding shares
of Link International, Inc. ("Link"). Link had a proprietary script terminal
that dispensed a receipt to the customer so that it may be used to pay for
merchandise and/or services.
In June 1999 the Company sold 520 of Link's script terminals to a former
employee. The Company did not receive any cash payment in connection with
this sale, however the purchaser of the assets agreed to assume $70,000 in
accounts payable and approximately $600,000 in capitalized lease obligations
associated with the acquisition of the script terminals. The purchaser also
agreed to assume the lease obligation for the related office space. The script
terminals were sold because this line of business was not profitable, and
management has determined there was a remote possibility of becoming profitable.
During the fiscal period ended June 30, 2001, the Company has not received
revenues in this venture. The Company is not actively pursuing any
opportunities with respect to the script terminals and does not expect to
generate future revenue and has ceased operations.
PHONE CARD DISPENSING
The Company operated phone card dispensing machines that were manufactured
by Link. The machines were full sized stand-alone vending machines, and sold
prepaid phone cards, usually in $10 and $20 denominations. Phone card time for
the prepaid calling cards can be purchased from various vendors. The Company in
the past received all of the phone card time from the Licensee of the One
Medical Service Network.
13
The units were typically placed at colleges and universities, car washes,
and other retail establishments that have a high level of customer traffic.
There were currently six dispensing machines in operation, all in southern
California. The Company had another 65 machines in storage. The Company is not
pursuing any opportunities with respect to Phone Card Dispensing and has ceased
operations in this sector.
YEAR ENDED JUNE 30, 2001
--------------------------
RESULTS OF OPERATIONS
FISCAL YEAR END JUNE 30, 2001, COMPARED TO FISCAL YEAR END JUNE 30, 2000.
Revenues for Fiscal 2001 decreased to $547,597 from $1,881,417 during
Fiscal 2000. The decrease in revenue is directly the result of changes in the
Company's strategic direction in core operations. This included discontinuing
declining or unprofitable business sectors and officer and management changes.
The Company continues to aggressively pursue and devote its resources and focus
its direction in electronic transaction processing.
Selling expenses for Fiscal 2001 decreased to $551,432 from $873,519 during
Fiscal 2000. The decrease was primarily the result of decreased marketing
efforts in the areas of discontinued business sectors. Research and development
costs also declined, which is attributed to decreases in expenditures to support
or promote unprofitable or declining business.
General and administrative expenses for Fiscal 2001 decreased to $5,248,215
from $6,219,859 during Fiscal 2000. The decrease was largely due to the
Company's streamlining efforts and discontinued segments; a reduction in
management salaries and directors fees, and a reduction in inventory and
equipment purchases for discontinued segments. Management expects these
expenditures to be in conformance with budgeted amounts along with applying
effective cost curtailment practices.
Professional and consulting expenses for Fiscal 2001 were $6,796,506 these
expenses primarily are the result of the recognition of stock given for various
services to the Company. The expense recognized is determined from the bid and
ask price of the common stock at the date of the transaction.
Interest expense for Fiscal 2001 decreased to $111,430 from $128,980 for
Fiscal 2000. The decrease in interest expense was the direct result of a
settlement of debt and discontinued business sectors.
The loss from discontinued operations reflects the abandonment of numerous
business units during the year ended June 30, 2001. The business units
discontinued generated $890,000 in revenue during the year ended June 30, 2001.
The Company incurred losses of approximately $5,084,000 relative to net assets
associated with the discontinued business segments abandoned or sold.
14
Net loss for Fiscal 2001 was ($25,565,880) or ($3.35) per basic share,
compared to a net loss of ($8,231,028) for Fiscal 2000.
As of June 30, 2001, MedCom had a federal net operating loss carry forward
of $51,997,000 expiring 2011 to 2020. MedCom had a state net operating loss
carry forward of $47,914,377 expiring from 2003 to 2005. MWMark WeberDoug: You
are supposed to leave in the discussion on the comparison of 2000 to 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its working capital requirements from cash used by
operating activities and selling shares of its common stock in private
placements. Cash used by operating activities for Fiscal 2001 was ($5,470,833)
compared to ($3,676,987) for Fiscal 2000. The Company experienced losses from
discontinued operations and abandonment of assets attributable to discontinued
business segments.
Cash flows used for investing activities were ($1,049,930) for Fiscal 2001,
compared to ($3,081,909) for Fiscal 2000. Streamlining operations and cost
curtailment practices promoted a reduction in equipment purchases for the
Company and associated discontinued business segments.
Cash flows provided for financing activities was $4,477,160 in Fiscal
2001, compared to cash flows provided for financing activities of $7,969,867 for
Fiscal 2000. Financing activities primarily consisted of proceeds from the
exercise of the Company's options and warrants and the sales of common stock.
The Company has relied upon a significant shareholder to fund its operating
cash flow deficiencies since June 30, 2001. These funds are through a
convertible debenture whereby the shareholder has the right to convert the
outstanding obligation to stock at the closing price of the date the cash was
received by the Company. This may substantially increase the Company's
outstanding shares of common stock. Management believes that current trends in
its electronic transaction processing to the health care industries business
will provide cash flow to be self-sustaining from operations sometime in the
near fiscal periods. The Company will require capital to finance the purchases
of the electronic terminals. The amount of such requirement will be dependent
upon the rate of growth experienced. The Company has been successful in
obtaining lease financing for some of this equipment. The nature of the
business is such that large accounts receivable balances will not be carried.
The Company is delinquent on capital and operating lease obligations as
well as obligations to employees, officers, vendors and other creditors at June
30, 2001. The Company has attempted to negotiate settlements or make counter
claims against most of these creditors. There can be no assurances that the
Company will be successful in negotiating settlements and preventing creditors
from filing claims and litigating for claims.
15
OTHER CONSIDERATIONS
There are numerous factors that affect the business and the results of its
operations. Sources of these factors include general economic and business
conditions, federal and state regulation of business activities, the level of
demand for product services, the level and intensity of competition in the
healthcare electronic transaction processing industry, and the ability to
develop new services based on new or evolving technology and the market's
acceptance of those new services, the Company's ability to timely and
effectively manage periodic product transitions, the services, customer and
geographic sales mix of any particular period, and our ability to continue to
improve our infrastructure including personnel and systems to keep pace with the
Company's anticipated rapid growth.
ITEM 7. FINANCIAL STATEMENTS
16
MEDCOM USA, INC.
TABLE OF CONTENTS PAGE
--------------------------
INDEPENDENT AUDITORS' REPORT: F-2
Epstein, Weber & Conover, PLC
INDEPENDENT AUDITORS' REPORT: F-3
Ehrhardt, Keefe Steiner & Hottman, PC
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet at June 30, 2001 F-4
Consolidated Statements of Operations for the years ended
June 30, 2001 and 2000 F-5
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 2001 and 2000 F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 2001 and 2000 F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
F-1
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors of
MedCom USA, Inc.:
We have audited the accompanying consolidated balance sheet of MedCom USA, Inc.
as of June 30, 2001 and the related statements of operations, stockholders'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MedCom USA, Inc. as of June 30,
2001, and the results of its operations and cash flows for the year then ended,
in conformity with generally accepted accounting principles.
We also reviewed the adjustments described in Note 8 that were applied to
restate the financial statements as of June 30, 2000 for discontinued
operations. In our opinion, such adjustments are appropriate and have been
properly applied.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred material
operating losses, has experienced severe cash flow deficiencies and has limited
working capital reserves. The Company has divested of several business segments
and expects to face many operating challenges in the near future. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans with regard to these matters are discussed in Note
1. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
/s/ Epstein, Weber & Conover, PLC
Scottsdale , Arizona
February 28, 2002
F-2
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Stockholders
MedCom USA, Incorporated and Subsidiaries
Irvine, California
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of MedCom USA, Incorporated and Subsidiaries
for the year ended June 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of their operations and cash flows
of MedCom USA, Incorporated and Subsidiaries for the year ended June 30, 2000
in conformity with accounting principles generally accepted in the United States
of America.
/s/ Ehrhardt Keefe Steiner & Hottman PC
September 6, 2000
Denver, Colorado
F-3
MEDCOM USA, INC.
CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
--------------------------
ASSETS
CURRENT ASSETS
Accounts receivable, net of allowance of $563,869 $ 98,769
Inventories 136,085
Prepaid expenses and other current assets 81,553
-------------
Total current assets 316,407
PROPERTY AND EQUIPMENT, net 2,076,209
GOODWILL, net of accumulated amortization of $170,775 588,223
OTHER ASSETS 43,560
-------------
TOTAL ASSETS $ 3,024,399
=============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $ 1,128,225
Accrued expenses and other liabilities 1,332,141
Bank overdraft 60,574
Dividend payable 23,750
Notes payable - current portion 109,437
Capital lease obligations - current portion 1,078,885
-------------
Total current liabilities 3,733,012
CAPITAL LEASE OBLIGATIONS - long-term portion 42,514
-------------
Total liabilities 3,775,526
-------------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A $.001par value, 52,900 shares
designated, 4,250 issued and outstanding 4
Convertible preferred stock, Series D $.01par value, 50,000 shares
designated, 2,850 issued and outstanding 29
Common stock, $.0001 par value, 80,000,000 shares authorized,
12,888,000 issued and outstanding 1,289
Paid in capital 61,227,563
Accumulated deficit (61,980,012)
-------------
Total stockholders' equity (751,127)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,024,399
=============
The accompanying notes are an integral part of these consolidated financial statements.
