United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
|
|
|
|
|
Form
10-Q
|
|
|
|
|
[x]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
|
|
For
the quarterly period ended
June 30,
2010
|
|
|
|
|
|
|
|
[ ]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
|
|
Commission
File Number:
1-31771
|
|
|
|
|
|
MEDLINK
INTERNATIONAL, INC.
|
|
|
(Exact
name of registrant as specified in its charter)
|
|
|
|
|
Delaware
|
|
41-1311718
|
(State
of other jurisdiction of incorporation or organization)
|
|
(IRS
Employer Identification No.)
|
|
|
|
|
1 Roebling Court, Ronkonkoma, NY
11779
(Address
of principal executive offices)
|
|
|
|
|
|
631-342-8800
(Issuer’s
telephone number)
|
|
|
|
|
Indicate
by check mark 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 preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes
[X] No[ ]
|
|
|
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
|
|
[ ]
Large accelerated filer
|
[ ]
Accelerated filer
|
|
[ ]
Non-accelerated filer
|
[X]
Smaller reporting company
|
|
|
|
Indicate
by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes [ ] No
[X]
|
|
|
|
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: as of June 30, 2010 there were
36,442,236 Class A and 5,361,876 Class B shares
outstanding.
|
MEDLINK INTERNATIONAL,
INC.
FORM
10-Q
INDEX
Item
|
|
Page
|
Part
I.
|
Explanatory
Note
FINANCIAL
INFORMATION
|
|
|
|
|
Item 1.
|
Financial Statements
(unaudited)
|
|
|
|
|
|
Condensed Consolidated Balance Sheets at June 30,
2010 (unaudited) and December 31, 2009 (audited)
|
3
|
|
|
|
|
Condensed Consolidated Statements of Operations
for the Three months and Six Months ended June 30, 2010 and
2009 (unaudited)
|
4
|
|
|
|
|
Condensed Consolidated Statements of Cash Flows
for the Six Months ended June 30, 2010 and 2009
(unaudited)
|
5
|
|
|
|
|
Notes to Condensed Consolidated Financial
Statements (unaudited)
|
6
|
|
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
16
|
|
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About
Market Risk
|
24
|
|
|
|
Item 4.
|
Controls & Procedures
|
24
|
|
|
|
Part
II.
|
OTHER
INFORMATION
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
25
|
|
|
|
Item 1A.
|
Risk Factors
|
25
|
|
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of
Proceeds
|
25
|
|
|
|
Item 3.
|
Default Upon Senior
Securities
|
25
|
|
|
|
Item 4.
|
Submission of Matters To a Vote of Security
Holders
|
25
|
|
|
|
Item 5.
|
Other Information
|
25
|
|
|
|
Item 6.
|
Exhibits
|
25
|
|
|
|
|
SIGNATURES
|
26
|
|
|
|
Ex.
31.1
|
Section
302 Certification of Chief Executive Officer
|
|
Ex.
31.2
|
Section
302 Certification Chief Financial Officer
|
|
Ex.
32.1
|
Section
906 Certification Chief Executive Officer
|
|
Ex.
32.2
|
Section
906 Certification of Chief Financial Officer
|
|
|
|
|
|
PART
I. FINANCIAL INFORMATION
Item 1.
Financial Statements
MEDLINK
INTERNATIONAL, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
ASSETS
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
|
|
|
26,911
|
|
|
|
4,843
|
|
Accounts
Receivable
|
|
|
1,438,603
|
|
|
|
289,346
|
|
Total
current assets
|
|
|
1,465,513
|
|
|
|
294,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
equipment (at cost) net of accumulated depreciation
|
|
|
286,253
|
|
|
|
186,205
|
|
Intangible
asset (at cost), net of accumulated amortization
|
|
|
12,453
|
|
|
|
10,938
|
|
Security
deposit
|
|
|
12,950
|
|
|
|
12,950
|
|
Other
assets
|
|
|
1,316,292
|
|
|
|
-
|
|
Total Assets
|
|
$
|
3,092,961
|
|
|
$
|
504,281
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
279,188
|
|
|
|
145,044
|
|
Due
to related party
|
|
|
904,023
|
|
|
|
1,002,430
|
|
Liabilities
from discontinued operations
|
|
|
804,141
|
|
|
|
804,141
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
1,987,352
|
|
|
|
1,951,605
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,987,352
|
|
|
|
1,951,605
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Common
stock Class A $.001 par value; authorized 150,000,000 shares; 36,442,236
and 31,567,236 shares issued as of June 30, 2010 and December 31, 2009,
respectively
|
|
|
36,442
|
|
|
|
31,567
|
|
Common
stock B Class B $.001 par value; authorized 50,000,000 as of June 30,
2010; 5,361,876 issued and outstanding
|
|
|
5,362
|
|
|
|
5,362
|
|
Additional
paid-in capital
|
|
|
22,263,285
|
|
|
|
20,093,341
|
|
Accumulated
deficit
|
|
|
(21,068,929
|
)
|
|
|
(21,447,044
|
)
|
Treasury
stock
|
|
|
(130,551
|
)
|
|
|
(130,551
|
)
|
Total
stockholders' equity/deficit
|
|
|
1,105,509
|
|
|
|
(1,447,325
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ liabilities and stockholder
equity
|
|
$
|
3,092,961
|
|
|
$
|
504,282
|
|
See
accompanying notes to consolidated financial statements
MEDLINK
INTERNATIONAL INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For
the Three Months
|
For
the Six Months
|
|
ended
June 30,
|
Ended
|
|
June 30,
|
|
2010
|
2009
|
2010
|
2009
|
Sales
|
$1,610,605
|
$115,783
|
$2,215,704
|
$259,970
|
Cost
of Revenues
|
303,579
|
412
|
488,939
|
3,496
|
Gross
Profit
|
1,307,026
|
115,371
|
1,726,765
|
256,474
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
Operating
and administrative
|
256,360
|
262,062
|
354,864
|
720,945
|
Consulting
Expense
|
199,351
|
12,750
|
253,995
|
62,811
|
Compensation
Expense
|
479,452
|
25,974
|
707,323
|
25,250
|
Depreciation
and amortization
|
20,420
|
10,035
|
32,467
|
30,105
|
Total
Operating expenses
|
947,082
|
310,821
|
1,348,150
|
839,111
|
|
|
|
|
|
Net
Profit/(Loss)
|
$359,443
|
$(195,450)
|
$378,115
|
$(582,637)
|
|
|
|
|
|
Basic
and diluted loss per share (Class A)
|
$0.01
|
$(0.01)
|
$0.01
|
$(0.02)
|
|
|
|
|
|
Basic
and diluted loss per share (Class B)
|
$0.07
|
$(0.04)
|
$0.07
|
$(0.11)
|
|
|
|
|
|
Weighted
avg. number of basic shares outstanding (Class A)
|
36,442,236
|
26,805,987
|
36,442,236
|
26,805,987
|
|
|
|
|
|
Weighted
avg. number of basic shares outstanding (Class B)
|
5,361,876
|
5,361,876
|
5,361,876
|
5,361,876
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements
MEDLINK
INTERNATIONAL INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
For
the Six Months
Ended
June 30
|
|
Cash
flows from operating activities:
|
|
2010
|
|
|
2009
|
|
Net
Income/(Loss)
|
|
$
|
378,115
|
|
|
$
|
(582,637
|
)
|
Adjustment
to reconcile net income/(loss) to cash flows used in operating
activities:
|
|
|
|
|
|
|
|
|
Share
based compensation
|
|
|
21,319
|
|
|
|
511,267
|
|
Shares
issued for consulting services
|
|
|
1,703,500
|
|
|
|
|
|
Depreciation
|
|
|
32,467
|
|
|
|
30,105
|
|
Amortization
|
|
|
|
|
|
|
4,170
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,149,257
|
)
|
|
|
(27,994
|
)
|
Deposits
|
|
|
-
|
|
|
|
|
|
Other
assets
|
|
|
(1,316,292
|
)
|
|
|
(20,704
|
)
|
Accounts
payable
|
|
|
(70,196
|
)
|
|
|
|
|
Accrued
expense and other current liabilities
|
|
|
204,349
|
|
|
|
34,195
|
|
Net
Cash used in operating activities
|
|
|
(197,510
|
)
|
|
|
(51,598
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase
of fixed assets
|
|
|
(132,515
|
)
|
|
|
(588
|
)
|
Adjustment
to net fixed assets
|
|
|
-
|
|
|
|
10,033
|
|
Write-down
|
|
|
-
|
|
|
|
95,674
|
|
Net
cash provided by (used in) investing activities
|
|
|
(132,515
|
)
|
|
|
105,119
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from Private Placement
|
|
|
450,000
|
|
|
|
|
|
Repayment
of loans
|
|
|
(98,407
|
)
|
|
|
(59,140
|
)
|
Advanced
from officer/shareholders
|
|
|
-
|
|
|
|
34,476
|
|
Net
cash flows provided by financing activities
|
|
|
351,593
|
|
|
|
(24,665
|
)
|
|
|
|
|
|
|
|
|
|
NET
INCREASE IN CASH
|
|
|
21,568
|
|
|
|
27,553
|
|
|
|
|
|
|
|
|
|
|
CASH-AT
