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 March 31, 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 March 31, 2010 there were 35,467,236 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 March 31, 2010 (unaudited) and December 31, 2009 (audited) | 3 | |
Condensed Consolidated Statements of Operations for the three months and Three Months ended March 31, 2010 and 2009 (unaudited) | 4 | |
Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 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 | 14 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 21 |
Item 4. | Controls & Procedures | 21 |
Part II. | OTHER INFORMATION | 23 |
Item 1. | Legal Proceedings | 23 |
Item 1A. | Risk Factors | 23 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 23 |
Item 3. | Default Upon Senior Securities | 23 |
Item 4. | Submission of Matters To a Vote of Security Holders | 23 |
Item 5. | Other Information | 23 |
Item 6. | Exhibits | 23 |
SIGNATURES | 24 | |
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 | |
2
PART I. FINANCIAL INFORMATION
MEDLINK INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS |
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
Current Assets: | ||||||||
Cash | $ | 41,050 | $ | 4,843 | ||||
Accounts Receivable | 475,998 | 289,346 | ||||||
Total current assets | 517,047 | 294,189 | ||||||
Office equipment (at cost) net of accumulated depreciation | 219,425 | 186,205 | ||||||
Intangible asset (at cost), net of accumulated amortization | 10,938 | 10,938 | ||||||
Security deposit | 12,950 | 12,950 | ||||||
Other assets | 1,212,167 | - | ||||||
Total Assets | $ | 1,972,527 | $ | 504,282 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | 153,104 | 145,044 | ||||||
Due to related party | 947,322 | 1,002,430 | ||||||
Liabilities from discontinued operations | 804,141 | 804,141 | ||||||
Total current liabilities | 1,904,567 | 1,951,605 | ||||||
Total liabilities | 1,904,567 | 1,951,605 | ||||||
Stockholders' equity: | ||||||||
Common stock Class A $.001 par value; authorized 150,000,000 shares; 35,167,236 and 31,567,236 shares issued as of March 31, 2010 and December 31, 2009, respectively | 35,467 | 31,567 | ||||||
Common stock B Class B $.001 par value; authorized 50,000,000 as of March 31, 2010; 5,361,876 issued and outstanding | 5,362 | 5,362 | ||||||
Additional paid-in capital | 21,591,726 | 20,093,341 | ||||||
Accumulated deficit | (21,434,044 | ) | (21,447,044 | ) | ||||
Treasury stock | (130,551 | ) | (130,551 | ) | ||||
Total stockholders' equity/deficit | 67,960 | (1,447,325 | ) | |||||
Total stockholders’ liabilities and stockholder equity | $ | 1,972,527 | $ | 504,282 |
See accompanying notes to consolidated financial statements
3
MEDLINK INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
For the Three Months ended March 31, | |||||||||
2010 | 2009 | ||||||||
Sales | $ | 610,769 | $ | 144,970 | |||||
Cost of Revenues | 196,700 | 3,084 | |||||||
Gross Profit | 414,069 | 141,103 | |||||||
Operating expenses: | |||||||||
Operating and administrative | 99,706 | 507,564 | |||||||
Consulting Expense | 61,443 | - | |||||||
Compensation Expense | 227,872 | - | |||||||
Depreciation and amortization | 12,047 | 20,070 | |||||||
Total Operating expenses | 401,068 | 527,634 | |||||||
Net Profit/(Loss) | $ | 13,000 | $ | (386,531 | ) | ||||
Basic and diluted loss per share (Class A) | $ | 0.00 | $ | (0.01 | ) | ||||
Basic and diluted loss per share (Class B) | $ | 0.00 | $ | (0.07 | ) | ||||
Weighted average number of basic shares outstanding (Class A) | 35,467,236 | 26,947,333 | |||||||
Weighted average number of basic shares outstanding (Class B) | 5,361,876 | 5,361,876 | |||||||
See accompanying notes to consolidated financial statements
4
MEDLINK INTERNATIONAL INC. CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
For the Three Months Ended March 31, | ||||||||
Cash flows from operating activities: | 2010 | 2009 | ||||||
Net Profit/(Loss) | $ | 13,000 | $ | (386,531 | ) | |||
Adjustment to reconcile net loss to cash flows used in operating activities: | ||||||||
Share based compensation | 107,284 | 340,085 | ||||||
Shares issued for consulting services | 47,833 | |||||||
Depreciation | 12,047 | 20,070 | ||||||
Amortization | - | 2,085 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (186,652 | ) | (24,628 | ) | ||||
Deposits | - | (12,950 | ) | |||||
Other assets | - | (3,700 | ) | |||||
Accounts payable | 8,061 | - | ||||||
Accrued expense and other current liabilities | - | 23,758 | ||||||
Net Cash used in operating activities | 1,573 | (41,051 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchase of fixed assets | (45,267 | ) | (898 | ) | ||||
Adjustment to net fixed assets | - | 10,033 | ||||||
Write-down | - | 53,922 | ||||||
Net cash provided by (used in) investing activities | (45,267 | ) | 63,057 | |||||
Cash flows from financing activities: | ||||||||
Proceeds from Private Placement | 135,001 | - | ||||||
Repayment of loans | - | (38,394 | ) | |||||
Advanced from officer/shareholders | (55,100 | ) | 43,921 | |||||
Net cash flows provided by financing activities | 79,901 | 5,527 | ||||||
NET INCREASE (DECREASE) IN CASH | 36,207 | 27,553 | ||||||
CASH-AT BEGINNING OF PERIOD | 4,843 | (26,834 | ) | |||||
CASH-AT END OF PERIOD | $ | 41,050 | $ | 699 |
Supplemental disclosure of cash flow information: | ||||||||
Cash paid during the year for interest | $ | - | $ | - | ||||
Cash paid for taxes | $ | 596 | $ | - |
