UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:
June 30, 2017
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 000-55715
EMR TECHNOLOGY SOLUTIONS INC.
(Exact name of registrant as specified in its charter)
| Nevada | 47-5482792 | |
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
90 Washington Valley Road
Bedminster, NJ 07921
(Address of principal executive offices)
(908) 997-0617
(Registrant’s telephone number, including area code)
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 past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of August 3, 2017, there were 9,911,755 shares outstanding of the registrant’s common stock.
TABLE OF CONTENTS
2
PART I – FINANCIAL INFORMATION
EMR TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2017 AND DECEMBER 31, 2016
| June 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 7,410 | $ | 42,186 | ||||
| Accounts receivable, net | 135,477 | 16,579 | ||||||
| Total Current Assets | 142,887 | 58,765 | ||||||
| Property and equipment, net | 195 | 818 | ||||||
| Other Assets: | ||||||||
| Security Deposit | 1,450 | 0 | ||||||
| Software, net | 1,251,720 | 1,025,169 | ||||||
| Customer lists, net | 1,016,510 | 327,596 | ||||||
| Covenant not to compete, net | 33,170 | 3,767 | ||||||
| Total other assets | 2,302,850 | 1,356,532 | ||||||
| TOTAL ASSETS | $ | 2,445,932 | $ | 1,416,115 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 61,664 | $ | 48,214 | ||||
| Accrued expenses | 128,060 | 34,687 | ||||||
| Deferred revenue | 70,314 | 0 | ||||||
| Promissory notes – current portion | 168,750 | 0 | ||||||
| Total Current Liabilities | 428,788 | 82,901 | ||||||
| Promissory note – related party | 500,000 | 500,000 | ||||||
| Promissory notes – non-current | 431,250 | 200,000 | ||||||
| TOTAL LIABILITIES | 1,360,038 | 782,901 | ||||||
| Commitments and Contingencies (See Note 5) | ||||||||
| Stockholders’ Equity: | ||||||||
| Common Stock, 70,000,000 shares authorized, $.001 par value, 9,911,755 and 7,974,252 shares issued and outstanding in 2017 and 2016, respectively | 9,912 | 7,974 | ||||||
| Additional paid in capital | 3,867,388 | 2,819,326 | ||||||
| Accumulated deficit | (2,791,406 | ) | (2,194,086 | ) | ||||
| Total stockholders’ equity | 1,085,894 | 633,214 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,445,932 | $ | 1,416,115 | ||||
The Notes to the Condensed Consolidated Unaudited Financial Statements are an integral part of these statements
3
EMR TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 (CONSOLIDATED) AND JUNE 30, 2016
(UNAUDITED)
| Three Months Ending June 30, | Six Months Ending June 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| CONSOLIDATED | CONSOLIDATED | |||||||||||||||
| Revenues: | ||||||||||||||||
| Service revenues | $ | 42,935 | $ | 0 | $ | 117,590 | $ | 0 | ||||||||
| Contract revenues | 127,120 | 0 | 169,166 | 0 | ||||||||||||
| Total revenues | 170,055 | 0 | 286,756 | 0 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenues | 28,099 | 0 | 54,827 | 0 | ||||||||||||
| Selling, general, and administrative expense | 251,500 | 1,075 | 398,346 | 1,625 | ||||||||||||
| Amortization expense | 221,162 | 0 | 387,762 | 0 | ||||||||||||
| Total operating expenses | 500,761 | 1,075 | 840,935 | 1,625 | ||||||||||||
| Loss from operations | (330,706 | ) | (1,075 | ) | (554,179 | ) | (1,625 | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense (net) | (21,497 | ) | 0 | (43,141 | ) | 0 | ||||||||||
| Total other income (expense) | (21,497 | ) | 0 | (43,141 | ) | 0 | ||||||||||
| Loss before income taxes | (352,203 | ) | (1,075 | ) | (597,320 | ) | (1,625 | ) | ||||||||
| Provision for income taxes | 0 | 0 | 0 | 0 | ||||||||||||
| Net Loss | $ | (352,203 | ) | $ | (1,075 | ) | $ | (597,320 | ) | $ | (1,625 | ) | ||||
| Basic and diluted net loss per common share | $ | (0.04 | ) | $ | (0.00 | ) | $ | (0.06 | ) | $ | (0.00 | ) | ||||
| Weighted Average Number of Common Shares | 9,911,755 | 3,050,000 | 9,266,657 | 3,034,807 | ||||||||||||
The Notes to the Condensed Consolidated Unaudited Financial Statements are an integral part of these statements.