F-4
MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2001 AND JUNE 30, 2000
--------------------------------------------------
2001 2000
REVENUES:
Terminal sales $ 259,372 $ 773,198
Service 288,225 1,108,219
------------- ------------
547,597 1,881,417
------------- ------------
OPERATING EXPENSES:
Cost of terminals and services 113,399 973,871
General and administrative expenses 5,248,215 6,219,859
Sales and marketing expenses 551,432 873,519
Royalties 139,715 -
Professional and consulting fees 6,796,506 -
Depreciation and amortization 398,424 532,637
------------- ------------
Total operating expenses 13,247,691 8,599,886
------------- ------------
OPERATING LOSS (12,700,094) (6,718,469)
------------- ------------
OTHER (INCOME) AND EXPENSES
Legal settlement and contingency expenses 854,646 -
Foreign currency translation 33,708 -
Interest expense 111,430 128,980
Interest income (18,344) (114,096)
Loss on patents - 255,229
Loss on script machines - 80,018
------------- ------------
Total other expense 981,440 350,131
------------- ------------
LOSS BEFORE DISCONTINUED OPERATIONS AND INCOME TAXES (13,681,534) (7,068,600)
INCOME TAX (BENEFIT) PROVISION - (45,290)
------------- ------------
LOSS FROM CONTINUING OPERATIONS (13,681,534) (7,113,890)
LOSS FROM DISCONTINUED OPERATIONS
Loss from operations of discontinued segments, no income tax effect (6,799,153) (665,989)
Loss from abandonment of discontinued segments, no income tax effect (5,085,193) (451,149)
------------- ------------
Total (11,884,346) (1,117,138)
------------- ------------
NET LOSS $(25,565,880) $(8,231,028)
============= ============
NET LOSS PER SHARE:
Basic:
Continuing operations $ (1.80) $ (0.29)
Discontinued operations (1.55) (0.05)
------------- ------------
Total Basic $ (3.35) $ (0.34)
============= ============
Diluted:
Continuing operations $ (1.80) $ (0.29)
Discontinued operations (1.55) (0.05)
------------- ------------
Total Diluted $ (3.35) $ (0.34)
============= ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 7,666,132 24,431,551
============= ============
Diluted 7,666,132 24,431,551
============= ============
The accompanying notes are an integral part of these consolidated financial statements.
F-5
MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000
------------------------------------------------------
\ ----------- PREFERED STOCK -----------\
COMMON STOCK PREFERRED A & B PREFERRED C PREFERRED D PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------- ------- -------- ------- -------- ------ ------- ------------
BALANCE JULY 1, 1999 3,345,501 $ 336 9,250 $ 9 1,745 $ 2 - $ - $32,095,188
Conversion of Series C Preferred 698,000 70 (1,745) (2) (137,343)
Common stock issued for
service rendered 139,292 14 574,745
Common stock issued for cash 1,252,529 125 6,161,748
Exercise of warrants and options 373,908 37 2,183,025
Conversion of notes payable 117,509 12 495,872
Common stock issued to settle
obligations 51,367 5 185,608
Common and preferrd stock issued
in connection with acquistions 27,426 3 2,850 29 3,729,059
Fair value of stock warrants granted
for services rendered 856,501
Common stock issued for equipment 346,500 35 1,287,696
Preferred stock dividends 12,000 1 19,270
Conversion of Series A Preferred 160 - (5,000) (5) 152
Translation adjustment
Net loss
--------- ------- ------- -------- ------- -------- ------ ------- ------------
BALANCE
JUNE 30, 2000 6,364,193 $ 637 4,250 $ 4 - $ - 2,850 $ 29 $47,451,521
========= ======= ======= ======== ======= ======== ====== ======= ============
ACCUMULATED TRANSLATION
DEFICIT ADJUSTMENT TOTAL
------------- ------------ ------------
BALANCE JULY 1, 1999 $(27,988,929) $ 4,106,606
Conversion of Series C Preferred (137,275)
Common stock issued for
service rendered 574,759
Common stock issued for cash 6,161,873
Exercise of warrants and options 2,183,062
Conversion of notes payable 495,884
Common stock issued to settle
obligations 185,613
Common and preferrd stock issued
in connection with acquistions 3,729,091
Fair value of stock warrants granted
for services rendered 856,501
Common stock issued for equipment 1,287,731
Preferred stock dividends (80,174) (60,903)
Conversion of Series A Preferred 147
Translation adjustment (1,863) (1,863)
Net loss (8,231,029) (8,231,029)
------------- ------------ ------------
BALANCE
JUNE 30, 2000 $(36,300,132) $ (1,863) $11,150,196
============= ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
F-6
MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE
FOR THE YEARS ENDED JUNE 30, 2001 AND 2000 (CONTINUED)
------------------------------------------------------
\----------- PREFERED STOCK -----------\
COMMON STOCK PREFERRED A & B PREFERRED C PREFERRED D PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
---------- ------- ------ ------- ------ ------- ------ ------- -----------
BALANCE JULY 1, 2000 6,364,193 $ 637 4,250 $ 4 - $ - 2,850 $ 29 $47,451,521
Common stock issued to settle claims 8,460 1 38,749
Common stock issued to consultants
for services rendered 2,662,268 266 7,924,448
Common stock issued for cash 2,767,235 277 3,035,775
Exercise of warrants for cash 1,009,985 101 1,690,851
Exercise of employee options for cash 14,667 1 51,232
Fair value of stock warrants granted
for services rendered 920,993
Preferred stock dividends 61,965 6 113,994
Translation adjustment
Net loss
---------- ------- ------ ------- ------ ------- ------ ------- -----------
BALANCE
JUNE 30, 2001 12,888,773 $ 1,289 4,250 $ 4 - $ - 2,850 $ 29 $61,227,563
========== ======= ====== ======= ====== ======= ====== ======= ===========
ACCUMULATED TRANSLATION
DEFICIT ADJUSTMENT TOTAL
------------- ------------ -------------
BALANCE JULY 1, 2000 $(36,300,132) $ (1,863) $ 11,150,196
Common stock issued to settle claims 38,750
Common stock issued to consultants
for services rendered 7,924,714
Common stock issued for cash 3,036,052
Exercise of warrants for cash 1,690,952
Exercise of employee options for cash 51,233
Fair value of stock warrants granted
for services rendered 920,993
Preferred stock dividends (114,000) 0
Translation adjustment 1,863 1,863
Net loss (25,565,880) (25,565,880)
------------- ------------ -------------
BALANCE
JUNE 30, 2001 $(61,980,012) $ - $ (751,127)
============= ============ =============
The accompanying notes are an integral part of these consolidated financial statements.
F-6 (Continued)
MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE
YEARS ENDED JUNE 30, 2001 AND 2000
--------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(25,565,880) $(8,231,029)
Adjustments to reconcile net income to net cash
(used in) operating activities:
Loss from discontinued operations 6,799,153 1,117,138
Loss on abandonment of net assets of discontinued operations 5,085,193 429,929
Depreciation and amortization 398,424 532,637
Issuance of common stock as compensation for services 7,924,714 1,691,967
Value of common stock warrants granted as compensation for services 856,818 718,733
Write-off of notes receivable 789,720 311,980
Other - 5,623
Changes in assets and liabilities (net of discontinued business segments):
Trade accounts receivable 749,761 (241,259)
Inventories 37,006 164,791
Royalty advances 676,353 (160,446)
Prepaid and other current assets 137,426 (9,606)
Other assets 55,636 (68,104)
Accounts payable 607,326 (165,246)
Accrued liabilities 603,087 225,905
------------- ------------
Cash used by continuing operations (845,263) (3,676,987)
Cash used by discontinued operations (4,625,570) -
------------- ------------
Net cash (used in) operating activities (5,470,833) (3,676,987)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (1,026,710) (339,787)
Advances under notes receivable (62,220) -
Net assets of discontinued operations - (2,781,122)
Repayments under notes receivable 39,000 39,000
------------- ------------
Net cash (used in) investing activities (1,049,930) (3,081,909)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 60,574 -
Principal repayments on notes payable (10,563) (199,052)
Principal repayments on capital leases (351,088) (45,257)
Proceeds from the exercise of options and warrants 1,742,185 2,286,467
Proceeds from sale of common stock 3,036,052 6,162,020
Retirement of Series C stock - (137,275)
Dividends (95,173)
Currency translation loss - (1,863)
------------- ------------
Net cash provided by financing activities 4,477,160 7,969,867
------------- ------------
DECREASE IN CASH (2,043,603) 1,210,971
CASH, BEGINNING OF YEAR 2,043,603 439,772
------------- ------------
CASH, END OF YEAR $ - $ 1,650,743
============= ============
The accompanying notes are an integral part of these consolidated financial statements.