BEGINNING OF PERIOD
|
|
|
4,843
|
|
|
|
(26,834
|
)
|
|
|
|
|
|
|
|
|
|
CASH-AT
END OF PERIOD
|
|
|
26,411
|
|
|
|
699
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash
paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
|
|
|
|
Share
based compensation
|
|
$
|
21,319
|
|
|
$
|
511,267
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common shares for consulting and other services
rendered
|
|
$
|
1,703,500
|
|
|
$
|
-
|
|
See
accompanying notes to consolidated financial statements
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2010
|
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Business
MedLink
International Inc. (the “Company”) is a healthcare information enterprise system
business focused on the physician sector. The Company is in the
business of selling, implementing and supporting software solutions that provide
healthcare providers with secure access to clinical, administrative and
financial data in real-time, allowing them to improve the quality, safety and
efficiency in the delivery of healthcare services primarily through the sale of
its flagship product the MedLink TotalOffice EHR.
Basis
of Accounting
The
financial statements are prepared using the accrual basis of accounting where
revenues and expenses are recognized in the period in which they were
incurred. The basis of accounting principles conforms to accounting
principles generally accepted in the United States of America.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company and all of
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Interim
Financial Statements
The
accompanying interim unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
8 of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In our opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three-month and six-month period ended June
30, 2010 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2010. For further information, refer to the
financial statements and footnotes thereto included in our Form 10-K Report for
the fiscal year ended December 31, 2009.
In the
opinion of the Company’s management, all adjustments (consisting of normal
recurring accruals) necessary to present fairly the Company’s financial position
as of June 30, 2010, the results of operations for the three months and six
months ended June 30, 2010 and 2009, and the cash flows for the six months ended
June 30, 2010 and 2009, have been included. The results of operations
for such interim periods are not necessarily indicative of results of operations
to be expected for the full year. In accordance with the Financial Accounting
Standards Board (the “FASB”)
Accounting Standards Codification™
(“ASC”) Topic 855,
Subsequent Events,
or ASC
855, the Company evaluated all events or transactions that occurred after June
30, 2010 through the date of this report, which represents the date the
consolidated financial statements were issued. During this period the Company
did not have any material recognizable subsequent events, except for events
disclosed herein.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JUNE
30, 2010
|
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Depreciation
and Amortization
Property
and equipment are recorded at cost. Depreciation on equipment,
furniture and fixtures and leasehold improvements is computed on the
straight-line method over the estimated useful lives of such assets between 3-10
years. Maintenance and repairs are charged to operations as
incurred.
Revenue
Recognition
MedLink’s
revenues are derived from Subscription Contracts (including software license,
support and maintenance), Professional Services (including implementation,
integration, and training); and the sale of computer hardware.
The
Company recognizes revenues in accordance with the provisions of ASC Topic 605,
“Revenue Recognition” which requires among other matters, that there be a signed
contract evidencing an arrangement exists, delivery has occurred, the fee is
fixed or determinable, collectability is probable, and remaining obligations
under the agreement are insignificant.
Revenue
is recognized as set forth below:
Subscription
Contracts
Our
subscription contracts typically include the following elements:
o Software
license;
o Support;
o Maintenance;
and
Software
license fees are recognized ratably over the term of the contract, commencing
upon the delivery of the software provided that (1) there is evidence of an
arrangement, (2) the fee is fixed or determinable and (3) collection of our fee
is considered probable. The value of the software is determined using the
residual method pursuant to ASC Topic 450, With Respect to Certain
Transactions." These contracts contain the rights to unspecified future software
within the suite purchased and/or unspecified platform transfer rights that do
not qualify for exchange accounting.
Professional
Services
Professional
services represent incremental services marketed to clients including
implementation, consulting, and training services. Professional services
revenues, where VSOE is based on prices from stand-alone transactions, and the
revenues are recognized as services are performed pursuant to ASC Topic
450.
Goodwill
and Indefinite-Lived Purchased Intangible Assets
In
accordance with ASC Topic 350, “Goodwill and Other Intangible Assets,” goodwill
acquired in business combination is assigned to reporting units that are
expected to benefit from the synergies of the combination as of the acquisition
date. The Company assesses goodwill and indefinite-lived intangible assets for
impairment annually at the end of the fourth quarter, or more frequently if
events and circumstances indicate impairment may have occurred in accordance
with SFAS No. 142. If the carrying value of a reporting unit’s goodwill exceeds
its implied fair value, the Company records an impairment loss equal to the
difference. ASC Topic 350 also requires that the fair value of indefinite-lived
purchased intangible assets be estimated and compared to the carrying value. The
Company recognizes an impairment loss when the estimated fair value of the
indefinite-lived purchased intangible assets is less than the carrying
value.
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JUNE
30, 2010
|
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Hardware
Hardware
is recognized upon delivery pursuant to ASC Topic 360.
In
accordance with EITF 00-10, "Accounting for Shipping and Handling Fees," we have
classified the reimbursement by clients of shipping and handling costs as
revenue and the associated cost as cost of revenue.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist principally of sales, trade accounts receivable and
cash. The Company grants credit to domestic companies located
throughout the New York tri-state area. The Company performs ongoing
credit evaluations of its customers' financial condition and generally requires
no collateral from its customers.
Long-Lived
Assets
The
Company’s accounting policy regarding the assessment of the recoverability of
the carrying value of long-lived assets, including property and equipment and
purchased intangible assets with finite lives, is to review the carrying value
of the assets if the facts and circumstances suggest that they may be impaired.
If this review indicates that the carrying value will not be recoverable, as
determined based on the projected undiscounted future cash flows, the carrying
value is reduced to its estimated fair value. Intangible assets that
have finite useful lives are amortized by the straight-line method over the
remaining useful lives.