4
EMR TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2017 (CONSOLIDATED) AND 2016
(UNAUDITED)
| For the Six Months ended June 30, 2017 | For the Six Months ended June 30, 2016 | |||||||
| (Consolidated) | ||||||||
| Cash Flows From Operating Activities: | ||||||||
| Net Loss | $ | (597,320 | ) | $ | (1,625 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock issued for services | 0 | 550 | ||||||
| Amortization | 387,762 | 0 | ||||||
| Depreciation | 623 | 0 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 139,166 | 0 | ||||||
| Accounts payable and accrued expenses | 18,580 | 1,075 | ||||||
| Deferred revenue | 2,629 | 0 | ||||||
| Other assets | (1,450 | ) | 0 | |||||
| Net Cash Used in Operating Activities | (50,010 | ) | 0 | |||||
| Cash Flows From Investing Activities: | ||||||||
| Cash acquired in acquisition | 10,586 | 0 | ||||||
| Payments for acquisitions | (1,045,352 | ) | 0 | |||||
| Net Cash Used in Investing Activities | (1,034,766 | ) | 0 | |||||
| Cash Flows From Financing Activities: | ||||||||
| Proceeds from issuance stock | 1,050,000 | 0 | ||||||
| Net Cash Provided by Financing Activities | 1,050,000 | 0 | ||||||
| Net Change in Cash and cash equivalents | (34,776 | ) | 0 | |||||
| Cash and cash equivalents at Beginning of the Period | 42,186 | 0 | ||||||
| Cash and cash equivalents at End of the Period | $ | 7,410 | $ | 0 | ||||
| Cash paid for interest | $ | 43,141 | $ | 0 | ||||
| Cash paid for taxes | $ | 0 | $ | 0 | ||||
| Non-Cash Investing & Financing Activities: | ||||||||
| Promissory note obligation incurred upon acquisition | $ | 400,000 | $ | 0 | ||||
The Notes to the Condensed Consolidated Unaudited Financial Statements are an integral part of these statements.
5
EMR TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2017
(UNAUDITED)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
| (A) | Basis of Presentation |
The accompanying condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.
It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
The Company is a Nevada corporation formed on November 3, 2015. It was formed as a holding company whose principal activities consists of acquiring healthcare technology companies. Its fiscal year end is December 31. To date, the Company has financed and acquired four electronic medical records companies.
| (B) | Use of Estimates |
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the allocation of purchase price to fair value of assets acquired, valuation of deferred taxes, allowance for bad debt, useful lives of intangible assets, and stock-based compensation.
| (C) | Cash and Cash Equivalents |
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At June 30, 2017 and December 31, 2016, the Company had no cash equivalents.
| (D) | Accounts Receivable |
Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables, and changes in payment histories. Accounts receivable are written off when management determines the likelihood of collection is remote. Interest is not charged on accounts receivable that are past due. The Company recorded an allowance for doubtful accounts of $82,617 and $0 as of June 30, 2017 and December 31, 2016, respectively.
| (E) | Principles of Consolidation |
The 2017 consolidated financial statements include the operations of EMR Technology Solutions, Inc. (“EMR”), its wholly owned subsidiaries First Medical Solutions Corporation (from September 23, 2016) (“FMS”), EMRgence, LLC (from September 26, 2016) (“EMRG”), Empower Technologies, Inc. (from January 16, 2017) (“ETI”), and Digital Medical Solutions, Inc. (from March 15, 2017) (“DMSI”). The 2016 financial statements include the operations of EMR. All significant intercompany accounts and transactions have been eliminated in consolidation.
| (F) | Income Taxes |
The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, 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 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. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The tax return for the years ended December 31,2016 and 2015 are subject to examination by the Internal Revenue Service.