F-7
MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS, (CONTINUED)
FOR THE YEAR ENDED JUNE 30, 2001 AND 2000
-------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION: 2001 2000
---------- ----------
Interest paid $ 77,023 $ 128,980
========== ==========
Income taxes paid $ 14,586 $ 45,290
========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Leaseholds acquired under a note payable $ 95,000 $ -
========== ==========
Equipment acquired under capital leases $1,299,205 $ 49,402
========== ==========
Purchase of equipment with warrants $ 64,277 $ 205,000
========== ==========
Conversion of debt and accrued interest to
common stock $ $ 495,884
========== ==========
Conversion of accounts payable and accrued
expenses to common stock $ $ 185,613
========== ==========
Capital stock issued in connection with
business acquisitions $ $3,729,091
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-7 (Continued)
MEDCOM USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30, 2001
------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
MedCom USA, Inc. (the "Company"), formally Sims Communications, Inc.,
provides point-of-sale transaction terminals and personal computer based
software to provide medical insurance eligibility verification, claims
processing, and credit card/ATM charges and payments. The Company's
customers are health care providers, primarily medical doctors' offices
throughout the United States. During the year ended June 30, 2001, the
company divested or abandoned all other business segments. The Company had
also provided software based applications for health care billing
management and "intelligent" vending services, primarily video rentals in
hotels and motels. Those operations have been discontinued as of June 30,
2001.
The accompanying financial statements represent the consolidated financial
position and results of operations of the Company and includes the accounts
and results of operations of the Company and its wholly owned subsidiaries;
Sims Franchise Group Inc., Sims Communications International, Inc.,
JustMed.com, Inc., One Medical Service, Inc., and Link International
Technologies, Inc. and its wholly owned subsidiary New View Technologies,
Inc. for the years ended June 30, 2001 and 2000. The results of operations
and accounts of DCB Actuaries and Consultants, s.r.o. ("DCB") are included
for the year ended June 30, 2001, and for the period April 15, 2000, date
of acquisition, through June 30, 2000. DCB is a wholly owned subsidiary
with operations in the Czech Republic. The Company determined that it would
abandon DCB in the year ended June 30, 2001.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred material
operating losses, has experienced severe cash flow deficiencies and has
limited working capital reserves. The Company has a working capital deficit
of $2,910,459 at June 30, 2001 and has defaulted on numerous operating and
capital lease agreements and has material past due obligations.
The Company has divested of several business segments and expects to face
many operating challenges in the near future. The Company is attempting to
negotiate settlements and payment plans with creditors. A new management
team has been instituted cost cutting measures. A major shareholder of the
Company has provided limited capital to assist in meeting day-to-day
operating expenses. Management is attempting to attain a sustaining
operating cash flow from the Company's MedCard operations while negotiating
with creditors. The Company will then attempt to raise additional capital
to grow the MedCard operations and settle with creditors.
Cash reserves at June 30, 2001 were essentially depleted. Although the
Company is generating cash flow from sales activities, such cash flow is
sufficient only to cover a portion of current operating expenses, and does
not permit the Company to retire prior debts or expand its operations. The
Company believes that it needs additional cash, either from outside
financing or expanded sales activities, in order to retire debts
accumulated over the last two years and significantly expand the Company's
operations.
F-8
If the Company is unable to produce sales as planned and/or raise
additional investment capital to fully implement its business plan, it may
jeopardize the ability of the Company to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash includes all short-term highly liquid investments that are readily
----
convertible to known amounts of cash and have original maturities of three
months or less. Net bank overdrafts are recorded as current liabilities in
the accompanying balance sheet
Principles of Consolidation: The consolidated financial statements include
----------------------------
the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions are eliminated.
Inventories consist primarily of movie video cassettes, POS terminals and
-----------
spare parts that are held for sale. Inventories are recorded at the lower
of cost or market on a first-in, first-out basis.
Property and equipment is stated at cost less accumulated depreciation.
----------------------
Depreciation is recorded on a straight-line basis over the estimated useful
lives of the assets ranging from 3 to 5 years. Depreciation expense for the
years ended June 30, 2001 and 2000 was $705,965 and $723,564, respectively.
Revenue recognition - The Company's revenue is generated by the sale of POS
-------------------
terminals and transaction fees generated through those terminals. Revenue
from the sale of POS terminals is recognized when delivered to the
customer. Transactions fees are recognized upon completion of the
transaction processing.
Income taxes - The Company provides for income taxes based on the
------------
provisions of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes, which, among other things, requires that
recognition of deferred income taxes be measured by the provisions of
enacted tax laws in effect at the date of financial statements.
Financial Instruments - Financial instruments consist primarily of accounts
---------------------
receivable, and obligations under accounts payable, accrued expenses,
capital lease obligations and notes payable. The carrying amounts of
accounts receivable, accounts payable, accrued expenses and notes payable
approximate fair value because of the short maturity of those instruments.
The carrying value of the Company's capital lease arrangements approximates
fair value because the instruments were valued at the retail cost of the
equipment at the time the Company entered into the arrangements. The
Company has applied certain assumptions in estimating these fair values.
The use of different assumptions or methodologies may have a material
effect on the estimates of fair values.
Net loss per share is calculated using the weighted average number of
---------------------
shares of common stock outstanding during the year. The Company has adopted
the provisions of SFAS No. 128 Earnings Per Share.
F-9
Use of Estimates - The preparation of financial statements in conformity
------------------
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Stock-Based Compensation - Statements of Financial Accounting Standards No.
------------------------
123, Accounting for Stock-Based Compensation, ("SFAS 123") established
accounting and disclosure requirements using a fair-value based method of
accounting for stock-based employee compensation. In accordance with SFAS
123, the Company has elected to continue accounting for stock based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The proforma effect of the fair value method is discussed in
Note 15.
Intangible assets at June 30, 2001 consist of goodwill associated with the
-----------------
Company's acquisition of MedCard for the difference between the purchase
price of the acquired business and the fair value of the identifiable net
assets. Goodwill is amortized on a straight-line basis over 5 years.
Research and Development costs are expensed as incurred.
------------------------
Impairment of long-lived assets is assessed by the Company for impairment
whenever there is an indication that the carrying amount of the asset may
not be recoverable. Recoverability of these assets is determined by
comparing the forecasted undiscounted cash flows generated by those assets
to the assets' net carrying value. The amount of impairment loss, if any,
is measured as the difference between the net book value of the assets and
the estimated fair value of the related assets.
Reclassifications - Certain reclassifications have been made to the
-----------------
financial statements for the year ended June 30, 2000, to conform with the
presentation for the year ended June 30, 2001. The results of operations
and cash flow statement for the year ended June 30, 2000, have been
restated to reflect the presentation of discontinued operations.
3. ACCOUNTS RECEIVABLE
The Company's accounts receivable at June 30, 2001 consisted of:
Medcard $ 429,269
Movie Vision 200,809
Other 32,560
------------
Total 662,638
Less: Allowance for doubtful (563,869)
accounts
------------
$ 98,769
============
F-10
The Company estimates uncollectible account balances and provides an
allowance for such estimates. The allowance for doubtful accounts at June
30, 2001, consists primarily of an estimate for two potentially
uncollectible accounts in the MedCard division.
4. IMPAIRMENT OF LONG-LIVED ASSETS
In connection with the Company's determination that it divest of or abandon
numerous business segments, the Company analyzed the carrying cost of its
long-lived assets in those segments. The Company analyzed any write-down
considering factors such as the potential sale of such business segments,
collateral value for obligations and out right abandonment. During the year
ended June 30, 2001, the Company recognized impairment write-downs or
write-offs as follows:
Carrying
Value at
Impairment June 30,
Description Segment Loss 2001
----------------- ---------- ---------- --------
Goodwill Medical $ 443,829 $ - 0 -
Contracts Medical 8,334 - 0 -
Healthcare
Technology Software 2,493,346 - 0 -
Healthcare
Equipment Software 287,123 - 0 -
Equipment Vending 77,773 16,847
Healthcare
Leaseholds Software 192,748 - 0 -
DCB equipment and Healthcare
goodwill Software 1,189,387 - 0 -
--------------------
Total $4,692,540 $ 16,847
====================
The impairment losses above have been included in discontinued operations
for the year ended June 30, 2001.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, 2001:
Leasehold improvements $ 7,168
Vending equipment 109,345
Software 943,963
F-11
Vehicles 20,609
Furnishings and fixtures 42,262
Office and computer equipment 1,945,027
-----------
Total 3,068,374
Less accumulated depreciation (992,165)
-----------
Property and equipment, net $2,076,209
===========
The vending equipment with a net book value of $16,847 is held for
disposition at June 30, 2001. Computer equipment with a gross value and net
book value of approximately $1,295,000 and $1,150,000 is under capital
lease agreements. The Company has defaulted on the leases and the equipment
is intended to be returned to the lessors. Computer equipment with a net
book value of approximately $500,000 at June 30, 2001 is being held for
sale.
