Edgar Filing: MEDCOM USA INC

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U.S. Securities and Exchange Commission
Washington, D.C. 20549

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FORM 10-QSB
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(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2002.

[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act

For the transition period from N/A to N/A

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Commission File No. 0-25474
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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)

(480) 675-8865
(Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
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The number of shares of the issuer's common equity outstanding as of April
30, 2002 was 35,901,297 shares of common stock.

Transitional Small Business Disclosure Format (check one):

Yes No X
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MEDCOM USA, INC.
INDEX TO FORM 10-QSB FILING
FOR THE THREE MONTHS ENDED MARCH 31, 2002

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION PAGE

Item 1. Financial Statements
Balance Sheet
As of March 31, 2002 . . . . . . . . . . . . . . . . . . . 3
Statements of Operations
For the Three and Nine Months Ended March 31, 2002
and 2001 . . . . . . . . . . . . . . . . . . . . . . . 4 - 5
Statements of Cash Flows
For the Nine Months Ended March 31, 2002
and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . 6

Notes to the Financial Statements . . . . . . . . . . . . .7 - 10

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . 11 - 15

PART II
OTHER INFORMATION

Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . .16

SIGNATURES

CERTIFICATION

PART I - FINANCIAL INFORMATION

ITEM1 - FINANCIAL STATEMENTS

MEDCOM USA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, 2002

ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance of $31,326 $ 68,838
Notes receivable 98,125
Inventories 148,218
Prepaid expenses and other current assets 23,166
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Total current assets 338,347

PROPERTY AND EQUIPMENT, net 662,763
GOODWILL, net of accumulated amortization of $284,625 474,373
OTHER ASSETS 44,976
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TOTAL ASSETS $ 1,520,459
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,124,418
Accrued expenses and other liabilities 1,170,208
Bank overdraft 23,097
Dividend payable 23,750
Notes payable 106,589
Terminal equipment obligation (capital leases) - Current portion 74,754
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Total current liabilities 2,522,816

DEFERRED GAIN ON SALE-LEASEBACK TRANSACTIONS 162,468
CAPITAL LEASES - long term portion 204,411
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Total liabilities 2,889,695
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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,
32,180,000 issued and outstanding. 3,218
Paid in capital 62,732,284
Accumulated deficit (64,104,771)
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Total stockholders' equity (1,369,236)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,520,459
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See the accompanying notes to these unaudited financial statements.

MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED MARCH 31, 2002

Three Months Ended Nine Months Ended
2002 2001 2002 2001
-------------------------- --------------------------

REVENUES:
Terminal sales $ 94,571 $ 61,495 $ 162,658 $ 253,189
Service 138,495 72,474 320,063 246,410
Miscellaneous revenue - - 11,074 -
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Total 233,066 133,969 493,795 499,599

OPERATING EXPENSES:
Cost of terminals and services 53,493 73,498 66,565 271,022
General and administrative expenses 186,920 1,037,261 1,840,601 3,780,695
Sales and marketing expenses 1,247 234,573 2,589 855,967
Research and development - - - 104,235
Professional and consulting fees 21,500 - 49,260 -
Royalties 129,614 - 129,614 -
Depreciation and amortization 107,242 204,120 320,215 584,542
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Total operating expenses 500,016 1,549,452 2,408,844 5,596,461
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OPERATING LOSS (266,950) (1,415,483) (1,915,049) (5,096,862)
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OTHER (INCOME) AND EXPENSES
Interest expense 4,729 45,670 12,604 69,430
Interest income (5,293) (23,993)
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Total other expense 4,729 40,377 12,604 45,437
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INCOME TAX (BENEFIT) PROVISION - 264 - 6,491
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LOSS FROM CONTINUING OPERATIONS (271,679) (1,455,596) (1,927,653) (5,135,808)