6
| (G) | Furniture and Computer Equipment |
Office Furniture and Computer Equipment are capitalized at cost, net of accumulated depreciation. Depreciation is calculated by using the straight-line method over the estimated useful lives of the assets, which is five to seven years for all categories. Repairs and maintenance are charged to expense as incurred. Expenditures for betterments and renewals are capitalized. The cost of computer equipment and the related accumulated depreciation are removed from the accounts upon retirement or disposal with any resulting gain or loss being recorded in operations.
| Asset Category | Period | |
| Furniture and fixtures | 7 Years | |
| Computer equipment | 3 Years |
| (H) | Amortization and Impairment of Long-Lived Assets |
Amortization and Impairment of long-lived assets are non-cash expenses relating primarily to intangible assets. The Company accounts for long-lived assets in accordance with the provisions of FASB ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Software costs are amortized over three (3) years. Non-compete costs are amortized over three (3) years and Customer Lists are amortized over three (3) years. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of June 30, 2017, we have not recorded any impairments.
| (I) | Fair Value Measurements and Fair Value of Financial Instruments |
The Company adopted FASB ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820 (F).
| (J) | Advertising |
Advertising costs are expensed as incurred. The Company did not incur any advertising expenses for the three months and six months ended June 30, 2017 or for the three and six months ended June 30, 2016.
7
| (K) | Business Segments |
The Company operates in one segment and therefore segment information is not presented.
| (L) | Revenue Recognition |
The Company recognizes revenue on arrangements in accordance with FASB ASC Topic. 605 “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. The Company derives revenue from the sale of hardware and software licenses when the products are installed and all required post implementation services are completed. The Company recognizes revenue from consulting services as the services are performed. The income statements break out revenue by contract and services revenues. Contract revenues are recurring revenues for the software license, support and maintenance. Service revenues are one-time revenues generated from customer requests for non-contract services.
| (M) | Stock-Based Compensation |
The Company accounts for stock-based instruments issued to employees for services in accordance with ASC Topic 718. ASC Topic 718 requires the Company to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued to employees. The value of the portion of an employee award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC Topic 505-50, “Equity-Based Payments to Non-Employees”.
| (N) | Cost of Revenue |
Cost of revenue consists primarily of sub-contractor costs related to personnel who provide services to our customers, co-location costs, and other direct costs related to our services. Costs associated with the implementation of new customers are expensed as incurred.
| (O) | Basic and Diluted Net Loss Per Common Share |
In accordance with ASC 260-10, “Earnings Per Share”, basic net loss per common share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted loss per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. As of June 30, 2017 and June 30, 2016, the Company has 366,667 and -0- shares of common stock issuable upon the conversion of notes payable that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive.
| (P) | Recent Accounting Pronouncements |
In February 2016, the FASB issued accounting standard update (“ASU”) No. 2016-02,“Leases (Topic 842)”, (“ASU 2016-02”). This ASU requires that an entity should recognize assets and liabilities for leases with a maximum possible term of more than 12 months. A lessee would recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the leased asset (the underlying asset) for the lease term. This guidance also provides accounting updates with respect to lessor accounting under a lease arrangement. This new lease guidance is effective for fiscal years beginning after December 15, 2019. Entities have the option of using either a full retrospective or a modified approach (cumulative effect adjustment in period of adoption) to adopt the new guidance. Early adoption is permitted for all entities. We are currently evaluating the impact of the adoption of this guidance in our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,“Compensation – Stock Compensation (Topic 718)”,(“ASU 2016-09”). This guidance which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This guidance is effective for annual periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption is permitted. We are currently evaluating the full impact of the new standard.