6. NOTES PAYABLE
Notes payable at June 30, 2001 are comprised of the following:
Convertible note payable to individual. The note
bears interest at 8% per annum and is payable
quarterly. The note is convertible to common
stock at $6.25 per share. The note had an original
maturity date of February 1998 and is currently in
default. $ 25,000
Note payable to landlord. Collateralized by
leasehold improvements. Original principal
balance of $95,000. The note bears interest at 9%
per annum and requires monthly principal and
interest payments of $1,999. The Company
defaulted on the note subsequent to June 30, 2001.
84,437
-----------
Totals $ 109,437
===========
6. CAPITAL LEASE OBLIGATIONS
The Company leases certain office and computer equipment under capital
leases. The following presents future minimum lease payments under the
capital leases by year and the present value of minimum lease payments as
of June 30, 2001:
F-12
Years ended June 30:
2002 $ 1,311,015
2003 30,145
2004 16,642
2005 6,084
2006 3,549
------------
Total minimum lease payments 1,367,435
Less amount representing interest (246,036)
------------
Present value of minimum lease payments $ 1,121,399
============
The Company has defaulted on two capital lease agreements with an
originally determined present value of minimum lease payments of $995,175
at June 30, 2001. This balance is classified as a current liability in the
accompanying balance sheet. Total minimum lease payments of $1,194,528 are
due under these capital leases.
Total cost of equipment under capital lease and related accumulated
depreciation was $1,458,220 and $192,918 respectively.
8. DISCONTINUED OPERATIONS
In the year ended June 30, 2001, the Company determined that it would
divest of or abandon the following operations and business segments:
Revenues for
the year
ended
Segment Method of Remaining Assets Remaining Liabilities June 30,
Identification Disposal at June 30,2001 at June 30,2001 2001
-------------- ---------------- --------------------- ---------------------- -------------
DCB Abandonment NONE NONE $ 157,955
Healthcare
Information Capital lease
Software Abandonment/Sale Equipment $1,651,863 Obligations $ 995,175 $ 685,991
Vending Sale Accounts Accounts $ 731,831
Receivable $ 91,000 Payable $ 53,000
Inventory 17,000
Equipment 17,000
Ultimate disposal of these business segments was expected to occur during
the first six months of the fiscal year ended June 30, 2002.
In August 2001, the Company sold the Vending segment to a former employee
for $50,000 cash and the assumption of certain trade accounts payable. The
Company maintained title to certain accounts receivable.
F-13
Any other net assets of the above named segments were written -off because
there was no expected realization from the carrying value of those net
assets. The loss from these write-offs is included in the loss from
abandonment of discontinued segments in the accompanying statement of
operations for the year ended June 30, 2001. The Company is attempting to
negotiate the capital lease obligations of the Healthcare Information
Software segment by returning the equipment to the lessors. The Company is
also attempting to sell the remaining equipment.
The Company determined it would discontinue these operations in June 2001.
Therefore, the operating losses determined from the date the determination
was made to discontinue these operations through June 30, 2001, is not
significant.
9. INCOME TAXES
The Company recognizes deferred income taxes for the differences between
financial accounting and tax bases of assets and liabilities. Income taxes
for the years ended June 30, consisted of the following:
2001 2000
------------ ------------
Current tax (benefit) provision $(7,998,908) $(2,880,860)
Deferred tax (benefit) provision 7,998,908 2,880,860
------------ ------------
Total income tax provision $ - 0 - $ - 0 -
============ ============
Net deferred tax assets of $21,566,650 less a valuation allowance of
$21,483,396, relate primarily to net operating loss carryforwards and
differences in book and tax bases of property and equipment, intangible
assets and certain accruals. The net deferred income tax asset at June 30,
2001 is comprised of:
Allowance for losses on accounts receivable $ 225,548
Differences in liabilities 350,078
Impairment of intangible assets 2,076,647
Net operating loss carryforwards 18,914,377
-------------
Deferred income tax asset $ 21,566,650
Less: valuation allowance (21,483,396)
-------------
Total deferred income tax asset 83,254
Deferred income tax liability related to
book/tax differences in bases of property and equipment (83,254)
-------------
Net deferred income tax asset $ - 0 -
=============
Federal net operating loss carryforwards of $51, 997,000 expire from 2011
to 2020. State net operating loss carryforwards of $47,914,377 expire from
2003 to 2005. Due to the conditions discussed in Note 1, future utilization
of the net operating losses is uncertain.
F-14
The differences between the statutory and effective tax rates is as follows
for the years ended June 30,:
2001 2000
---- ----
Federal statutory rates $(8,692,399) (34)% $(2,826,442) (34)%
State income taxes (1,661,782) (6)% 45,290 1%
Valuation allowance for
operating loss carryforwards 10,364,396 2,828,442 34%
Other (10,215) -%
----------------------------------------
Effective rate $ ( - 0 -) (-0-) $ 45,290 1%
========================================
9. OPERATING LEASES
The Company a leases its office space under long-term operating leases
expiring through 2008. Rent expense under these leases was $334,913 and
$237,719 for the years ended June 30, 2001 and 2000, respectively.
Subsequent to June 30, 2001, the Company defaulted on several of these
operating leases and is attempting to negotiate settlements with landlords.
Future minimum annual lease payments and sublease rentals under operating
lease agreements for years ended June 30:
2002 $ 243,652
2003 163,645
2004 163,584
2005 169,080
2006 126,152
Thereafter 334,436
----------
$1,200,549
==========
10. STOCKHOLDERS' EQUITY
During the year ended June 30, 2001, the Company declared a one-for-five
reverse stock split. All shareholders of record as of May 9, 2001 effective
returned five shares of the Company's common in exchange for one share. All
per share amounts and number of shares for the two years ended June 30,
2001, have been restated to reflect the stock spilt retroactively to July
1, 1999.
During the year ended June 30, 2001, the Company issued 2,767,235 shares of
its common stock for cash in several private transactions. The aggregate
cash proceeds received by the Company was $3,036,052 net of cash fund
raising fees of $152,453. The transactions were priced from $0.01 to $2.00
per share.
The Company has issued shares of its common stock as consideration to
consultants for services rendered. The value of those shares was determined
based on the trading value of the stock at the dates on which the
agreements were made for the services. During the year ended June 30, 2001,
the Company issued 2,662,268 shares to consultants valued at
F-15
$7,924,448. The value of these shares was expensed during the year ended
June 30, 2001. During the year ended June 30, 2001, the Company issued
1,024,652 shares of its common stock in connection with the exercise of
stock options and warrants. The Company received cash of $1,742,083 in
connection with these transactions.
During the year ended June 30, 2001, the Company issued 8,460 shares of its
common stock as conversion of a settlement balance of $38,750.
During the year ended June 30, 2001, the Company granted options to
consultants as consideration for services rendered. The Company also
granted warrants to settle past due lease payments. During the year ended
June 30, 2001, the Company granted warrants and options exercisable into
2,172,996 shares of common stock. The fair value of these options and
warrants was determined to be $920,983. That amount is expensed in the
accompanying statement of operations for the year ended June 30, 2001. The
fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option-pricing model using the assumptions
outlined in Note 15.
During the year ended June 30, 2001, the Company paid accrued dividends of
$114,000 on the Series D preferred stock by the issuance of 61,965 shares
of he Company's common stock.
Preferred Stock
The Company is authorized to issue up to 300,000 shares of $.001 par value
Preferred Stock. The Board of Directors has the authority to divide the
Preferred Stock into series and, within the certain limitations, to set the
relevant terms of such series created.
In April 1995, the Company established the Series A Preferred Stock and
authorized the issuance of up to 50,000 shares. Each share of series A
Preferred Stock is entitled to a dividend at the rate of $1.60 per share
when, as and if declared by the Board of Directors. Dividends not declared
are not cumulative. Additionally, each share of Series A Preferred Stock is
convertible into .20 shares of the Company's Common Stock at any time after
July 1, 1999. A total of 850 shares of common stock may be issued upon the
conversion of the shares of Series A preferred stock outstanding as of June
30, 2000. Upon any liquidation or dissolution of the Company, each
outstanding share of Series A Preferred Stock is entitled to distribution
of $20 per share prior to any distribution to the holders of the Company's
common stock. As of June 30, 2000, the Company has 4,250 shares of Series A
Preferred Stock issued and outstanding.
In April 2000, the Company established the Series D Preferred stock and
authorized the issuance of up to 2,900 shares. The Company issued 494
shares related to a business acquisition of and 2,356 shares for the
acquisition of related intellectual property. Each share of Series D
preferred stock is entitled to a dividend at the rate of $0.04 per share
and has a stated value of $1,000 per share. Dividends on all Series D
preferred stock begin to accrue and accumulate from the date of issuance.