Accounting
for Stock-Based Compensation
ASC Topic
718 requires compensation costs related to share-based payment
transactions to be recognized in the statement of operations. With limited
expectations, the amount of compensation cost is measured based on the
grant-date fair value of the equity or liability instruments issued. In
addition, liability awards will be re-measured each reporting period.
Compensation cost will be recognized over the period that an employee provides
service in exchange for the award. The Company used the black-scholes option
pricing model for estimating the fair value of the options granted under the
company’s incentive plan.
Discontinued
Operations
A
business is classified as a discontinued operation when (i) the operations
and cash flows of the business can be clearly distinguished and have been or
will be eliminated from our ongoing operations; (ii) the business has
either been disposed of or is classified as held for sale; and (iii) we
will not have any significant continuing involvement in the operations of the
business after the disposal transactions. Significant judgments are involved in
determining whether a business meets the criteria for discontinued operations
reporting and the period in which these criteria are met.
If a
business is reported as a discontinued operation, the results of operations
through the date of sale, including any gain or loss recognized on the
disposition, are presented on a separate line of the income statement. Interest
on debt directly attributable to the discontinued operation is allocated to
discontinued operations. Gains and losses related to the sale of businesses that
do not meet the discontinued operation criteria are reported in continuing
operations and separately disclosed if significant.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with original maturity of three
months or less when purchased to be cash equivalents.
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JUNE
30, 2010
|
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounts
Receivable
Accounts
receivable consists of amounts due from our sales of subscription contracts,
professional services, and the sale of computer hardware. The Company
has established an allowance for doubtful accounts based upon factors pertaining
to the credit risk of specific customers, historical trends, and other
information. Delinquent accounts are written-off off when it is
determined that the amounts are uncollectible. At June 30, 2010 and
2009, the provision for doubtful accounts was $0 and $0,
respectively.
Fixed
Asset
The
Company depreciates its equipment on the straight-line method for financial
reporting purposes over a five year period. For tax reporting
purposes, the Company uses accelerated methods of
depreciation. Expenditures for maintenance, repairs, renewals and
betterments are reviewed by management and only those expenditures representing
improvements to equipment are capitalized. At the time equipment is
retired or otherwise disposed of, the cost and accumulated depreciation accounts
are removed from the books and the gain or loss on such disposition is reflected
in operations.
Other
Assets
Other
Assets consists of deferred charges resulting from a consulting advisory
agreement dated February 10, 2010.
Deferred
Income Taxes
Deferred
income taxes are provided based on the provisions of ASC Topic 740, "Accounting
for Income Taxes" to reflect the tax effect of differences in the recognition of
revenues and expenses between financial reporting and income tax purposes based
on the enacted tax laws in effect at December 31, 2009.
The
Company, as of June 30, 2010 had available approximately $21,069,730 of net
operating loss carry forwards to reduce future Federal income
taxes. The Company has operating loss carry forwards which are due
to
expire
from 2010 through 2023. Since there is no guarantee that the related
deferred tax asset will be realized by reduction of taxes payable on taxable
income during the carry forward period, a valuation allowance has been computed
to offset in its entirety the deferred tax asset attributable to this net
operating loss. The amount of valuation allowances are reviewed
periodically.
ASC Topic
740 interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation, and disclosure of uncertain tax
positions taken or expected to be taken in income tax return. ASC
Topic 740 and related interpretations are effective for the Company in the first
quarter of fiscal 2007.
Earnings
Per Common Share of Common Stock
ASC Topic
260 requires two presentations of earnings per share - "basic" and
"diluted". Basic earnings per share are computed by dividing income
available to common stockholders by the weighted-average number of common shares
for the period. The computation of diluted earnings per share is
similar to basic earnings per share, except that the weighted average number of
common shares is increased to include the number of additional common shares
that would have been outstanding if the potentially dilutive common shares had
been issued.
Only
basic earnings per share is presented as all common stock equivalents are either
anti-dilutive or not material for the period presented. For the
period ending June 30, 2010 and December 31, 2009, the weighted average number
of shares outstanding for the Company’s Class A Common Stock used in the per
share computation was 36,642,236 and 31,567,876, respectively. For
the periods ending June 30, 2010 and December 31, 2009, the weighted average
number of shares outstanding for the Company’s Class B Common Stock used in the
per share computation was 5,361,876 and 5,361,876, respectively.
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JUNE
30, 2010
|
NOTE
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Going
Concern
The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. This
basis of accounting contemplates the recovery of our assets and the satisfaction
of its liabilities in the normal course of business. Through June 30,
2010, the Company had incurred cumulative losses of $21,069,730. As
of June 30, 2010, the Company has negative working capital of
$512,839.
Management
plans to take the following steps that it believes will be sufficient to provide
the Company with the ability to continue in existence. (i) Management
intends to continue to raise additional financing through private equity or debt
financing to pay down Company debt and/or reduce the cost of debt
service. (ii) Management is also planning to continue to finance the
company using their own personal funds or using the equity that they personally
own in the company. (iii) Management intends to increase revenues and
is actively pursuing additional contracts.
The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
NOTE
2 – RECENT ACCOUNTING PRONOUNCEMENTS
In March
2010, the FASB issued Accounting Standard Update No. 2010-11 “Derivatives and
Hedging” (Topic 815). ASU No. 2010-11 update provides amendments to subtopic
815-15, Derivatives and hedging. The amendments clarify about the scope
exception in paragraph 815-10-15-11 and section 815-15-25 as applicable to the
embedded credit derivatives. The ASU is effective on the first day of the first
fiscal quarter beginning after June 15, 2010. Therefore, for a calendar-year-end
entity, the ASU becomes effective on July 1, 2010. Early application is
permitted at the beginning of the first fiscal quarter beginning after March 5,
2010
In April
2010, the FASB issued Accounting Standard Update No. 2010-12. “Income Taxes”
(Topic 740). ASU No.2010-12 amends FASB Accounting Standard Codification
subtopic 740-10 Income Taxes to include paragraph 740-10-S99-4. On March 30,
2010 The President signed the Health Care & Education Affordable Care Act
reconciliation bill that amends its previous Act signed on March 23, 2010. FASB
Codification topic 740, Income Taxes, requires the measurement of current and
deferred tax liabilities and assets to be based on provisions of enacted tax
law. The effects of future changes in tax laws are not anticipated.” Therefore,
the different enactment dates of the Act and reconciliation measure may affect
registrants with a period-end that falls between March 23, 2010 (enactment date
of the Act), and March 30, 2010 (enactment date of the reconciliation measure).
However, the announcement states that the SEC would not object if such
registrants were to account for the enactment of both the Act and the
reconciliation measure in a period ending on or after March 23, 2010, but notes
that the SEC staff “does not believe that it would be appropriate for
registrants to analogize to this view in any other fact patterns.”
In April
2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock
Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to
clarify that an employee share-based payment award with an exercise price
denominated in the currency of a market in which a substantial portion of the
entity's equity securities trades should not be considered to contain a
condition that is not a market, performance, or service condition. Therefore, an
entity would not classify such an award as a liability if it otherwise qualifies
as equity. The amendments in this Update are effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2010. The amendments in this Update should be applied by recording a
cumulative-effect adjustment to the opening balance of retained earnings. The
cumulative-effect adjustment should be calculated for all awards outstanding as
of the beginning of the fiscal year in which the amendments are initially
applied, as if the amendments had been applied consistently since the inception
of the award. The cumulative-effect adjustment should be presented separately.