LOSS ON DISPOSAL OF ASSETS (64,620) (170,266) -
INCOME (LOSS) FROM DISCONTINUED OPERATIONS - (1,382,253) (10,476) (2,110,832)
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NET LOSS (336,299) (2,837,849) (2,108,395) (7,246,640)
Prefered stock dividend (28,500) (85,500)
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NET LOSS AVAILABLE TO COMMON SHAREHOLDERS (336,299) (2,866,349) (2,108,395) (7,332,140)
Foreign currency translation - 98,843 - 35,571
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TOTAL NET COMPREHENSIVE LOSS $ (336,299) $(2,767,506) $(2,108,395) $(7,296,569)
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NET LOSS PER SHARE:
BASIC:
Continuing operations $ (0.01) $ (0.20) $ (0.08) $ (0.76)
Discontinued operations - (0.19) ** (0.31)
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Total Basic $ (0.01) $ (0.39) (0.08) $ (1.07)
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DILUTED:
Continuing operations $ (0.01) $ (0.20) $ (0.08) $ (0.76)
Discontinued operations - (0.19) ** (0.31)
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Total Diluted $ (0.01) $ (0.39) $ (0.08) $ (1.07)
========================== ==========================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 31,229,448 7,331,253 24,712,591 6,870,279
========================== ==========================
Diluted 31,229,448 7,331,253 24,712,591 6,870,279
========================== ==========================
** - less than $0.01 per share

See the accompanying notes to these unaudited financial statements.

MEDCOM USA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 2002 AND 2001

2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES
NET LOSS $(2,108,395) $(7,246,640)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Loss on disposal of assets 170,266 -
Discontinued operations 10,476 2,110,832
Depreciation and amortization 320,215 584,542
Value of common stock and warrants granted as compensation for services - 191,223
Impairment of assets - 270,318
Allowance for uncollectable receivables - 42,595
Deferred Revenue - (207,762)
Deferred gain on sale leaseback transactions 162,468 -
Payment of expenses through issuance of common stock 636,050 -
Changes in assets and liabilities:
Trade accounts receivable 14,266 13,422
Inventories (29,619) (35,221)
Royalty advances - 32,695
Prepaid and other current assets 58,387 106,899
Other assets (1,415) (8,018)
Accounts payable and accrued liabilities (6,922) 526,141
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Net cash used in continuing operations (774,223) (3,618,974)
Net cash used in discontinued operations 126,423 (436,739)
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NET CASH (USED IN) OPERATING ACTIVITIES (647,800) (4,055,713)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (244,592) (1,119,899)
Proceeds on sale of equipment - -
Advances to affiliate (112,000) (66,882)
Repayments on advances to affiliates 30,000 4,662
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NET CASH (USED IN) INVESTING ACTIVITIES (326,592) (1,182,119)
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CASH FLOWS FROM FINANCING ACTIVITIES

Principal repayments on capital leases (44,511) (211,286)
Proceeds on sale of terminals under captial leases 219,244 -
Principal repayments on notes payable (2,849) (6,527)
Proceeds from the exercise of options and warrants - 1,634,431
Proceeds from sale of common stock 839,985 1,845,393
Bank overdraft (37,477) -
Currency translation loss - 35,571
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NET CASH PROVIDED BY FINANCING ACTIVITIES 974,392 3,297,582
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INCREASE (DECREASE) IN CASH - (1,940,250)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD - 2,043,603
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ - $ 103,353
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SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 12,559 $ 22,185
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Income taxes paid $ - $ 14,586
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See the accompanying notes to these unaudited financial statements.