8
In June 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers.” The update gives entities a single comprehensive model to use in reporting information about the amount and timing of revenue resulting from contracts to provide goods or services to customers. The proposed ASU, which would apply to any entity that enters into contracts to provide goods or services, would supersede the revenue recognition requirements in Topic 605 “Revenue Recognition,” and most industry-specific guidance throughout the Industry Topics of the Codification. Additionally, the update would supersede some cost guidance included in Subtopic 605-35 “Revenue Recognition – Construction-Type and Production-Type Contracts.” The update removes inconsistencies and weaknesses in revenue requirements and provides a more robust framework for addressing revenue issues and more useful information to users of financial statements through improved disclosure requirements. In addition, the update improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. The update is effective for annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.
Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements.
NOTE 2 – GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company sustained a net loss for the six months ended June 30, 2017. The Company also has a working capital deficit and an accumulated deficit at June 30, 2017. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital to sustain its current level of operations.
Management plans to continue raising additional capital through private placements and is exploring additional avenues for future fund-raising through both public and private sources.
The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – ACQUISITIONS
Effective September 23, 2016, EMR entered into a Stock Purchase Agreement (“SPA”) in which EMR purchased all the shares of First Medical Solutions, Inc., a Florida corporation (“FMS”) from Denis Salins, the sole shareholder of FMS. Pursuant to the SPA, EMR acquired FMS whereby FMS became a wholly owned subsidiary of EMR. FMS has developed a proprietary and fully integrated software program for the healthcare industry, targeting the ambulatory care market for electronic medical records. The purchase price was nine hundred seventy-seven thousand two hundred and fifty dollars ($977,250) of which two hundred fifty thousand dollars ($250,000) was paid in cash at close, twenty-seven thousand two hundred and fifty dollars ($27,250) was paid in the form of fifty thousand (50,000) shares of EMR’s common stock, and EMR issued a three (3) year convertible promissory note (“FMS Note”) for seven hundred thousand dollars ($700,000).
Effective September 26, 2016, EMR entered into a Purchase Agreement (“PA”) in which EMR purchased all the membership interests of EMRgence, LLC. (“EMRG”), a Florida limited liability corporation, from Susan Turcotte, the sole member of EMRG. Pursuant to the PA, EMR acquired EMRG whereby EMRG became a wholly owned subsidiary of EMR. EMRG has developed a proprietary software program for the healthcare industry, targeting the vascular care market for electronic medical records. The purchase price was five hundred thousand dollars ($500,000) of which three hundred thousand dollars ($300,000) was paid in cash at close and EMR issued a three (3) year convertible promissory note (“EMRG Note”) for one hundred and fifty thousand dollars ($150,000). On November 7, 2016, an additional purchase price payment of $11,907 was paid to Susan Turcotte for net revenues earned for the period from September 1, 2016 through September 25, 2016.
9
Effective January 1, 2017 (the “Effective Date”), EMR entered into a Purchase Agreement (“Agreement”) by and among Empower Technologies, Inc., a Nevada corporation (“ETI”), and its sole shareholder Dr. John F. Stagl (the “Seller” and together with ETI and the Company, the “Parties”). Pursuant to the Agreement, the Company purchased all of the Capital Stock (as defined in the Agreement) of ETI from the Seller (the “ETI Shares”) in exchange for (i) $500,000, subject to certain post-closing adjustments for working capital and deferred revenue, consisting of (a) $300,000 in cash, and (b) a Convertible Promissory Note (the “Note”) issued in favor of the Seller in the principal amount of $150,000 payable over a 36 month period, with 6% annual interest, convertible into common stock of the Company at a price of $3.00 per share (the “Purchase Price”). On January 16, 2017, in accordance with the terms and conditions of the Agreement, ETI became a wholly owned subsidiary of the Company (the “Closing Date”). The post-closing adjustments referenced above consisted of $4,648 reduction in cash at closing for working capital and a reduction of the convertible promissory note of $50,000 for deferred revenue.