Earlier application is permitted.
In April
2010, the FASB issued Accounting Standards Update No.2010-14, “Accounting for
Extractive Activities – Oil & Gas” (Topic 932). ASU No. 2010-14 amends FASB
accounting Standard paragraph 932-10-S99-1 due to SEC release no. 33-8995 [FR
78], Modernization of Oil and Gas Reporting and provides update as to amendments
to SEC Regulation S-X, Rule 4-10.
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JUNE
30, 2010
|
In April
2010, the FASB issued Accounting Standard Update No. 2010-15. “Financial
Services-Insurance” (Topic 944) ASU No.2010-15 gives direction on how
investments through separate accounts affect an insurer’s consolidation analysis
of those investments. Under the ASU: an insurance entity should not consider any
separate account interests held for the benefit of policy holders in an
investment to be the insurer's interests and should not combine those interests
with its general account interest in the same investment when assessing the
investment for consolidation, unless the separate account interests are held for
the benefit of a related party policy holder as defined in the Variable Interest
Entities Subsections of Subtopic 810-10 and those Subsections require the
consideration of related parties. The amendments in this Update are effective
for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2010. Early adoption is permitted. The amendments in this Update
should be applied retrospectively to all prior periods upon the date of
adoption.
In April
2010, the FASB issued Accounting Standard Update No. 2010-16.
“Entertainment-Casinos” (Topic 924). ASU No.2010-16 addresses diversity in
practice regarding whether an entity accrues liabilities for a base jackpot
before it is won because they could avoid the payment. The amendments in this
update clarify that an entity should not accrue jackpot liabilities (or portions
thereof) before a jackpot is won if the entity can avoid paying that jackpot.
Jackpots should be accrued and charged to revenue when an entity has the
obligation to pay the jackpot. This guidance applies to both base and
progressive jackpots. The ASU amendments are effective for fiscal years, and the
interim periods within those fiscal years, beginning on or after December 15,
2010.
In April
2010, the FASB issued Accounting Standard Update No. 2010-17. “Revenue
Recognition-Milestone Method” (Topic 605) ASU No.2010-17 provides guidance on
defining a milestone and determining when it may be
appropriate
to apply the milestone method of revenue recognition for research or development
transactions. An entity often recognizes these milestone payments as revenue in
their entirety upon achieving a specific result from the research or development
efforts. A vendor can recognize consideration that is contingent upon
achievement of a milestone in its entirety as revenue in the period in which the
milestone is achieved only if the milestone meets all criteria to be considered
substantive. Determining whether a milestone is substantive is a matter of
judgment made at the inception of the arrangement. The ASU is effective for
fiscal years and interim periods within those fiscal years beginning on or after
June 15, 2010. Early application is permitted. Entities can apply this guidance
prospectively to milestones achieved after adoption. However, retrospective
application to all prior periods is also permitted.
In April
2010, the FASB issued Accounting Standard Update No. 2010-18. “Receivables”
(Topic 310). ASU No.2010-18 provides guidance on accounting for acquired loans
that have evidence of credit deterioration upon acquisition. Paragraph
310-30-15-6 allows acquired assets with common risk characteristics to be
accounted for in the aggregated as a pool. Upon establishment of the pool, the
pool becomes the unit of accounting. When loans are accounted for as a pool, the
purchase discount is not allocated to individual loans; thus all of the loans in
the pool accrete at a single pool rate (based on cash flow projections for the
pool). Under subtopic 310-30, the impairment analysis also is performed on the
pool as a whole as opposed to each individual loan. Paragraphs 310-40-15-4
through 15-12 establish the criteria for evaluating whether a loan modification
should be classified as a troubled debt restructuring. Specifically paragraph
310-40-15-5 states that “a restructuring of a debt constitutes a troubled debt
restructuring for purposes of this subtopic if the creditor for economic or
legal reasons related to the debtor’s financial difficulties grants a concession
to the debtor that it would not otherwise consider.” The ASU is effective for
modification of loans accounted for within pools under subtopic 310-30 occurring
in the first interim or annual period ending on or after July 15, 2010. The
amendments are to be applied prospectively. Early application is
permitted.
In May
2010, the FASB issued Accounting Standard Update No. 2010-19 “Foreign Currency”.
(“ASU No. 2010-19”). ASU 2010-19, codifies the SEC staff announcement made at
the March 18, 2010, EITF meeting. The ASU “provides the SEC staff’s views on
certain foreign currency issues related to investments in Venezuela.” These
issues relate to Venezuela’s highly inflationary status. The ASU became
effective on March 18, 2010.
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JUNE
30, 2010
|
NOTE
3 - PROPERTY AND EQUIPMENT
As of
June 30, 2010, a summary of property and equipment and the estimated useful
lives used in the computation of depreciation is as follows:
|
Estimated
Useful
Life (years)
|
Amount
|
Furniture
and fixtures
|
5
|
$37,863
|
Leasehold
improvements
|
3
|
23,849
|
Equipment
|
5
|
345,296
|
|
|
407,008
|
Less
accumulated depreciation
|
|
187,663
|
|
|
$219,425
|
Depreciation
expense for the periods ended June 30, 2010 and 2009 was $12,047 and $20,070,
respectively. Amounts include amortization expense associated with
equipment under capital leases.
NOTE
4- ACCOUNTS RECEIVABLE
As of June 30, 2010, accounts
receivable totaled $1,438,603.
Accounts
receivable consist of amounts due from our sales of the MedLink TotalOffice EHR
and Interface and Integration Services to Imaging Centers and Laboratories and
are reported at net realizable value. The Company has established an allowance
for doubtful accounts based upon factors pertaining to the credit risk of
specific customers, historical trends, and other information. Delinquent
accounts are written-off when it is determined that the amounts are
uncollectible.
NOTE
5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of June 30, 2010, accounts payable
and accrued expenses totaled $112,596.
NOTE
6 - LOAN PAYABLE - RELATED PARTIES
The Company, as of June 30, 2010, has
loans due to three of its employees/shareholders in the amount of
$904,023. These loans are payable on demand and are non-interest
bearing.
NOTE
7 – NOTE PAYABLE
The Company purchased 130,000,000
shares of Anywhere MD, Inc.’s stock from the majority shareholder of Anywhere
MD., Inc., a discontinued operation, in exchange for a note in the amount of
$875,000. As of June 30, 2010 $509,835 was due on
demand. This note is non-interest bearing. The holder of
the Note is in default of their obligations and the Company is currently
pursuing legal action to recover its costs as result of the default including
monies paid out on the Note Payable.
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JUNE
30, 2010
|
NOTE
8 - COMMITMENTS AND CONTINGENCIES
In
February 2009 the company entered into a rental lease agreement for its
corporate headquarters in Ronkonkoma, New York which expires on February 28,
2014.
In May
2010 the company entered into a rental lease agreement for office space in
Hyderabad, India which expires on April 30, 2015.
In June
2010 the company entered into a rental lease agreement for an office space in
Baltimore, Maryland which expires on June 30, 2012.