MEDCOM USA, INC.
NOTES TO FINANCIAL STATEMENTS
INTERIM PERIODS ENDED SEPTEMBER 30, 2002

1. BASIS OF PRESENTATION

The accompanying unaudited financial statements represent the financial position
of MedCom USA, Inc. ("Company") as of March 31, 2002 and includes results of
operations of the Company for the three and nine months ended March 31, 2002 and
cash flows for the nine months ended March 31, 2002. These statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-QSB. Accordingly, they do
not include all the information and footnotes required by generally accepted
accounting principles ("GAAP") for complete financial statements. In the opinion
of management, all adjustments to these unaudited financial statements necessary
for a fair presentation of the results for the interim period presented have
been made. The results for the three months ended March 31, 2002 may not
necessarily be indicative of the results for the entire fiscal year. These
financial statements should be read in conjunction with the Company's Form
10-KSB for the year ended June 30, 2001, including specifically the financial
statements and notes to such financial statements contained therein.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies followed by the Company, and the methods of applying
those policies, which affect the determination of its financial position,
results of operations or cash flows are summarized below:

Cash and Cash Equivalents
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Cash and cash equivalents include all short-term liquid investments that are
readily convertible to known amounts of cash and have original maturities of
three months or less. At times cash deposits may exceed government insured
limits.

Concentration of Credit Risk
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The Company maintains its operating cash balances in banks in Islandia, New
York, and in Scottsdale, Arizona. The Federal Depository Insurance Corporation
(FDIC) insures accounts at each institution up to $100,000.

Inventories
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Inventories consist primarily of processing terminals that deploy the MedCard
system, and terminals and spare parts that are held for sale. Also, included in
inventories are movie videocassettes that remain from a discontinued segment of
business. Inventories are stated at the lower of cost (first-in, first-out
basis) or market (net realizable value). Rapid technological change and new
product introductions and enhancements could result in excess or obsolete
inventory. To minimize this risk, the Company evaluates inventory levels and
expected usage on a periodic basis and records adjustments as required.

Property and Equipment
----------------------

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. The Company's leaseback
transactions of processing terminals to healthcare providers are generally for a
period of 48 months. Depreciation expense for the leased terminal assets are on
the straight-line method over the term of the lease in amounts necessary to
reduce the carrying amount of the terminal asset. Estimated and actual residual
values are reviewed on a regular basis to determine that depreciation amounts
are appropriate. Depreciation expense relating to leased terminal assets was
$11,002 for the quarter ended March 31, 2002.

Assets Held under Capital Leases
--------------------------------

Assets held under capital leases are recorded at the lower of the net present
value of the minimum lease payments or the fair value of the leased asset at the
inception of the lease. Amortization expense is computed using the straight-line
method over the shorter of the estimated useful lives of the assets or the
period of the related lease.

Amortization of Leasehold Improvements
--------------------------------------

Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the remaining lease term or the estimated useful
lives of the improvements.

Revenue Recognition
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Sales Revenues: The Company's sales revenues are derived from the sale of
processing terminals, computer equipment and other items and are recognized upon
shipment. Revenues from the licensing of equipment software are recognized upon
acceptance by customers, if the license agreement includes such an acceptance
provision, otherwise it is recognized upon shipment.

Service Fee Revenues: Revenue related to the processing of insurance eligibility
verification and medical claim processing is recorded at the time the
transaction is completed. Financial transactions involve approvals of credit
card and debit card payments from the use of processing terminals or personal
computers and are recorded at the time the transactions are completed.

Deferred Gains on Sale Leasebacks: Gains related to processing terminal
equipment sales in the form of sale-leaseback transactions are amortized
generally over the lease term of 48 months and are recognized proportionately
over the lease term. Gains are initially realized when terminals are sold to a
third party that finances the terminals used by the Company's customers through
the sale leaseback with the Company. The Company purchases the terminals from a
supplier and when the Company enters into a service agreement with a customer,
the customer may rent the terminal from the Company. When the customer rents
the terminal, the Company generally will sell that terminal to the third party
leasing company and in turn leases back that terminal.

Comprehensive Income
--------------------

Comprehensive income consists of net income and other gains and losses affecting
shareholders' equity that, under generally accepted accounting principles, are
excluded from net income. For the Company, such items consist primarily of
foreign currency translation gains and losses.

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.

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets, including tax loss and credit carryforwards, and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities or a
change in tax rates is recognized as income in the period that includes the
enactment date. Deferred income tax expense represents the change during the
period in the deferred tax assets and deferred tax liabilities. The components
of the deferred tax assets and liabilities are individually classified as
current and non-current based on their characteristics.