Theacquisition date estimated fair value of the consideration transferred consisted of the following:
| Liabilities assumed | $ | (72,917 | ) | |
| Net tangible assets | (72,917 | ) | ||
| Non-compete agreements | 36,109 | |||
| Customer list | 482,160 | |||
| Total purchase price | $ | 445,352 |
Effective January 1, 2017 (the “Effective Date”), EMR Technologies, Inc., a Nevada corporation (the “Company”) entered into a Purchase Agreement (“Agreement”) by and among Digital Medical Solutions, Inc., a Florida corporation (“DMSI”), and its sole shareholder Dr. Joseph J. Memminger III (the “Seller” and together with DMSI and the Company, the “Parties”). Pursuant to the Agreement, the Company purchased all of the Capital Stock (as defined in the Agreement) of DMSI from the Seller (the “DMSI Shares”) in exchange for (i) $1,000,000, subject to certain post-closing adjustments for working capital and earnings before interest, taxes, depreciation, and amortization, consisting of (a) $750,000 in cash, and (b) a Convertible Promissory Note (the “Note”) issued in favor of the Seller in the principal amount of $250,000 payable over a 36 month period, with 6% annual interest, convertible into common stock of the Company at a price of $3.00 per share (the “Purchase Price”). On March 15, 2017, in accordance with the terms and conditions of the Agreement, DMSI became a wholly owned subsidiary of the Company (the “Closing Date”).
Theacquisition date estimated fair value of the consideration transferred consisted of the following:
| Tangible assets acquired | $ | 269,067 | ||
| Liabilities assumed | (83,428 | ) | ||
| Net tangible assets | 185,639 | |||
| Customer list | 364,361 | |||
| Software | 450,000 | |||
| Total purchase price | $ | 1,000,000 |
The agreements resulted in the purchase of 100% of the outstanding shares of FMS, EMRG, ETI, and DMSI.
As of June 30, 2017, the Company has recorded an estimated fair value of the intangible assets of FMS, EMRG, ETI, and DMSI based on a preliminary purchase price allocation prepared by management. As a result, during the preliminary purchase price allocation period, which may be up to one year from the business combination date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the preliminary purchase price allocation period, we record adjustments to assets acquired or liabilities assumed subsequent to the purchase price allocation period in our operating results in the period in which the adjustments were determined.
10
Pro-forma Financial Information
The following unaudited pro-forma information presents the combined results of operations for the periods as if the acquisition of DMSI had been completed on January 1, 2017 and 2016.
| For the Six Months Ended June 30, 2017 | For the Six Months Ended June 30, 2016 | |||||||
| Revenue | $ | 459,554 | $ | 421,959 | ||||
| Total expenses | 889,718 | 254,721 | ||||||
| Net income (loss) | $ | (430,164 | ) | $ | 167,238 | |||
| Net income (loss) per common share, basic and diluted | $ | (0.05 | ) | $ | 0.05 | |||
NOTE 4 – PROMISSORY NOTES
The $700,000 FMS Unsecured Note has an interest rate of ten percent (10%) per annum for a period of two (2) years and fully amortizes during the third (3rd) year. The note is secured by an escrowed copy of the software source code. The note can be converted at any time, at the option of the holder, into shares of the Company’s stock at a conversion price of $3 per share. On October 31, 2016, the holder of the FMS Note converted $200,000 of the note for 200,000 shares of common stock. The Company has recorded a loss on conversion of debt of $72,000.
The Company issued a three (3) year unsecured convertible promissory note (the “EMRG Note”) for two hundred thousand dollars ($200,000). The EMRG Note has an interest rate of six percent (6%) per annum for a period of one (1) year and fully amortizes during the next two (2) years. The note is secured with a pledge of forty percent (40%) of the membership interests acquired. The note can be converted at any time, at the option of the holder, into shares of the Company’s stock at a conversion price of $3 per share.