Minimum
annual lease commitments are as follows:
Year ended December 31,
2010 80,308
2011 148,776
2012 144,224
2013 138,920
2014
15,680
Total
$590,364
NOTE
9 - STOCKHOLDERS' EQUITY
Share
Based Consultant Services
For the period ending June 30, 2010,
the Company issued 3,600,000 shares of Company common stock to various
non-employee service providers and has recorded the fair value of shares issued
based on the closing market price of stock of $0.35 on the respective
measurement date of approximately $1,260,000 as an increase in additional
paid-in capital. Stock-based compensation expense is recognized over
the requisite service periods
Preferred
Stock Series A
For the
period ending June 30, 2010, the Company’s board of directors designated 2,200
shares of the Company’s preferred stock into a Preferred Class Series A, each
share of preferred series A is convertible into 1000 shares of the Company’s
class A common stock. During the period ended June 30, 2010 the
company issued 1,000 shares of the Series A Preferred for a total capital
contribution of $450,000
NOTE
9 – SUBSEQUENT EVENTS
LabTest Portal Acquisition:
In
July of 2010, we acquired a 100% ownership interest in a Maryland-based
direct-to-consumer laboratory testing company for 400,000 shares of the
Company’s Class A Common Stock. LabTestPortal.com (LTP) is a service
provider that delivers direct-to-consumer secure and confidential laboratory
testing, alleviating the need to spend precious time waiting to see a primary
care physician for consumers. LTP provides a Personal Heath Record
portal where consumers are able to track their lab testing results as well as
store vital healthcare documents and information. LTP is a necessary tool for
all consumers to better manage their health through monitoring and education
with its service offering available to consumers in all 50
states. The acquisition will be accounted for as a business
combination and the acquired company’s results of operations will be
consolidated in our financial statements from the date of
acquisition.
MEDLINK
INTERNATIONAL INC.
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
JUNE
30, 2010 (UNAUDITED)
|
NOTE
9- SUBSEQUENT EVENTS (continued)
Health Informatics Acquisition:
In August of 2010, we acquired a 51% controlling ownership interest in a
New Jersey based, Health Informatics LLC, a provider of cutting edge clinical
data digitization technology that simplifies and streamlines the adoption of
Electronic Health Records for 250,000 shares of the Company’s Class A Common
Stock, with an option to purchase the additional 49% beginning in 2012. The
acquisition will be accounted for as a business combination and the acquired
company’s results of operations will be consolidated in our financial statements
from the date of acquisition.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Business
Overview
Introduction
During
the period ended June 30, 2010, MedLink realized more than 200% growth over the
first quarter of 2010 with revenues of $1.6m and a net profit of
$378k. During the second quarter the Company expanded its operations
and staff, with several key management hires, the expansion of its IT center in
India, and the opening of offices in Baltimore, MD and Hellertown,
PA. MedLink’s increased revenues from the second quarter were
primarily attributable to increased sales of the MedLink TotalOffice EHR, which
were spurred through RHIO’s subsidies of physicians and through the launch of
MedLink Lab Portal, a clinical Laboratory ordering and results
platform. The Company continues to gain traction and garner
significant contracts that will have a positive result on the Company’s
operations for the remainder of 2010 and beyond as the health information
technology market continues to grow rapidly with double digit annual growth
rates. With the Company’s primary target market less than 20%
penetrated, MedLink is poised for continued success and growth through the sale
and maintenance of its EHR and clinical laboratory product offerings.
Significant second quarter highlights included:
·
|
Selection
by the SunCoast RHIO as exclusive EHR
Vendor
|
·
|
Selected
EHR Vendor by the New York Regional Extension
Center
|
·
|
Launched
MedLink Lab- a clinical laboratory orders/results
portal.
|
·
|
Hired
Steward Macis as the Company’s Chief Information
Officer
|
·
|
Signed
three regional clinical laboratory’s that will deploy the MedLink Lab
Portal
|
·
|
Signed
MedLink Lab Portal Licensing agreement with Laboratory Services Company
that manages Hospital labs
nationwide.
|
·
|
Opened
new offices in Baltimore, MD and Hellertown,
PA
|
·
|
Expansion
of India IT Operations Center
|
o
|
Leased
7,500 square feet
|
o
|
Hired
more than 20 additional IT Staff
|
·
|
Expanded
MedLink Revenue Cycle Management
Services
|
·
|
Executed
on synergistic acquisition
opportunities/
|
Company
Overview
MedLink
sells and supports a proprietary electronic health record (“EHR”) application,
including practice management for physician practices. MedLink’s
flagship offering is the CCHIT Certified 08 Ambulatory MedLink TotalOffice EHR,
a healthcare information enterprise system that provides physician practices
with an entire practice management, clinical decision support and EHR
solution. MedLink also offers the MedLink Lab Portal, an online
ordering and results platform that is integrated with laboratory information
systems allowing referring providers of clinical laboratories to order and
receive lab results through an online interface. MedLink’s Lab Portal
offering provides users with a clear path towards the achievement of ‘meaningful
use’. Through the adoption of MedLink’s TotalOffice EHR, physicians
may receive a subsidy towards the purchase of the TotalOffice EHR under a Stark
anti-kickback exemption from Labs, Hospitals or other physician service
providers. The MedLink TotalOffice EHR is only one of seven EHR’s to
be qualified by CMS, which provides the Company with a significant competitive
advantage as physicians adopting EHR technology to achieve ‘meaningful use’ will
qualify for the $44,000 to $64,000 federal subsidy per provider, available to
physicians who utilize a ‘Qualified’ EHR and achieve meaningful use through
direct reporting to CMS. The Company also offers medical providers
with complete revenue cycle management services, hardware and network
infrastructure and use of the TotalOffice EHR, all for a fixed fee determined by
the practice’s annual billing revenue through MedLink Billing.
MedLink’s
business strategy is to build critical mass and develop a national presence
among small to medium sized physician practices (1 to 10 physicians) by
increasing market penetration of the MedLink Lab Portal and TotalOffice
EHR. The small physician practice market segment remains largely
unpenetrated for EHRs, with less than 10% of practices in the market having yet
to adopt EHR technology. With more than $19 billion in federal incentives and
mandates to adopt by 2014, more than 160,000 practices in MedLink key
demographic market are expected to adopt EHR in the next 3
years. As part of its growth strategy, MedLink is working with
a number of Regional Health Information Networks (“RHIOs”) and is partnering
with RHIO’s, radiology centers, hospitals, laboratories and revenue cycle
management companies that subsidize the overall cost of the MedLink TotalOffice
EHR up to 85% for qualifying practices. MedLink’s strategic
partnerships and growing network of value added resellers provides a framework
for physician adoption and a captive audience to target a focused sales and
marketing plan.
MedLink
has strategically positioned itself to execute on all facets of its business
plan which the Company expects will result in tremendous growth in
2010.
Recent
Business Developments
Acquisition
of LabTestPortal.com
In July,
MedLink announced the acquisition of LabTestPortal.com, a direct-to-consumer
laboratory testing platform. The acquisition provides MedLink with an
entry into the direct-to-consumer laboratory testing market which has gained
significant traction in the more than $50 billion U.S. laboratory testing
market. LabTestPortal is a service provider that delivers
direct-to-consumer secure and confidential laboratory testing to consumers, that
eliminates the need to see a primary care physician and receive insurance
approval for maintenance and advanced lab tests. Through a Personal
Heath Record portal, consumers are able to track their lab testing results as
well as store vital healthcare documents and information and receive results in
most cases in less than 48 hours and is available to consumers in all 50
states.