Supplemental disclosure of non-cash financing activities: | ||||||||
Share based compensation | $ | 107,284 | $ | 340,845 | ||||
$ | - | $ | - | |||||
Issuance of common shares for consulting and other services rendered | $ | 1,260,000 | $ | - |
See accompanying notes to consolidated financial statements
5
MEDLINK INTERNATIONAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2010 (UNAUDITED) |
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 period ended March 31, 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 March 31, 2010, the results of operations for the three months ended March 31, 2010 and 2009, and the cash flows for the Three Months ended March 31, 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 March 31, 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.
6
MEDLINK INTERNATIONAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2010 (UNAUDITED) |
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.
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MEDLINK INTERNATIONAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2010 (UNAUDITED) |
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.
8
MEDLINK INTERNATIONAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2010 (UNAUDITED) |
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 March 31, 2009 and 2008, 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 March, 31, 2010 had available approximately $21,434,044 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 March 31, 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 35,167,236 and 31,567,876, respectively. For the periods ending March 31, 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.
9
MEDLINK INTERNATIONAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2010 (UNAUDITED) |
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 March 31, 2010, the Company had incurred cumulative losses of $21,434,044. As of March 31, 2010, the Company has negative working capital of $1,387,520.
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 June 2009, the Financial Accounting Standards Board (FASB) amended its accounting guidance on the consolidation of variable interest entities (VIE). Among other things, the new guidance requires a qualitative rather than a quantitative assessment to determine the primary beneficiary of a VIE based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. In addition, the amended guidance requires an ongoing reconsideration of the primary beneficiary. The provisions of this new guidance were effective as of the beginning of our 2010 fiscal year, and the adoption did not have a material impact on our financial statements.
In October 2009, the FASB issued updated guidance on multiple-deliverable revenue arrangements. Specifically, the guidance amends the existing criteria for separating consideration received in multiple-deliverable arrangements, eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. The guidance also establishes a hierarchy for determining the selling price of a deliverable, which is based on vendor-specific objective evidence; third-party evidence; or management estimates. Expanded disclosures related to multiple-deliverable revenue arrangements will also be required. The new guidance is effective for revenue arrangements entered into or materially modified on and after January 1, 2011. The Company does not expect the application of this new standard to have a significant impact on its consolidated financial statements.
Consolidations: In December 2009, the FASB issued ASU No. 2009-17 (formerly Statement No. 167), “Consolidations (Topic 810) – Improvements to Financial Reporting for Enterprises involved with Variable Interest Entities”. ASU 2009-17 amends the consolidation guidance applicable to variable interest entities. The amendments to the consolidation guidance affect all entities, as well as qualifying special-purpose entities (QSPEs) that are currently excluded from previous consolidation guidance. ASU 2009-17 was effective as of the beginning of the first annual reporting period that begins after November 15, 2009. ASU 2009-17 did not have an impact on our financial condition, results of operations, or disclosures.
Accounting for Transfers of Financial Assets: In December 2009, the FASB issued ASU No. 2009-16 (formerly Statement No. 166), “Transfers and Servicing (Topic 860) – Accounting for Transfers of Financial Assets”. ASU 2009-16 amends the derecognition accounting and disclosure guidance. ASU 2009-16 eliminates the exemption from consolidation for QSPEs and also requires a transferor to evaluate all existing QSPEs to determine whether they must be consolidated. ASU 2009-16 was effective as of the beginning of the first annual reporting period that begins after November 15, 2009. ASU 2009-16 did not have an impact on our financial condition, results of operations, or disclosures.
In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06 which is intended to improve disclosures about fair value measurements. The guidance requires entities to disclose significant transfers in and out of fair value hierarchy levels, the reasons for the transfers and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). The Company has applied the new disclosure requirements as of January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.
In February 2010, the FASB issued ASU 2010-09 which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.