The Company issued a three (3) year unsecured convertible promissory note (the “ETI Note”) for one hundred fifty thousand dollars ($150,000). The ETI Note has an interest rate of six percent (6%) per annum for a period of two (2) years and fully amortizes during the third (3rd) year. The note can be converted at any time, at the option of the holder, into shares of the Company’s stock at a conversion price of $3 per share.
The Company issued a three (3) year unsecured convertible promissory note (the “DMSI Note”) for two hundred fifty thousand dollars ($250,000). The DMSI Note has an interest rate of six percent (6%) per annum for a period of one (1) year and fully amortizes during the next two (2) years. The note can be converted at any time, at the option of the holder, into shares of the Company’s stock at a conversion price of $3 per share.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
The Company leases office space on a month to month basis. Rent expense for the six months ended June 30, 2017 and the six months ended June 30, 2016 was $6,048 and $0 respectively.
NOTE 6 – STOCKHOLDERS’ EQUITY
(A) - Stock issued for cash
Effective August 23, 2016, the Company entered into an Investor Stock Subscription Agreement (“Agreement”) with an investor to purchased three million seven hundred thousand (3,700,000) shares of the Company’s common stock for two million dollars ($2,000,000) in tranches based on certain milestone events. On August 23, 2016, the investor purchased 656,751 shares of common stock for $355,000. On September 22, 2016, the Investor purchased 925,001 shares of common stock for $500,000 that was used to close two acquisitions. On December 29, 2016, the Investor purchased 92,500 shares of common stock for $50,000 that was used for working capital. On January 13, 2017, the Investor purchased 550,001 shares of common stock for $300,000 that was used to close an acquisition. On March 17, 2017, the Investor purchased 1,387,502 shares of common stock for $750,000 that was used to close an acquisition. The remaining investments are subject to the company reaching certain milestones under the agreement.
11
(B) - Stock issued for Services
On January 6, 2016, the Company issued 550,000 shares of stock to eight individuals for services with a fair value of $550.
On August 22, 2016, the Company issued 3,000,000 shares of Common Stock for services with a fair value of $1,620,000 based on recent cash sales.
(C)- Stock issued for Acquisitions
On September 23, 2016, the Company issued 50,000 shares of common stock as partial consideration of the acquisition of FMS with a fair value of $27,250 based on recent cash sales prices.
(D) - Equity Incentive Plan
On January 30, 2016, the Board of Directors, with the approval of a majority of the shareholders of the Company, adopted the 2016 Equity Incentive Plan (the “Plan”) which will be administered by a committee appointed by the Board.
The Company, under its 2016 Plan, issues options to various officers, directors and consultants. The options vest in equal annual installments over a five-year period. All of the options are exercisable at a purchase price based on the last price of the Company’s common stock on the date of grant and have a term of 10 years.
As of June 30, 2017, no options had been granted or were outstanding.
(E) – Stock Issued for Conversion of Convertible Promissory Note
On October 31, 2016, the holder of the FMS Note converted $200,000 of the note for 200,000 shares of common stock. The Company has recorded a loss on conversion of debt of $72,000.
NOTE 7 – RELATED PARTY TRANSACTIONS
On September 23, 2016, the Company issued a $700,000 Convertible Promissory Note to the Chief Technology Officer in conjunction with the acquisition of FMS. On October 31, 2016, $200,000 of the note was converted to 200,000 shares of the Company’s common stock.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Revenues
For the three and six month periods ending June 30, 2017, revenues were $170,055 and $286,756 compared to $0 and $0 for the same periods in 2016. The increase in revenue for the three and six month periods ended June 30, 2017 is attributable to the acquisitions of EMRG in September 2016, ETI in January 2017, and DMSI in March 2017.