Acquisition
of Health Informatics
In
August, MedLink announced the acquisition of Health Informatics a provider of
cutting edge clinical data digitization technology that simplifies and
streamlines the adoption of Electronic Health Records. The Health
Informatics Digital Pen in conjunction with MD Form Manager is the flagship
offering of the Company. The Digital Pen looks and feels like a
normal ball point pen, however, the Digital Pen contains an integrated infrared
digital camera, an advanced image microprocessor and a mobile communications
device for wireless connection. The camera records the precise
location of ink strokes as it moves over a uniquely constructed grid of
microscopic dot patterns. These dots provides the pen with exact
co-ordinates of its position, which through MD Form Manager are designed to
interface directly with the MedLink EHR to collect discrete data elements that
electronically populate the patient chart. The solution provides
Doctors and their staff with the traditional documentation approach of pen and
paper, but the advanced ability of digitally documenting and capturing the data
required to provide ‘meaningful use’ and other quality data
reports.
Acquisition
Strategy
MedLink
is focused on organic growth, but also is exploring synergistic acquisition
opportunities that will enhance the Company’s market share and product
offerings. In addition to the acquisition of LabTestPortal and Health
Informatics, the Company is exploring two potential acquisition opportunities of
two of its EHR competitors, in line with the Company’s acquisition
strategy. Each of the opportunities presents MedLink with product
offerings that will complement the Company’s current product
offering.
MedLink
Lab Portal
During
the second quarter, the Company launched the MedLink Lab Portal, which provides
a web based clinical laboratory ordering, and results platform that is provided
to the referring providers of clinical and hospital labs. The Company
charges an upfront License fee, an Integration fee to the Laboratory Information
System, as well as a monthly maintenance fee per provider, paid by the
Laboratory for each enrolled referring provider that accesses the portal to
order and retrieve lab results. The lab outreach portal is a natural
extension for the Company and its suite of EHR products with the communication
of lab results being a key component in Providers achieving ‘meaningful
use’. During the 2
nd
quarter of 2010, three regional clinical laboratories signed with MedLink to
utilize the MedLink Lab Portal as well a Laboratory Services company that
operates and manages Hospitals Labs nationwide.
MedLink
Qualified by the Centers for Medicare and Medicaid Services (CMS)
In
January of 2010, MedLink successfully completed the CMS PQRI testing program and
achieved “Qualified” vendor status by CMS along with only 6 other EHR vendors
for direct PQRI reporting from an EHR, creating a significant market
differentiator for MedLink. MedLink’s ability to report directly to
CMS should positively influence physicians when deciding among competing EHR
vendors to select MedLink. This is another example of how MedLink
differentiates itself and puts its technology in the same league as industry
leaders such as Allscripts, Epic and NextGen. The CMS Project is
significant because of the focus on healthcare cost reduction through technology
and preventative care. MedLink will give physicians who use MedLink’s
products the ability to directly report Quality Measures directly to
CMS. This connection allows those physicians to save time and collect
money available for such programs much more efficiently. This is a
clear differentiator and will be used as part of MedLink’s marketing across the
country.
Interboro
RHIO
MedLink
was also recently selected by Interboro RHIO after an exhaustive 1 year RFI and
selection process. Selection by Interboro is a testament to the
MedLink TotalOffice EHR as MedLink was selected above the industry’s market
leaders. The Interboro RHIO is a clinical data exchange (“CDE”)
serving the County of Queens, northern Brooklyn and surrounding communities
which will serve as a hub for the communication of patient information between
healthcare providers within the community. Under the contract, the
Interboro RHIO will subsidize providers 85% of the cost to purchase and
implement the MedLink TotalOffice EHR. Providers that receive the
Interboro subsidy will receive: the MedLink TotalOffice License, implementation
and customization, three days of on-site implementation assistance, ten months
maintenance and support, on-site health IT adoption and support assistance and
Interboro RHIO connectivity through 2011. There are an estimated
7,000 physicians who could be eligible for the program in the Interboro RHIO
service area. A 5 physician practice, for example, under the
Interboro RHIO program subsidy would receive the MedLink TotalOffice EHR and
related HIT services of a total cost of $75,830, of which the Interboro RHIO
would subsidize $63,946, resulting in a cost to the practice of just $11,885 or
less than $2,400 per physician.
Initial
interest in the program has been significant and MedLink has increased its sales
team to promote the program to medical practices in Queens and
Brooklyn. The Interboro RHIO is funded through a current grant of
$7.7 million from New York State.
Other
RHIO Programs
MedLink
is either a finalist or under consideration for inclusion as a preferred vendor
in a number of other RHIO programs in New York State, Florida, Connecticut,
Georgia and Alabama. RHIOs are quickly becoming key intermediaries to
support federal and state financial incentive programs by allocating subsidies
and grants to physicians to pay for EHR software and installation.
During
the 1
st
quarter of 2010, MedLink introduced the RHIO financial sustainability Model and
signed the SunCoast RHIO in Florida during the second quarter as the first
participant. These types of programs will add to the exposure of the
MedLink products in the various RHIO areas. The Company has received
increased interest from RHIO’s across the country since the announcement of the
Sun Coast RHIO and plans to utilize the RHIO financial sustainability model as a
key driver for EHR adoption and the sharing of clinical information data through
the MedLink Data Aggregator.
RHIO
participation represents a key component of MedLink’s growth
strategy. MedLink is particularly well positioned in dealing with
RHIOs as it is the lowest cost option among competitive offerings and as such,
allows the RHIOs to apply their dollars across more
physicians. MedLink is positioned to take advantage of these RHIO
opportunities as a result of its development process and its adherence to the
various standards for handling and transmitting data with networks such as the
National Health Information Network and the State Health Information Network of
NY. MedLink has already provided data to organizations in various
manners and in doing so, has differentiated itself from a technology standpoint
which has resulted in various projects becoming available to it in
2010.
New
York City Department of Health Contract
The
Company signed an agreement with the New York City Department of Health (NYC
DOH), the nation’s leading municipality in healthcare IT. The NYC DOH has a
number of initiatives underway to promote the adoption of EHRs in order to
collect patient data. As a normal part of its business strategy,
MedLink has been in active discussions with the NYC DOH to participate in these
initiatives and to promote the installation of TotalOffice EHRs as one means for
the NYC DOH to accomplish their objectives. MedLink and NYC DOH
finalized an agreement in late December 2009 to work together on a number of
initiatives, including:
Quality
Reporting and Syndromic Surveillance: Syndromic Surveillance is the
daily reporting on the conditions or symptoms that would cause someone to go
their doctor. Physicians document this as the “Chief Complaint” as
part of the patient encounter. MedLink EHR has been approved
and was the only EHR to pass NYC DOH reporting standards for Syndromic
Surveillance reporting.
Public
Health Alert System: NYC DOH is implementing and developing a Public
Health Alert Push (i.e., an alert push is an actionable item by physicians to
make alerts regarding certain matters of concern, such as a virus that would
require reporting, vaccination documentation or orders) in conjunction with
MedLink.
MedLink
Data Aggregator: MedLink has developed a software application in
which it can aggregate data from smaller EHR systems and deliver the data to the
NYC DOH for quality reporting requirements. Under the terms of the
agreement the MedLink Data Aggregator will be the exclusive gateway for other
healthcare IT vendors and systems to deliver patient information to NYC DOH,
which will establish MedLink as one of the largest clinical patient database in
the country.