Fair Value of 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
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
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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 Statement of Financial Accounting Standards No. 128, Earnings Per Share.

Use of Estimates
----------------

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
This may 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."

Intangible Assets
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Intangible assets at March 31, 2002 consist of goodwill associated with the
Company's acquisition of MedCard, and 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 Expenditures
-------------------------------------

Research and development costs are expensed as incurred.

Impairment of Assets
--------------------

The Company performs an assessment of impairment of long-lived assets
periodically 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
three months and nine months ended March 31, 2002, to conform with the
presentation for accounts in the March 31, 2001 financial statements.

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

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 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-QSB (incorporated herein Forward-Looking Statements).

OVERVIEW

MedCom USA, Inc.(the "Company") a Delaware corporation was formed in August
1991 under the name Sims Communications, Inc. The Company's primary business was
providing telecommunications services. 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 an
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.

The Company changed its name to MedCom USA, Inc. in October 1999. During
the fiscal years of 1999 and continuing through 2000, the Company directed its
efforts in medical information processing. As of March 31, 2002, the Company
currently operates the MedCard System (MedCard) that is deployed through a
point-of-sale terminal or personal computer offering electronic transaction
processing, as well as insurance eligibility verification. The Company has
aggressively focused on its primary operations in Electronic Data Interchange
(EDI) and core business in electronic Medical Transaction Processing.

MEDICAL TRANSACTION PROCESSING
------------------------------

MEDCARD SYSTEM

The Company provides innovative technology-based solutions for the
healthcare industry that enable users to efficiently collect, utilize, analyze
and disseminate data from payers, health care providers and patients. 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). 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 bundled 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 and service
offering will be made available after the on-line version is complete.

FINANCIAL SERVICES

The Company's credit card center and check services, provides the
healthcare industry an unprecedented combination of services designed to improve
collection and approvals of credit/debit card payments along with the added
benefit and convenience of personal check guarantee from financial institutions.

Flex-pay is an accounts receivable management program that allows a
provider to swipe a patient's credit card and store the patient's signature in
the terminals, and bill the patient's card at a later date when it is determined
what services rendered were not covered by the patient's insurance. Also, an
easy-pay option is offered which allows patient's the added benefit and
convenience of a one-time payment option or a recurring installment payments
that will be processed on a specified date determined by the provider and
patient. These options insure providers that payments are timely processed with
the features of electronic accounts receivable management. These services are
all deployed thorough point-of-sale terminals or a personal computer. Using the
MedCard system, medical providers are relieved of the problems associated with
billings and account management, and results in lower administrative
documentation and costs.

PATIENT ELIGIBILITY

The MedCard System is also an electronic processing system that
consolidates insurance eligibility verification, processes medical claims, and
monitors referrals. The MedCard System 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 referrals are
approved by the patient's insurance carrier. The MedCard system's referral
capabilities reduce 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 the physician enters a 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, 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 an average of 89 days to 7 to 21
days. Health care providers will benefit from a 100% paperless claim processing
system.

TECHNICAL SUPPORT ASSISTANCE

The Company offers multiple training options for its products and services.
Onsite training and teleconferencing, and technical support assistance are also
features offered to Health care providers. Also, a 24-hour terminal replacement
program and system upgrades are offered.

MARKETING STRATEGY

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.

SERVICE AGREEMENTS

During September 1998, the Company entered into a service agreement with
WebMD Envoy. This agreement encompasses the process of Electronic Data
Interchange (EDI) and related services. The services provided are complimentary
to the Company's core business, and accomplishes transaction processing services
that allows healthcare providers and payers to process medical transactions
quickly and accurately, and results in reduced administrative costs and an
increase in healthcare reimbursements to healthcare providers.