Additionally, each share of Series D preferred stock is convertible into
40.49 shares of common stock for a total of 576,923 shares at the option of
the stockholders. Upon liquidation or dissolution of the Company, each
F-16
outstanding share of Series D preferred stock is entitled to a distribution
of the stated amount per share prior to any distribution to the
shareholders of the Company's common stock. The Company can convert the
Series D preferred stock into shares of common stock using the same
conversion ratio at any time after April 15, 2001 so long as the bid price
of the Company's common stock exceeds $4.94 per share and the shares of
common stock issuable upon the conversion of the Series D preferred stock
are either covered by an effective registration statement or are eligible
for sale pursuant to rule 144 of the Securities and Exchange Commission.
Each share of Series D preferred stock is entitled to vote in all matters
submitted to the Company's shareholders on an "as converted" basis. Total
accrued, but unpaid dividends related to the Series D preferred stock was
$23,750 at June 30, 2001.
11. COMMITMENTS AND CONTINGENCIES
Employment Agreements
The Company has entered into numerous employment agreements with officers
and key employees. Generally, the employment agreements are for three-year
periods and include, as potential additional compensation, incentive
bonuses computed based upon Company's operations and other benefits,
including such items as an automobile allowance, health and life insurance,
vacation and sick pay benefits. The aggregate annual base salaries under
these agreements totaled $504,000. The Company has terminated these
agreements but has yet to settle with all former employees. The Company was
named in a judgment received by one former officer in the amount of
$142,000. The Company believes that it has certain offsets and will
negotiate a lower payout for this judgment. The Company has accrued $71,000
relative to this matter at June 30, 2001.
During the year ended June 30, 2000, the Company entered into three
three-year employment contracts with an officer of the Company, the
managing director of DCB in the Czech Republic and another individual
related to the operation of DCB in the United States. The total annual
salary under these agreements is $276,000. The Company abandoned DCB
effective June 30, 2001and has not continued to pay compensation under
these employment agreements.
In June 2000, the Company entered into four two-year employment agreements
with various personnel in the MedCard division. These agreements were
negotiated subsequent to June30, 2001. Total annual compensation under
these agreements is $104,000. These individuals may be entitled to receive
incentive bonuses and other benefits including health insurance, disability
coverage, vacation and sick pay. These individuals received options to
purchase a total of 25,000 shares of the Company's common stock at $3.00
per share with vesting on an annual basis over two years.
Royalty Agreement
In connection with the original licensing and subsequent acquisition of
MedCard, the Company entered into a royalty agreement with the original
Licensor. The royalty provisions of the license agreement remained in
effect after the purchase. This agreement was amended subsequent to June
30, 2001. The Company will pay the Licensor 20% of qualified monthly
F-17
revenues, less direct costs, generated by the licensed software. The
original agreement required the Company to advance $550,000 of royalty fees
payable to the Licensor and then retain as a credit 40% of the future
monthly royalty payments until the advance is offset in full. During the
year ended June 30, 2001, in anticipation of the new agreement, the Company
wrote-off the remaining prepaid royalty and prepaid expense balance of
$643,659.
Consulting Agreements
The Company has entered into various consulting agreements with outside
consultants. These agreements entitle the consultant to issuances of common
stock and options as well as cash compensation in exchange for consulting
services relating to such things as raising additional debt and equity
capital, software development, sales development, investor and public
relations and general strategic business consulting. Most of these
agreements were prepaid through the issuance of common stock or warrants.
However, certain of these agreements included additional compensation on
the basis of performance. The Company has cancelled all of these agreements
and wrote-off all of the associated prepaid expense balances at June 30,
2001. The Company does not believe that it has any further obligation under
these agreements.
Litigation
Subsequent to June 30, 2001, several former employees filed complaints
against the Company alleging unpaid payroll and breach of employment
agreements. The total known claims being sought by the former employees at
June 30, 2001 was approximately $175,000. The Company has accrued $104,000
associated with these claims at June 30,2001. The Company believes that it
has offsets to negotiate amounts lower than what the actual claims seek.
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, LLC
and a third party. The former One Medical Services, LLC 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, 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 believes that it may
ultimately be held liable for some amount and has accrued $400,000
associated with this claim at June 30, 2001. The Company is presently
attempting to negotiate a settlement with this individual.
Several landlords are seeking damages from the Company due to the Company
due to the Company defaulting on several lease agreements. Certain
landlords have obtained legal judgments against the Company. The total
amount of such claims is $634,000 at June 30, 2001. The Company and its
legal counsel believe that ultimate settlement will result in a much lower
payout. The Company has accrued $208,000 associated with these claims at
June 30, 2001. This amount was estimated on the basis of advice from legal
counsel whom has settled
F-18
several similar suits. However, the ultimate result of any settlement could
vary significantly from this estimate.
The Company had obligated shares of the Company's common stock and warrants
exercisable into common stock under numerous consulting and fund raising
agreements. Some such agreements obligated shares in cases of the
occurrence of substantial dilution or price drop in the trading value of
the Company's common stock. Management believes that it has fulfilled all
such obligations as of June 30, 2001. The Company has not received
additional claims related to these matters. However, management believes
that there is a possibility that additional claims may arise.
The Company may be subject other unasserted claims associated with the
abandonment of its operations. The Company is also involved in various
claims and legal actions arising in the ordinary course of business. In the
opinion of management, except as discussed above, the ultimate disposition
of these matters will not have a material adverse effect on the Company's
financial position, results of operations, or liquidity.
12. NET LOSS PER SHARE
Net loss per share is calculated using the weighted average number of
shares of common stock outstanding during the year. Preferred stock
dividends are subtracted from the net income to determine the amount
available to common shareholders. Preferred stock convertible to 115,396
common shares and options and warrants exercisable into 7,835,766 shares of
common stock were not considered in the calculation for diluted earnings
per share for the year ended June 30, 2001 because the effect of their
inclusion would be anti-dilutive. Preferred stock convertible to 115,396
common shares and options and warrants exercisable into 3,000,981 shares of
common stock were not considered in the calculation for diluted earnings
per share for the year ended June 30, 2000 because the effect of their
inclusion would be anti-dilutive. The following presents the computation of
basic and diluted loss per share from continuing operations:
2001 2000
---- ----
Per Per
(Loss) Shares share (Loss) Shares share
------------- --------- ------- ------------ ---------- -------
Net (Loss) $(25,565,880) $(8,311,203)
Preferred stock dividends (114,000) (80,174)
Discontinued operations 11,884,346 1,117,138
------------- ------------
Loss from continuing operations (13,795,534) (7,274,239)
BASIC EARNINGS PER SHARE
Loss available to common
stockholders $(13,795,534) 7,666,132 $(1.80) $(7,274,239) 24,431,551 $(0.29)
Effect of dilutive securities N/A N/A
DILUTED EARNINGS PER SHARE $(13,795,534) 7,666,132 $(1.80) $(7,274,239) 24,431,551 $(0.29)
F-19
13. RELATED PARTY TRANSACTIONS
During the year ended June 30, 2001, the Company purchased $429,008 of
computer equipment and implementation services from DSM.net, a company
owned by an officer of the Company.
The Company purchased equipment and received technical services from
DSM.net, an entity owned by the Company's Vice President and Chief
Technology Officer. The total of such equipment and services purchased by
the Company was $218,936 and $23,106, respectively during the year ended
June 30, 2000. The total amount owed to DSM.net at June 30, 2000 was
$107,095 and is included in accounts payable on the accompanying
consolidated balance sheet.
Subsequent to June 30, 2001 the Company issued 6,102,667 additional shares
of its common stock. Additionally, the Company became obligated to issue
another 1,987,000 shares of its common stock to certain investors in a
private placement. The additional shares are due under a guarantee by the
Company that the value of the shares be maintained over a 90 day period
from the date of the investment.
14. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk are primarily trade accounts receivable. The
trade accounts receivable are due primarily from small business customers
in numerous geographical locations throughout the United States. The
Company estimates and provides an allowance for uncollectible accounts
receivable.
15. STOCK BASED COMPENSATION
The Company issues stock options from time to time to executives, key
employees and members of the Board of Directors. The Company has adopted
the disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation," and continues
to account for stock based compensation using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees". Accordingly, no compensation cost has been
recognized for the stock options granted to employees. Had compensation
cost for the Company's stock options been determined based on the fair
value at the grant date for awards in 2001 and 2000, consistent with the
provisions of SFAS No. 123, the Company's net loss and loss per share would
have been increased to the pro forma amounts indicated below:
2001 2000
------------- -------------
Net Loss - continuing operations $(13,681,534) $ (7,113,890)
Net Loss - discontinued operations $(11,884,346) $ (1,117,138)
------------- -------------
Total net loss - as reported $(25,565,880) $ (8,231,028)
============= =============
Net Loss - pro forma $(25,647,565) $(12,359,495)
Loss per share - continuing operations $ (1.80) $ (0.29)
Loss per share - discontinued operations $ (1.55) $ (0.05)
------------- -------------
Total loss per share - as reported $ (3.35) $ (0.34)
============= =============
Loss per share - pro forma $ (3.35) $ (0.51)
F-20
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for
years ended September 30, 2000:
2001 2000
------- ---------
Dividend yield None None
Volatility 147.88% 41%-96%
Risk free interest rate 4.99% 6%-6.5%
Expected asset life 3 years 2.5 years
The Company grants options under several stock option plans. The Company's
Incentive Stock Option Plans, Non-Qualified Stock Option Plans and Stock
Bonus Plans are collectively referred to as the "Plans". The following sets
forth certain information as of June 30, 2001 concerning the stock options
and stock bonuses granted by the Company pursuant to the Plans. Each option
represents the right to purchase one share of the Company's Common Stock.