Economic
Stimulus Package Provides Incentives for Physicians to Adopt EHRs
MedLink’s
TotalOffice EHR is well-positioned to be a beneficiary of the recently enacted
stimulus bill, the American Recovery and Reinvestment Act of 2009 (“ARRA”),
which provides incentives for office-based physicians and other providers to
adopt electronic health records. Physicians can qualify under either
the Medicare or Medicaid provision of ARRA. The Medicare provision
includes incentives of up to $44,000 per physician over a 5-year
period. The Medicaid provision includes incentives of up to $64,000
per physician over a 6-year period. The funds become available for
office-based physicians on January 1, 2011. In order to qualify for
incentives, physicians must demonstrate “meaningful use” of a certified
EHR. “Meaningful use” is not yet defined, but will likely be defined
as measurable results that demonstrate quality, safety and efficiency
improvements. The certification requirements, also not yet defined,
are likely to be based on the standards adopted by CCHIT and framed around the
PQRI data submitted directly to the Centers of Medicare and Medicaid Services
(“CMS”).
CMS
Incentives: Beginning in 2011, office-based physicians who are “meaningful
users” of certified EHRs are entitled to receive $44,000 to $64,000 over 5
years, from 2011 to 2015. To be eligible under this provision,
office-based physicians must demonstrate “meaningful use” of a “qualified” EHR
by reporting quality measure reports to CMS.
Office-based
physicians who do not adopt EHR technology by 2015 will be penalized by seeing
their Medicare payments reduced by 1% in 2015, 2% in 2016, 3% in 2017 and
beyond. In 2018 and beyond, the HHS Secretary may decrease one
additional percentage point per year (maximum of 5%) contingent upon the levels
of overall EHR adoption in the market.
Contractual
Obligations
We have
contractual obligations to maintain operating leases for property. The following
table summarizes our long-term contractual obligations and commitments as of
June 30, 2010:
Operating
lease obligations
|
Total
|
Less
Than 1 Year
|
1-3
Years
|
$590,364
|
$80,308
|
$373,308
|
The
commitments under our operating leases shown above consist primarily of lease
payments for our Ronkonkoma, New York corporate headquarters.
Off-Balance
Sheet Arrangements
As of
June 30, 2010 and December 31, 2009, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.
RESULTS OF
OPERATIONS
Three
Months Ended June 30, 2010 Compared to Three Months Ended June 30,
2009.
The
Company's revenues from continuing operations for the period ending June 30,
2010 and 2009 were $1,610,605 and $115,783, respectively. The increase in
revenue is primarily attributable to expanded sales of the MedLink TotalOffice
EHR, the MedLink Lab Portal and integration fees with labs and radiology
centers.
Expenses
for the period ending June 30, 2010 and 2009 were $947,582 and $310,821,
respectively. The increase in 2010 is primarily attributable to
increased payroll and overhead expenses as the Company has more than tripled its
staff and office space from a year ago.
The
Company had net profit/(loss) of $359,443 and ($195,450) for the period ending
June 30, 2010 and 2009, respectively. The increase in profitability
is primarily attributable to increase sales of the MedLink Total Office EHR,
MedLink Lab Portal, and Lab and Radiology Integrations fee’s.
Six
Months Ended June 30, 2010 Compared to Six Months Ended June 30,
2009.
The
Company's revenues from continuing operations for the period ending June 30,
2010 and 2009 were $2,215,704 and $259,970, respectively. The increase in
revenue is primarily attributable to expanded sales of the MedLink TotalOffice
EHR, the MedLink Lab Portal and integration fees with labs and radiology
centers.
Expenses
for the period ending June 30, 2010 and 2009 were $1,348,650 and $839,111,
respectively. The increase in 2010 is primarily attributable to
increased payroll and overhead expenses as the Company has more than tripled its
staff and office space from a year ago.
The
Company had net profit/(loss) of $378,115 and ($582,637) for the period ending
June 30, 2010 and 2009, respectively. The increase in profitability
is primarily attributable to increase sales of the MedLink Total Office EHR,
MedLink Lab Portal, and Lab and Radiology Integrations fee’s.
Liquidity
and Capital Resources
At June
30, 2010, the Company had a working capital deficiency of ($522,339). While the
Company believes revenue that will be earned from the sales of the MedLink EHR,
MedLink Lab Portal, and integration fees from labs and imaging centers as well
as recurring revenue from the maintenance and support of its applications will
soon be sufficient to sustain the Company's operations, there can be no
guarantee that this will be the case and that the Company will not have to raise
additional capital from investors.
The
Company expects to experience significant growth over the next several
years. As a result of the recent federal stimulus bill, over the next
two to five years, an increasing number of physicians will be adopting EHR
technology. There will be billions of dollars in public and private
initiatives available to facilitate a rapid movement toward
adoption. The federal initiative funds will be available to vendors,
such as MedLink, who have demonstrated “meaningful use” (such as under CMS PQRI
reporting), complied with state EHR requirements and interoperability
requirements (such as with NY RHIOs) and have current year CCHIT
certification. As part of its ongoing business strategy, MedLink
continues to raise additional capital to execute on its business
opportunities.
Critical
Accounting Policies
We
believe there are several accounting policies that are critical to the
understanding of our historical and future performance as these policies affect
the reported amount of revenues and expenses and other significant areas and
involve management’s most difficult, subjective or complex judgments and
estimates. On an ongoing basis, management evaluates and adjusts its estimates
and judgments, if necessary. 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,
liabilities, revenues and expenses and the disclosure of contingencies. Due to
the inherent uncertainty involved in making estimates, actual results reported
in future periods may be materially different from those estimates. These
critical accounting policies relate to revenue recognition, allowance for
doubtful accounts, capitalized software development costs, stock-based
compensation and income taxes. Please refer to Note 1 of the audited
Consolidated Financial Statements for further discussion of our significant
accounting policies.
The
preparation of financial statements and related disclosures requires management
to make judgments, assumptions and estimates that affect the amounts in the
Consolidated Financial Statements and accompanying notes. Note 1 to the
Consolidated Annual Report on Form 10-K for the year ended December 31, 2009
describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. Estimates are used for,
but not limited to, goodwill impairment and long-lived asset impairments. The
following critical accounting policies are impacted significantly by judgments,
assumptions and estimates used in the preparation of the Consolidated Financial
Statements.
Revenue
Recognition
Revenues
are derived from licensing of computer software and professional services
(including implementation, integration, and training) and the sale of computer
hardware. We evaluate revenue recognition on a contract-by-contract basis as the
terms of each arrangement vary. The evaluation of our contractual arrangements
often requires judgments and estimates that affect the timing of revenue
recognized in our statements of operations. Specifically, we may be required to
make judgments about:
•
|
whether
the fees associated with our software and services are fixed or
determinable;
|
•
|
whether
collection of our fees is considered probable;
|
•
|
whether
professional services are essential to the functionality of the related
software;
|
•
|
whether
we have the ability to make reasonably dependable estimates in the
application of the percentage-of-completion method; and
|
•
|
whether
we have verifiable objective evidence of fair value for our software and
services.
|
Allowance
for Doubtful Accounts
In
evaluating the collectability of our accounts receivable, we assess a number of
factors, including a specific client’s ability to meet its financial obligations
to us, as well as general factors such as the length of time the receivables are
past due and historical collection experience. Based on these assessments, we
record a reserve for specific account balances as well as a reserve based on our
historical experience for bad debt to reduce the related receivables to the
amount we ultimately expect to collect from clients. If circumstances related to
specific clients change, or economic conditions deteriorate such that our past
collection experience is no longer relevant, our estimate of the recoverability
of our accounts receivable could be further reduced from the levels provided for
in the Consolidated Financial Statements.