During January 2002, the Company has entered into a service agreement with
MedUnite. This strategic alliance will encompass the utilization of proprietary
technologies and will enhance the existing network of healthcare constituents.
Strategically both companies share the same vision of transforming the
healthcare transactions systems affecting how healthcare providers, health
plans, and other groups transacting business with one another by significantly
reducing claim and payment processing time, and reducing healthcare
administrative costs.

PROCESSING TERMINAL LEASING AGREEMENTS

The Company has entered into leasing agreements with LADCO Financial Group
for the purpose of leasing processing terminals. The Company has pledged and
granted for collateral in connection with the lease agreements one million
restricted common shares. These common shares would be surrendered upon default
of the leasing agreements. This pledge and granting of security interest was
executed on January 3, 2002.

The Company has arranged its terms with this credit facility as an
equipment lessor whereby the Company sells terminals to the lessor when it has
obtained a service contract with a provider. Under these agreements, the Company
is leasing back the processing terminals to the purchaser for a period of 12
months. The Company is accounting for the leaseback as an operating lease, and
gains on terminal assets of $7,556 have been realized to date. The remaining
equipment gains have been deferred and are being amortized to income in
proportion to interest charged over the term of the lease with the credit
facility generally for a period of 48 months. At March 31, 2002, the remaining
deferred equipment gains of $162,468 is shown as "Deferred Gain on
Sale-Leaseback" in the Company's Balance Sheet. For the quarter ended March 31,
2002, the total interest expense incurred by the Company under these leases was
$4,229.

REVENUES

Revenues from the MedCard system are generated through the sale of
terminals, and processing insurance eligibility/verification, insurance claims,
and financial transaction processing. The Company receives a fixed amount per
terminal, and 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.

ADDITIONAL INFORMATION

Medcom 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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RESULTS OF OPERATIONS

Revenues for the quarter ended March 31, 2002 were $233,066 as compared to
during the quarter ended March 31, 2001 of $133,969. The Company has divested
of all its business segments other than the MedCard business. The Company began
to concentrate on its MedCard business in the three months ended March 31, 2002.
In the first two quarters, management devoted efforts and resources to
completing the divestures of the Company's other business segments.

Cost of sales for the quarter ended March 31, 2002 was $53,493 as compared to
quarter ended March 31, 2001 of $73,498. Margins will generally be higher as
the Company's sales mix is greater in the provision of medical billing services.

Selling expenses for the quarter ended March 31, 2002 was $1,247 as compared
quarter ended March 31, 2001 of $234,573. This decrease was primarily the result
of cost curtailment efforts and discontinued marketing expenditures for
unprofitable business segments.

General and administrative expenses for quarter ended March 31, 2002 was
$186,920 as compared to quarter ended March 31, 2001 of $1,037,261. These
expenses have been reduced due to reductions in personnel and consultant fees.
Also, streamlining operations and divesting of unprofitable business segments
has greatly contributed to this reduction.

Interest expense for the quarter ended March 31, 2002 was $4,729 as compared to
March 31, 2001 of $45,670. Interest expense decreased as a result of decreases
in outstanding debt and financing by the company.

No tax benefit was recorded on the expected operating loss for the quarter ended
March 31, 2002 as required by Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes. For the year ended we do not expect to
realize a deferred tax asset and it is uncertain, therefore we have provided a
100% valuation of the tax benefit and assets until we are certain to experience
net profits in the future to fully realize the tax benefit and tax assets.

Net loss for the quarter ended March 31, 2002 was ($336,299) or ($0.01) per
basic and diluted share compared net loss for quarter ended March 31, 2001 of
($2,837,849) or ($0.39) per basic and diluted share.

LIQUIDITY AND CAPITAL RESOURCES

Cash used in operating activities for the nine months ended March 31, 2002,
was ($647,800) as compared to cash used in operating activities for the nine
months ended March 31, 2001 of ($4,055,713). The Company has significantly
reduced its operating cash requirements as staffing was cut and other cost
cutting measures were implemented. However, the Company covered $636,050 of
expenses during the nine months ended March 31, 2002 through the issuance of
common stock.