--------------------------------------------------------------------------------
TOTAL SHARES RESERVED REMAINING OPTIONS
UNDER THE PLAN UNDER THE PLAN
1998 Incentive Stock Option Plan 1,500,000 328,167
2000 Incentive Stock Option Plan 1,000,000 765,150
2000 Non-Qualified Stock
Option Plan 2,000,000 1,389,975
1999 Stock Bonus Plan 900,000 409,250
2000 Stock Bonus Plan 500,000 500,000
--------------------------------------------------------------------------------
================================================================================
During the year ended June 30, 2001, the Company granted 1,804,650 options
to certain key employees. These options vest at 30% immediately and the
remaining 70% over one year. These options were granted at an exercise
price of $0.47 to $3.00 the fair market value of the underlying shares on
the date of grant. The options expire five years from date of grant. The
summary of activity for the Company's stock options and warrants is
presented below:
F-21
Weighted Weighted
Average Average
Exercise Exercise
2001 Price 2000 Price
------------ --------- ------------ ---------
Options/warrants outstanding at
Beginning of year 3,000,981 $ 2.08 1,997,685 $ 7.65
Granted 5,995,905 $ 5.32 1,563,478 $ 13.05
Exercised (924,651) (1,992,873)
Terminated/Expired (236,469) (161,608)
Options outstanding at end of year 7,835,766 $ 6.99 3,000,981 $ 10.40
Options exercisable at end of year 6,512,639 $ 9.66 2,571,759 $ 9.15
Options available for grant at end
of year 3,392,542 4,358,792
$ 0.01 to $ 2.65 to
Price per share of options outstanding $ 42.80 $ 50.00
Weighted average remaining contractual lives 3.86 years 3.27
Weighted Average fair value of options
granted during the year $ 0.33 $ 0.77
Range of exercise prices of options outstanding at June 30, 2001:
Weighted Weighted
Number Average Number Average
Exercise Price Outstanding Exercise Price Exercisable Exercise Price
----------------- ----------- --------------- ----------- ---------------
$ 0.01 - $ 1.00 2,609,000 $ 0.41 2,045,742 $ 0.21
$ 1.01 - $ 3.00 2,056,717 $ 1.96 1,910,903 $ 2.88
$ 3.01 - $ 5.00 1,082,359 $ 4.88 926,614 $ 4.91
$5.01 and greater 2,087,689 $ 21.27 1,905,422 $ 31.35
Due to the termination of numerous employees in connection with the
disposals of business segments and other cost cutting measures,
approximately 1,127,000 options expired subsequent to June 30, 2001.
16. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) profit sharing plan for its employees. Each
United States based full-time employee is eligible to participate in that
plan on the first day of the calendar
F-22
quarter after completing ninety days of employment with the Company. A
participating employee can contribute up to fifteen percent (15%) of their
annual compensation, up to a maximum of the federally mandated limit
($10,500 at June 30, 2000). The Company matches 50% of the contributions on
the first six percent (6%) of the employee's contribution up to a maximum
of three percent (3%). Employees are fully vested on their own
contributions and vest in the Company's contributions twenty percent (20%)
per year over five years. The Company made expensed contributions to the
plan $38,199 for the year ended June 30, 2001. The Plan was frozen
subsequent to June 30, 2001.
17. BUSINESS SEGMENTS
The Company previously had three reportable segments: intelligent vending
machines, healthcare management software development and medical
transaction processing. The intelligent vending machine segment is
comprised of the sales of prepaid phone cards, the processing of monetary
transactions utilizing a script machine that are used primarily in major
fast food chains and the rental of videocassettes through automated
dispensing units in hotels and time share facilities, primarily located in
the states of Florida and California.
The medical transaction processing segment includes revenue from the
MedCard System, including the sale of terminals, processing fees and
billing service revenue and the licensing, sales and services related to
the Company's One Medical Services Network. The One Medical Services
Network was licensed to an unrelated third party in July 1999, and as such,
approximately 70% of the revenue ($613,000) was in the form of licensing
revenue during 2000.
The healthcare management software development segment includes the
licensing of the Health Information Gateway and related developmental
services, as well as the licensing of other software and hardware products
and services. It operates under the name of the DCB division in the United
States and DCB Actuaries and Consultants, s.r.o., in Europe.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company's reportable
segments are strategic business units that offer different products and
services.
During the year ended June 30, 2001, the Company determined it would divest
or abandon all business segments other than the medical transaction
processing segment. Therefore, going forward, the Company will have only
one reportable segment.
Net revenue includes sales and services to external customers within that
segment and related licensing revenue. There are no significant transfers
between segments. Cost of sales and services includes costs associated with
net revenue within the segments. Depreciation and amortization includes
expenses related to depreciation and amortization directly allocated to the
segment. Segment income (loss) does not include general and administrative
expenses, selling and marketing, other operating expenses, other income
(expense) items or income taxes. Identifiable assets are those assets used
in segment operations, which consist primarily
F-23
of receivables, inventory, prepaid expenses, machinery, equipment and
goodwill. DCB's operations are based in the Czech Republic. Substantially
all assets at June 30, 2001, are maintained in the United States.
Healthcare
Intelligent Medical Management
Vending Transaction Software Corporate
Machines Processing Development and Other Consolidated
------------- ------------- ------------- ------------- --------------
JUNE 30, 2001:
Net Revenues $ 713,264 $ 547,597 $ 843,881 $ (1,557,145) $ 547,597
Cost of Sales
and services $ 404,842 $ 479,962 $ 474,873 $ (1,246,278) $ 113,399
Depreciation
and
amortization $ 285,749 $ 327,190 $ 1,650,743 $ (1,865,258) $ 398,424
Selling,
General and
Administrative -- -- -- $ 13,717,308 $ 13,717,308
Income (loss)
from
Operations
Before
Income Taxes $ 22,673 $ (259,555) $ (1,281,735) $(12,162,917) $ (13,681,534)
Identifiable
Assets $ 125,000 $ 1,028,876 $ 1,651,863 $ 218,660 $ 3,024,399
Expenditures
for Long-Lived
Assets $ 1,781 $ 226,426 $ 2,097,708 $ -- $ 2,325,915
F-24
JUNE 30, 2000:
Net Revenues $ 778,693 $ 1,881,417 $ 593,379 $ (1,372,072) $ 1,881,417
Cost of Sales
and services $ 428,192 $ 973,871 $ 157,485 $ (585,677) $ 973,871
Depreciation
and
amortization $ 405,179 $ 487,252 $ 326,032 $ (685,826) $ 532,637
Selling,
General and
Administrative $ -- $ -- $ -- $ 7,443,509 $ 7,443,509
Income (loss)
From
Operations
Before
Income Taxes $ (54,678) $ 420,294 $ 109,862 $ (7,544,078) $ (7,068,600)
Identifiable
Assets $ 1,116,109 $ 4,499,056 $ 7,715,548 $ 1,818,560 $ 15,149,273
The discontinued operations are presented above in the applicable business
segments. The operating results of the discontinued business segments are
aggregated in the Loss from Operations of Discontinued Segments in the
accompanying statement of operations. Amounts in the table above included
in Corporate and Other include reclassifications for discontinued
operations.
The Company's healthcare management software development segment operates
in both Europe and the United States. Of the revenue earned during the year
ended June 30, 2001, $685,991 was generated in Europe. All of the revenues
from the Company's other segments were generated in the United States.
For the year ended June 30, 2001, there were no material concentrations of
revenue to specific customers. At June 30, 2001, one customer represented
68% of the balance of gross accounts receivable in the medical transaction
processing segment. That balance of $288,000 has been fully reserved. One
customer in the medical transaction processing segment accounted for
$302,500 of revenue in the year ended June 30, 2000, in this segment.
Another customer, EIS, Inc., accounted for $886,756 of revenue in that
segment, all of which was related to the licensing of the One Medical
Services system and corresponding sales and services. One customer
accounted for $249,739 of revenue in the healthcare management software
development segment. This licensing arrangement was voided at June 30,
2001.
F-25
Expenditures for long-lived assets includes equipment acquired under
capital leases.