Goodwill
ASC Topic
350, formerly SFAS No. 142, “Goodwill and Other Intangible Assets,”
classifies intangible assets into three categories: (1) intangible assets
with definite lives subject to amortization; (2) intangible assets with
indefinite lives not subject to amortization; and (3) goodwill. For
intangible assets with definite lives, tests for impairment must be performed if
conditions exist that indicate the carrying value may not be recoverable. For
intangible assets with indefinite lives and goodwill, tests for impairment must
be performed at least annually or more frequently if events or circumstances
indicate that assets might be impaired. Our acquired technology and other
intangible assets determined to have definite lives are amortized over their
useful lives. In accordance with SFAS No. 142, if conditions exist that
indicate the carrying value may not be recoverable; we review such intangible
assets with definite lives for impairment. Such conditions may include an
economic downturn in a market or a change in the assessment of future
operations. Goodwill is not amortized. We perform tests for impairment of
goodwill annually, or more frequently if events or circumstances indicate it
might be impaired. We have only one reporting unit for which all goodwill is
assigned. Impairment tests for goodwill include comparing the fair value of the
company compared to the comparable carrying value, including
goodwill.
Use
of Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Accounting
for Stock-Based Compensation
ASC Topic
505, formerly SFAS 123 (“SFAS 123(R)”) requires compensation costs related to
share-based payment transactions to be recognized in the statement of
operations. With limited exceptions, the amount of compensation cost is measured
based on the grant-date fair value of the equity or liability instruments
issued. In addition, liability awards will be re-measured each reporting period.
Compensation cost will be recognized over the period that an employee provides
service in exchange for the award. In 2009, the Company used the
black-scholes option pricing model for estimating the fair value of the options
granted under the company’s incentive plan.
Earnings
Per Share
Basic
earnings per share ("EPS") is computed by dividing earnings available to common
shareholders by the weighted-average number of common shares outstanding for the
period as required by ASC Topic 260, formerly the Financial Accounting Standards
Board (“FASB”). Diluted EPS reflects the potential dilution of
securities that could share in the earnings.
Disclosure
about Derivative Instruments and Hedging Activities
According
to ASC Topic 815, formerly SFAS No. 161,
“
Disclosure about Derivative
Instruments and Hedging Activities
,”
the objectives for using
derivative instruments must be disclosed in terms of underlying risk and
accounting designation.
Determination
of the Useful Life of Intangible Assets
ASC Topic
350, formerly FSP FAS 142-3, “Determination of the Useful Life of Intangible
Assets,” is used to improve the consistency between the useful life of a
recognized intangible asset under SFAS 142 and the period of the expected cash
flows used to measure the fair value of the asset under FASB 141 (revised 2007)
“Business Combinations” and other U.S. generally accepted accounting
principles. The Company is currently evaluating the potential
impact of FSP FAS 142-3 on its consolidated financial statements.
CAUTIONARY
STATEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934
The
information in this annual report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such Act
provides a “safe harbor” for forward-looking statements to encourage companies
to provide prospective information about their businesses so long as they
identify these statements as forward looking and provide meaningful cautionary
statements identifying important factors that could cause actual results to
differ from the projected results. All statements other than those statements of
historical fact made in this report are forward looking. In particular, the
statements herein regarding industry prospects and future results of operations
or financial position are forward-looking statements. Forward-looking statements
reflect management’s current expectations and are inherently uncertain. Our
actual results may differ significantly from management’s
expectations.
The
following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements of MedLink International, Inc., contained
herein and in the Company’s annual report for the year ended December 31, 2009
as filed on Form 10-K. This discussion should not be construed to
imply that the results discussed herein will necessarily continue into the
future, or that any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents
only the best present assessment of our management.
Item
3. Quantitative and Qualitative Disclosure about Market
Risk.
Not applicable.
Item
4. Controls and Procedures.
Evaluation
of disclosure controls and procedures
As
required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal
executive officer and principal financial officers evaluated our company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Exchange Act) as of the end of the period covered by this report. Based
on this evaluation, these officers concluded that as of the end of the period
covered by this report, these disclosure controls and procedures were not
effective. The conclusion that our disclosure controls and procedures were not
effective was due to the presence of the following material weaknesses in
internal control over financial reporting which are indicative of many small
companies with small staff: (i) inadequate segregation of duties and effective
risk assessment; and (ii) insufficient written policies and procedures for
accounting and financial reporting with respect to the requirements and
application of both United States Generally Accepted Accounting Principles and
the Securities and Exchange Commission guidelines. Management anticipates that
such disclosure controls and procedures will not be effective until the material
weaknesses are remediated.
We plan
to take steps to enhance and improve the design of our internal controls over
financial reporting. During the period covered by this quarterly report on Form
10-Q, we have not been able to remediate the material weaknesses identified
above. To remediate such weaknesses, we plan to implement the following changes
during our fiscal year ending December 31, 2010: (i) appoint additional
qualified personnel to address inadequate segregation of duties and ineffective
risk management; and (ii) adopt sufficient written policies and procedures for
accounting and financial reporting. The remediation efforts set out above are
largely dependent upon our securing additional financing to cover the costs of
implementing the changes required. If we are unsuccessful in securing such
funds, remediation efforts may be adversely affected in a material
manner.
Because
of the inherent limitations in all control systems, no evaluation of internal
control over financial reporting can provide absolute assurance that all control
issues, if any, within our company have been detected and may not prevent or
detect misstatements. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake. Notwithstanding the
existence of the material weakness described above, management has concluded
that the consolidated financial statements in this Form 10-Q fairly present, in
all material respects, the Company’s financial position, results of operations
and cash flows for the periods and dates presented.
Changes
in Internal Control over Financial Reporting
Since the
date of the most recent evaluation of the Company’s internal controls by the
Chief Executive Officer and Chief Financial Officer, there have been no changes
in the Company’s internal controls or other factors for the period covered by
the subject Form 10-Q that materially affected or were likely to materially
affect the Company’s internal control over financial reporting.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by our company in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by our company in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer to
allow timely decisions regarding required disclosure.
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings.
In the normal course of business, we
are involved in various claims and legal proceedings. While the ultimate
resolution of these currently pending matters has yet to be determined, we do
not presently believe that their outcome will significantly adversely affect our
financial position, results of operations or liquidity.
Item
1A. Risk Factors.
Not
applicable.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds.
During
the second quarter of 2010, the Company issued 900 shares of the Company’s Class
A series preferred to one accredited investor for a total contribution of
$405,000. The Company will use the net proceeds for working capital
purposes.
Item
3. Defaults Upon Senior Securities.
Not
applicable.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
applicable.
Item
5. Other Information.
Not applicable.
Item
6. Exhibits.
No.
|
Description
of Exhibit
|
31.1
|
Certification
of MedLink International, Inc. Chief Executive Officer, Ray Vuono,
required by Rule 13a-14(a) or Rule 15d-14(a), dated August 16,
2010.*
|
31.2
|
Certification
of MedLink International, Inc. Principal Financial Officer, James Rose,
required by Rule 13a-14(a) or Rule 15d-14(a), dated August 16,
2010.*
|
32.1
|
Certification
of MedLink International, Inc. Chief Executive Officer, Ray Vuono,
required by Rule 13a-14(a) or Rule 15d-14(a), dated August 16,
2010.*
|
32.2
|
Certification
of MedLink International, Inc. Principal Financial Officer, James Rose,
required by Rule 13a-14(a) or Rule 15d-14(a), dated August 16,
2010.*
|
*
Filed herewith.
|
|
SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
MEDLINK
INTERNATIONAL, INC.
Date:
August 16, 2010
By:
/s/
James
Rose
James
Rose
Chief
Financial Officer