Cash used in investing activities for the nine months ended March 31, 2002,
was ($326,592) as compared to cash used in investing activities for the nine
months ended March 31, 2001 of ($1,182,119). There were significant computer
equipment purchases in the nine-month period ended March 31, 2001.

Cash provided in financing activities was $974,392 for the nine months
ended March 31, 2002 compared to cash provided from financing activities for the
nine months ended March 31, 2001 of $3,297,582. The Company sold $839,985 of
common stock primarily to its most significant shareholder during the nine
months ended March 31, 2002. The Company has also started to finance its
terminal purchases through sale-leaseback transactions.

SOURCES OF CAPITAL

The Company has relied upon its most significant shareholder to fund its
operating cash flow deficiencies since June 30, 2001. This funding is
accomplished in the form of common stock purchased at the closing price as of
the date the funds are transferred to the Company. Management believes that
current trends in its electronic transaction processing to the health care
industries will provide positive cash flow to be self-sustaining from operations
sometime in the near fiscal period. The amount of such will be dependent upon
the rate of growth experienced and demand for the Company's product and
services.

As noted above, the Company has secured an arrangement with a third party
leasing company to provide funds upon the execution of a rental and service
agreement with a customer. Generally, the health care provider customer will
enter into an agreement with the Company to rent a terminal and subscribe to the
transaction processing and insurance verification service. At that time, the
Company will sell the terminal associated with the service contract to the
lessor and then leaseback that terminal. The leasing transactions provide for
funding to the Company to cover its cost of the terminal, placement of the
terminal with the customer and a profit margin. The Company is generally
required to pay the lease rentals to the lessor over a 48-month period. The
source of funds for those repayments is the rental payments from the health care
provider customer.

OTHER CONSIDERATIONS

There are numerous factors that affect our 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 the Company's product or services, the level and intensity of
competition in the medical transaction processing industry and the pricing
pressures that may result, the Company's 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 the ability to continue to improve the infrastructure (including
personnel and systems) to keep pace with the growth in its overall business
activities.

FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, this Form 10-QSB
contains express or implied forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act.
The Company intends that such forward-looking statements be subject to the safe
harbors created thereby. The Company may make written or oral forward-looking
statements from time to time in filings with the SEC, in press releases, or
otherwise. The words "believes," "expects," "anticipates," "intends,"
"forecasts," "project," "plans," "estimates" and similar expressions identify
forward-looking statements. Such statements reflect the current views with
respect to future events and financial performance or operations and are only as
of the date the statements are made.

Forward-looking statements involve risks and uncertainties and readers are
cautioned not to place undue reliance on forward-looking statements. The
Company's actual results may differ materially from such statements. Factors
that cause or contribute to such differences include, but are not limited to,
those discussed elsewhere in this Form 10-QSB, as well as those discussed in
Form 10-KSB which is incorporated by reference in this Form 10-QSB.

Management believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in such
forward-looking statements will be realized. The inclusion of such
forward-looking information should not be regarded, as a representation that the
future events, plans, or expectations contemplated will be achieved. The Company
undertakes no obligation to publicly update, review, or revise any
forward-looking statements to reflect any change in expectations or any change
in events, conditions, or circumstances on which any such statements are based.
Our filings with the Securities Exchange Commission, including the Form 10-KSB,
and may be accessed at the SEC's web site, www.sec.gov.
------------

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

MedCom is involved in various legal proceedings and claims as described in
our Form 10-KSB for the year ended June 30, 2001. No material developments
occurred in any of these proceedings during the quarter ended March 31, 2001.
The costs and results associated with these legal proceedings could be
significant and could affect the results of future operations.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS
--------

NO REPORTS ON FORM 8-K

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

CERTIFICATION

I, Bill Williams, President and Chief Executive Officer of MedCom USA, certify
that:

1. I have reviewed this annual report on Form 10-QSB of MedCom
USA;

2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report; and

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report.

MEDCOM USA, INC.

By /s/ W.P. Williams
------------------
Chairman, President, CEO

November 25, 2002