18. SUBSEQUENT EVENTS
In addition to matters discussed in other footnotes, the following events
occurred subsequent to June 30, 2001:
An entity that is controlled by the Company's new chairman and chief
executive officer has funded $317,600 as of April 4, 2002, to the Company
in the form of loans through a convertible debenture whereby the
shareholder has the right to convert the outstanding obligation to stock at
the closing price of the date the cash was received by the Company.
The Company amended its new royalty arrangement for the MedCom System.
The Company sold or abandoned all operations other than the Medical
Transaction Processing segment. The Company now maintains its Medcard
operations in New York and a small administrative office in southern
California.
* * * * * *
F-26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company reports that on September 17, 2001, it dismissed its principal
certified public accountants for the past 7 years, Ehrhardt Keefe Steiner &
Hottman, P.C.
The accountant's report on the Company's financial statements for fiscal
year 2000 reports did not contain an adverse opinion or disclaimer of opinion.
Nor was the fiscal year ending 2000 report on the Company's financial statements
qualified or modified as to uncertainty, audit scope, or accounting principles.
The Company reports that, over the two past fiscal years and the subsequent
interim period, it had no disagreements with its former accountant on any matter
of accounting principles or practices financial statement disclosure; or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreements in connection with its report. No such
scenario existed among the Registrant and its former accountant.
The Company has retained as its certifying public accountants the firm of
Epstein, Weber & Conover, P.L.C. The engagement was effectively dated September
17, 2001.
All decisions to engage and/or terminate the relationships between Medcom
USA and its certifying public accountants are made by the Chief Executive
Officer and President who constitutes the sole member of the Board of Directors.
Medcom USA has no audit committee.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The Company's Officers and Directors are as follows:
Name Age Position
---- --- --------
William P. Williams 48 Sole Director and Sole Executive Officer
Mark Bennett 41 President and a Director (resigned July 2001)
Michael Malet 52 Executive Vice President and a Director (resigned July 2001)
Alan Ruben 43 Chief Accounting and Financial Officer (resigned May 2001)
David Robinson 37 Vice President and Chief Technology Officer (resigned July 2001)
Vladimir Havlena 44 Managing Director - DCB Actuaries and Consultants, s.r.o. (resigned
June 2001)
David Breslow 56 Director (resigned June 2001)
Julio Curra 42 Director (resigned June 2001)
46
DIRECTOR AND EXECUTIVE OFFICER
Mr. William P. Williams as of August 9, 2001 accepted the position of Chief
Executive Officer and sole Director of the Company. Information representing
Mr. Williams, is set forth below:
William P. Williams 48 Chairman, President, Chief Executive Officer
The Officer and sole Director of the Company will hold office until
additional members or officers are duly elected and qualified. The background
and principal occupations of the sole officer and director of the Company is as
follows:
William P. Williams, Jr has been the Chairman, Chief Executive Officer, of
MedCom USA since July 2001. He is also currently Chief Executive Officer and
Chairman of the Board for American Nortel Communications, Inc., a publicly
traded company located in Scottsdale, Arizona, which is in the business of
long-distance telephone service domestically, as well as internationally. From
1983 to 1995, he was President and Chairman of the Board of Shelton Financial,
Inc., an accounts receivable factoring firm headquartered in San Antonio, Texas.
Mr. Williams has a Bachelor of Arts, and a Master of Business Administration in
Finance from Baylor University.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT 9.A. DIRECTORS AND EXECUTIVE
OFFICERS, PROMOTERS, AND CONTROL PERSONS:
The Company is aware that all filings of Form 4 and 5 required of Section
16(a) of the Exchange Act of Directors, Officers or holders of 10% of the
Company's shares have not been timely and the Company has instituted procedures
to ensure compliance in the future.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth in summary form the compensation received by
(i) the Chief Executive Officer of the Company and (ii) by each other executive
officers of the Company who received in excess of $100,000 during the fiscal
years ended June 30, 2001 and 2000.
Other Annual Compensation Options
Name and Fiscal Salary Bonus Compensation Stock Awards Granted
Principal Position Year (1) (2) (3) (4)
------------------------- ------ --------- --------- -------------- -------------- -------
Mark Bennett, 2001 $208,765 $ 25,000 -- -- 310,000
---------------------------------------------------------------------
President and Chief 2000 $129,462 $112,350 $ 15,990 $ 136,648 800,000
Executive Officer
Michael Malet, 2001 $167,552 -- -- -- 310,000
---------------------------------------------------------------------
Vice President and 2000 $104,942 $102,766 $ 9,200 $ 136,648 770,000
Chief Operating Officer
Alan Ruben 2001 $177,351 $ 25,000 -- -- 125,000
---------------------------------------------------------------------
Chief Accounting 2000 $ 77,539 $ 33,266 -- $ 98,535 500,000
and Financial Officer
Robert Stevens 2001 $115,004 -- -- -- 32,000
---------------------------------------------------------------------
Director of Development 2000 $107,385 $ 3,044 -- $ 4,969 100,000
and Information
Technology
47
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) Any other annual compensation not properly categorized as salary or
bonus, including perquisites and other personal benefits, securities
or property. Amounts in the table represent automobile allowances.
(4) Amounts reflect the value of the shares of the Company's common stock
issued as compensation for services. No restricted awards were issued
to any of the above individuals.
Number of Shares
Granted under Type Price Per Expiration
Name Option of Plan Share Date
-------------- ---------------- ------------- ---------- ----------
Mark Bennett 310,000 Incentive $.47(a)(b) 05/29/06
Michael Malet 310,000 Incentive $.47(a)(b) 05/29/06
Alan Ruben 125,000 Incentive $.47(a)(b) 05/29/06
Robert Stevens 30,000 Incentive $.47(a)(b) 05/29/06
2,000 Non-Qualified $ 3.000 03/01/05
(a). Options must be exercised before the date of expiration.
(b). Options may be exercised no later than 30 days subsequent to which option
holders employment by the Company is terminated under the Plan.
Options issued to Mark Bennett, Michael Malet, Alan Ruben, and Robert
Stevens granted under the Incentive Stock Option Plan were 30% immediately
vested upon granting and the remaining 70% vesting over a one-year period of
time. Robert Stevens was issued Non-Qualified Stock Options that will fully
vest one-year from the date of granting.
EMPLOYEE PENSION, PROFIT SHARING OR OTHER RETIREMENT PLANS
The Company reactivated its 401(k) Plan (originally established by New View
Technologies) in June 2000. All United States based full-time employees are
eligible to participate on the first day of a calendar quarter after the
48
employee completes ninety days of employment with the Company. Participants can
contribute the lesser of fifteen percent of their compensation or the federally
mandated maximum amount (currently $10,500). The Company matches the employees'
contributions fifty percent of the first six percent, or a maximum of three
percent of salary. Employees are fully vested in amounts they contribute and
vest twenty percent per year over five years on Company contributions
Except as noted above and as provided in the Company's employment
agreements with its executive officers and other personnel, the Company does not
have a defined benefit, pension plan, profit sharing or other retirement plan,
although the Company may adopt one or more of such plans in the future.
Management is in the process of evaluating such benefit plans to offer Company
employees. The above plan is temporarily inactive as of September 30, 2001,
pending management's evaluation.
COMPENSATION OF DIRECTORS
The Company agreed to pay each member of the Board of Directors in prior
fiscal periods $25,000 per year, payable in semi-annual installments at the
beginning of each six month period. Prior to this time, the Company had no
standard arrangement pursuant to which directors of the Company were compensated
for any services provided as a director or for committee participation or
special assignments.
STOCK OPTION AND BONUS PLANS
--------------------------------
The Company has Incentive Stock Option Plans, Non-Qualified Stock Option
Plans and Stock Bonus Plans. A summary description of each Plan follows. In
some cases these three Plans are collectively referred to as the "Plans".
Management as of June 30, 2001 has not determined whether to continue or modify
the existing Option and Bonus Plans.
INCENTIVE STOCK OPTION PLANS
The Incentive Stock Option Plans authorize the issuance of options to
purchase up to 2,500,000 shares of the Company's Common Stock, less the number
of shares already optioned under this Plan. Only officers and employees of the
Company may be granted options pursuant to the Incentive Stock Option Plans.
In order to qualify for incentive stock option treatment under the Internal
Revenue Code, the following requirements must be complied with:
1. Options granted pursuant to the Plan must be exercised no later than:
(a) The expiration of thirty (30) days after the date on
which an option holder's employment by the Company is
terminated.
(b) The expiration of one year after the date on which an
option holder's employment by the Company is terminated, if
such termination is due to the Employee's disability or
death.
49
2. In the event of an option holder's death while in the employ of the
Company, his legatees or distributes may exercise (prior to the option's
expiration) the option as to any of the shares not previously exercised.
3. The total fair market value of the shares of Common Stock
(determined at the time of the grant of the option) for which any employee may
be granted options which are first exercisable in any calendar year may not
exceed $100,000.
4. Options may not be exercised until one year following the date of
grant. Options granted to an employee then owning more than 10% of the Common
Stock of the Company may not be exercisable by its terms after five years from
the date of grant.