Cost of Revenues
Cost of revenues was $28,099 and $54,827 for the three and six month periods ended June 30, 2017 compared to $0 and $0 for the same periods in 2016. The increase in cost of revenues for the three and six month periods ended June 30, 2017, was a result of the acquisitions of EMRG in September 2016, ETI in January 2017, and DMSI in March 2017.
Selling, General and Administrative Expenses
Selling, general and administrative expenses was $251,500 and $398,346 for the three and six month periods ended June 30, 2017 compared to $1,075 and $1,625 for the same periods in 2016. The increase in selling, general and administrative expenses for the three and six month periods ended June 30, 2017, was a result of the acquisitions of EMRG in September 2016, ETI in January 2017, and DMSI in March 2017.
Amortization Expense
Amortization expense was $221,162 and $387,762 for the three and six month periods ended June 30, 2017 compared to $0 and $0 for the same periods in 2016. The increase in amortization expense for the three and six month periods ended June 30, 2017, was a result of the acquisitions of FMS in September 2016, EMRG in September 2016, ETI in January 2017, and DMSI in March 2017.
Other Income (Expense)
Other Income (Expense) was $21,497 and $43,141 for the three and six month periods ended June 30, 2017 compared to $0 and $0 for the same periods in 2016. The increase in other income (expense) for the three and six month periods ended June 30, 2017, was a result of the acquisitions of FMS in September 2016, EMRG in September 2016, ETI in January 2017, and DMSI in March 2017.
Net Loss
Net Loss was $352,203 and $597,320 for the three and six month periods ended June 30, 2017 compared to $1,075 and $1,625 for the same periods in 2016. This increase was primarily due to the increase in Revenues and offset by the increases in, Cost of Goods Sold, SG&A Expenses, Amortization, and Other Expense described above.
Liquidity and Capital Resources
The following table summarizes total current assets, liabilities and working capital at June 30, 2017 compared to December 31, 2016.
| June 30, 2017 | December 31, 2016 | |||||||
| Current Assets | $ | 142,887 | $ | 58,765 | ||||
| Current Liabilities | $ | 428,788 | $ | 82,901 | ||||
| Working Capital (Deficit) | $ | (285,901 | ) | $ | (24,136 | ) | ||
At June 30, 2017, we had a working capital deficit of ($285,901) as compared to working capital deficit of ($24,136) at December 31, 2016, an increase in working capital deficit of $261,765.
13
Growth Strategy
Our growth strategy involves three primary approaches: acquiring electronic medical record companies and migrating the customers of those companies to our solutions, selling our solutions directly to healthcare providers practicing in ambulatory settings, and acquiring providers of other healthcare technology services, such as third party insurance administrators and revenue cycle management companies. We intend to distribute our solutions through our websites, endorsements from medical groups and associations, and referrals from existing clients.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We do not hold any derivative instruments and do not engage in any hedging activities.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our PEO and PFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
(b) Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
We believe there are no changes that constitute material changes from the risk factors previously disclosed in our annual report on Form 10-K for the year ended December 31, 2016, filed with the U.S. Securities and Exchange Commission on August 2, 2017.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Other than the information previously reported in a Current Report on Form 8-K, there were no unregistered sales of the Company’s equity securities during the quarter ended June 30, 2017.
Item 3. Defaults Upon Senior Securities.
There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.
14
Item 4. Mine Safety Disclosures.
Not applicable.
Not applicable.
| Exhibit No. | Description | |
| 31.1 | Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). * | |
| 31.2 | Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). * | |
| 32.1 | Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * | |
| 32.2 | Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * | |
| 101.INS | XBRL Instance Document * | |
| 101.SCH | XBRL Taxonomy Extension Schema * | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase * | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase * | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase * | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase * |
* Filed herewith
15
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| EMR TECHNOLOGY SOLUTIONS, INC. | ||
| Date: August 3, 2017 | By: | /s/ John X. Adiletta |
| Name: | John X. Adiletta | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
16