5. The purchase price per share of Common Stock purchasable under an
option is determined by the Board of Directors, but cannot be less than the fair
market value of the Common Stock on the date of the grant of the option (or 110%
of the fair market value in the case of a person owning the Company's stock
which represents more than 10% of the total combined voting power of all classes
of stock).
NON-QUALIFIED STOCK OPTION PLANS.
The Non-Qualified Stock Option Plans authorize the issuance of options to
purchase up to 5,000,000 shares of the Company's Common Stock, less the number
of shares already optioned under this Plan. The Company's employees, directors,
officers, consultants and advisors are eligible to be granted options pursuant
to the Plan, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction. The option
exercise price is determined by the Board of Directors but cannot be less than
the market price of the Company's Common Stock on the date the option is
granted.
Options granted pursuant to the Plan not previously exercised terminate
upon the expiration of the option, which must occur no later than five (5) years
from the date the option was granted.
In the event of an option holder's death while in the employ of the
Company, his legatees or distributees may exercise the option as to any of the
shares not previously exercised prior to the option's expiration.
STOCK BONUS PLANS.
Up to 2,400,000 shares of Common Stock may be granted under the Stock Bonus
Plans. Such shares may consist, in whole or in part, of authorized but unissued
shares or treasury shares. Under the Stock Bonus Plans, the Company's
employees, directors, officers, consultants and advisors are eligible to receive
a grant of the Company's shares; provided, however, that bona fide services must
be rendered by consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction.
50
OTHER INFORMATION REGARDING THE PLANS.
The Plans were administered by the Company's Board of Directors. The Board
of Directors has the authority to interpret the provisions of the Plans and
supervise the administration of the Plans. In addition, the Board of Directors
is empowered to select those persons to whom shares or options are to be
granted, to determine the number of shares subject to each grant of a stock
bonus or an option and to determine when, and upon what conditions, shares or
options granted under the Plans will vest or otherwise be subject to forfeiture
and cancellation.
At the discretion of the Board of Directors, any option granted pursuant to
the Plans may include installment exercise terms such that the option becomes
fully exercisable in a series of cumulating portions. The Board of Directors
may also accelerate the date upon which any option (or any part of any options)
is first exercisable. Any shares issued pursuant to the Stock Bonus Plan and
any options granted pursuant to the Incentive Stock Option Plan or the
Non-Qualified Stock Option Plan will be forfeited if the "vesting" schedule
established by the Board of Directors at the time of the grant is not met. For
this purpose, vesting means the period during which the employee must remain an
employee of the Company or the period of time a non-employee must provide
services to the Company, unless specifically covered by an act addressed in an
employee's employment agreement. At the time an employee ceases working for the
Company (or at the time a non-employee ceases to perform services for the
Company), any shares or options not fully vested will be forfeited and
cancelled. In the discretion of the Board of Directors payment for the shares of
Common Stock underlying options may be paid through the delivery of shares of
the Company's Common Stock having an aggregate fair market value equal to the
option price. A combination of cash and shares of Common Stock may also be
permitted at the discretion of the Board of Directors.
Options are generally non-transferable except upon death of the option
holder. Shares issued pursuant to the Stock Bonus Plan will generally not be
transferable until the person receiving the shares satisfies the vesting
requirements imposed by the Board of Directors when the shares were issued.
The Board of Directors of the Company may at any time, and from time to
time, amend, terminate, or suspend one or more of the Plans in any manner it
deems appropriate, provided that such amendment, termination or suspension
cannot adversely affect rights or obligations with respect to shares or options
previously granted. The Board of Directors may not, without shareholder
approval: make any amendment which would materially modify the eligibility
requirements for the Plans; increase or decrease the total number of shares of
Common Stock which may be issued pursuant to the Plans except in the case of a
reclassification of the Company's capital stock or a consolidation or merger of
the Company; reduce the minimum option price per share; extend the period for
granting options; or materially increase in any other way the benefits accruing
to employees who are eligible to participate in the Plans.
The Plans are not qualified under Section 401(a) of the Internal Revenue
Code, nor are they subject to any provisions of the Employee Retirement Income
Security Act of 1974.
SUMMARY
The following sets forth certain information as of June 30, 2001, concerning the
stock options and stock bonuses granted by the Company pursuant to its Plans.
Each option represents the right to purchase one share of the Company's Common
Stock.
51
Total Shares Shares Reserved Shares Remaining
Reserved for Outstanding Issued As Options/Shares
Name of Plan Under Plan Options Stock Bonus Under Plan
------------------------------------------------------------------------------------------------
2001 Incentive Stock Option Plan -0- -- -- -0-
2000 Incentive Stock Option Plan 1,000,000 -- N/A 1,000,000
1999 Incentive Stock Option Plan -0- -0- -0- -0-
------------------------------------------------------------------------------------------------
2001 Non-Qualified Stock Option Plan -0- -- -- -0-
2000 Non-Qualified Stock Option Plan 2,000,000 -- N/A 2,000,000
1999 Non-Qualified Stock Option Plan -0- -0- -0- -0-
------------------------------------------------------------------------------------------------
2001 Stock Bonus Plan -0- -- -- -0-
2000 Stock Bonus Plan 500,000 N/A -0- 500,000
1999 Stock Bonus Plan 900,000 N/A 409,750 490,250
------------------------------------------------------------------------------------------------
STOCK BONUSES
--------------
The Company, in accordance with the terms of its Stock Bonus Plans, has
issued shares of Common Stock to certain Company officers, employees, directors
and consultants. The following persons (including former officers and directors)
received shares of the Company's common stock as stock bonuses:
Shares Issued as Stock Bonus
----------------------------
Name 2001 2000 1999
---- ---- ------- -------
Mark Bennett -0- 37,500 -0-
Michael Malet -0- 37,500 -0-
Alan Ruben -0- 51,679 -0-
Robert Stevens -0- 1,000 -0-
Other employees and
consultants as a group -0- 282,071 710,500
---- ------- -------
-0- 409,750 710,500
==== ======= =======
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of June 30, 2001 information with respect to the only persons owning
beneficially 5% or more of the outstanding common stock and the number of and
percentage of the outstanding shares owned is represented below:
Name and Address Shares Owned(1) Common Stock
---------------- --------------- ------------
William P. Williams 788,721 6%
7975 North Hayden Road #C-260
Scottsdale, Arizona 85258
(1) Excludes any shares issuable upon the exercise of any warrants or options or
upon the conversion of other convertible securities.
52
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended June 30, 2001, the Company purchased $429,008 of
equipment and services, from DSM.net, a company owned by David Robinson, a
previous officer of the Company. Also, the Company purchased equipment and
received technical services from DSM.net, an entity owned by David Robinson. The
total of such equipment and services purchased by the Company was $218,936 and
$23,106, respectively during the year ended June 30, 2000. The total amount
owed to DSM.net at June 30, 2001 was $107,095 and is included in accounts
payable on the accompanying consolidated balance sheet.
ITEM 13. EXHIBITS AND REPORTS.
EXHIBITS
--------
3.1 Articles of Incorporation
3.2 Amendments to Articles of Incorporation - Fourth Article
3.3 Amendment to Articles of Incorporation - Name Change
4.1 Incentive Stock Option Plan (1)
4.2 Non-Qualified Stock Option Plan (1)
4.3 Stock Bonus Plans (1)
10.1 Agreement related to acquisition of Medcard System (2)
10.5 Licensing Agreement related to One Medical System (1)
10.18 Purchase Agreement - DSM (3)
10.19 Amendment to License Agreement - Dream Technologies, LLC (4)
16.1 Change in Certifying Accountants
-----------------------------------
(1). Incorporated by reference to the same exhibit filed with the Company's
Annual Report on Form 10-KSB/A for the year ending June 30, 1999.
(2). Incorporated by reference to the same exhibit filed with Amendment No. 2 to
the Company's Registration Statement on Form S-3 (Commission File No.
333-71179).
(3). Incorporated by reference to the same exhibit filed with the Company's 8-K
Report dated April 15, 2000.
(4). Incorporated by reference to the same exhibit filed with Amendment No. 5 to
the Company's Registration Statement on Form S-3 (Commission File No. 333-71179)
53
REPORTS ON FORM 8-K
-------------------
One report on Form 8-K was filed subsequent to fiscal year end, and was
filed in the fiscal quarter ended September 30, 2001. A Form 8-K filed on
September 20, 2001 reported the dismissal of its independent accountants
attached herein as Exhibit 16.1, and announced retaining the independent
accountants of Weber & Company, P.C., also known as Epstein, Weber & Conover,
P.L.C.
In accordance with section 13 or 15(d) of the exchange act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDCOM USA, INC.
Dated: May 31, 2002 /s/ W. P. Williams
-------------------
Chairman, President, CEO
54
SIGNATURES
In accordance with Section 13 or 15(d) 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. In accordance with the Exchange Act
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
MEDCOM USA, INC.
By /s/ W.P. Williams Date: May 31, 2002
------------------------
Chairman, President, CEO
(Sole executive officer of the registrant)
55