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MEDLINK INTERNATIONAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2010 (UNAUDITED) |
NOTE 2 – RECENT ACCOUNTING ANNOUNCMENTS (continued)
In April 2009, the FASB issued an update to ASC 820, Fair Value Measurements and Disclosures, to provide additional guidance on estimating fair value when the volume and level of transaction activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability. Additional disclosures are required regarding fair value in interim and annual reports. These provisions are effective for interim and annual periods ending after June 15, 2009. The Company adoption of this standard did not impact the Company’s results of operations, cash flows or financial positions.
In June 2009, the FASB issued FASB Statement No. 166, "Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140" ("Statement No. 166"), codified in ASC Topic 810-10. Statement No. 166, among other things, eliminates the concept of a "qualifying special-purpose entity," changes the requirements for derecognizing financial assets, and requires additional disclosures about transfers of financial assets. Statement No. 166 is effective for annual reporting periods beginning after November 15, 2009. The adoption of the provisions of Statement No. 166 is not anticipated to impact the company's consolidated financial position, cash flows or results of operations.
In June 2009, the FASB issued Statement No. 168 (an update of ASC 105), The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162 (FAS 168). The Codification became the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of FAS 168, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative. FAS 168, was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of FAS 168 did not affect the Company’s consolidated financial position, results of operations, or cash flows.
In June 2009, the FASB issued FASB Statement No. 167, "Amendments to FASB Interpretation No. ("FIN") 46(R)" ("Statement No. 167"), codified in ASC Topic 810-10. Statement No. 167, among other things, requires a qualitative rather than a quantitative analysis to determine the primary beneficiary of a variable interest entity ("VIE"), amends FIN 46(R)’s consideration of related party relationships in the determination of the primary beneficiary of a VIE, amends certain guidance in FIN 46(R) for determining whether an entity is a VIE, requires continuous assessments of whether an enterprise is the primary beneficiary of a VIE, and requires enhanced disclosures about an enterprise’s involvement with a VIE. Statement No. 167 is effective for annual reporting periods beginning after November 15, 2009. The adoption of the provisions of Statement No. 167 is not anticipated to impact the company's consolidated financial position, results of operations or cash flows.
In August 2009, the FASB issued new guidance relating to the accounting for the fair value measurement of liabilities. The new guidance, which is now part of ASC 820, provides clarification that in certain circumstances in which a quoted price in an active market for the identical liability is not available, a company is required to measure fair value using one or more of the following valuation techniques: the quoted price of the identical liability when traded as an asset, the quoted prices for similar liabilities or similar liabilities when traded as assets, or another valuation technique that is consistent with the principles of fair value measurements. The new guidance clarifies that a company is not required to include an adjustment for restrictions that prevent the transfer of the liability and if an adjustment is applied to the quoted price used in a valuation technique, the result is a Level 2 or 3 fair value measurement.. The Company’s adoption of the new guidance did not have a material effect on the Company’s consolidated financial statements.
11
MEDLINK INTERNATIONAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2010 (UNAUDITED) |
NOTE 3 - PROPERTY AND EQUIPMENT
As of March 31, 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 March 31, 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 March 31, 2010, accounts receivable totaled $475,998.
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 March 31, 2010, accounts payable and accrued expenses totaled $153,104.
NOTE 6 - LOAN PAYABLE - RELATED PARTIES
The Company, as of March 31, 2010, has loans due to three of its employees/shareholders in the amount of $947,322. These loans are payable on demand and are non-interest bearing.
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MEDLINK INTERNATIONAL INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) MARCH 31, 2010 (UNAUDITED) |
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 December 31, 2009 $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.
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.
Minimum annual lease commitments are as follows:
Year ended December 31,
2010 61,047
2011 84,486
2012 88,184
2013 91,880
2014 15,416
Total 341,013
NOTE 9 - STOCKHOLDERS' EQUITY
Share Based Consultant Services
For the period ending March 31, 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 March 31, 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 March 31, 2010 the company issued 300 shares of the Series A Preferred for a total capital contribution of $135,000
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NOTE 10- SUBSEQUENT EVENTS
Issuance of Preferred Stock
On April 5, 2010, we designated Preferred Series A Stock for an aggregate of 2,000 units (“Units”) at a price of $450 per Unit to be subscribed to through a private placement to certain accredited investors. Each share of Preferred Series A stock is convertible into 1,000 shares of the Company’s common stock. As of April 15, 2010, no such stock has been issued. Each Unit is comprised of (i) one share of cumulative redeemable convertible preferred stock and (ii) an annual 10% dividend on the stated value of each unit. Each share of preferred stock will be convertible into 1,000 shares of common stock (for a conversion price of $0.45 per share), subject to adjustment in certain events. The net proceeds received by MedLink in the private placement will be approximately $900,000. MedLink will use the net proceeds to provide additional liquidity, and for general corporate purposes.
Neither the Units nor the securities comprising the Units have been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent a registration statement or exemption from registration.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Business Overview
Introduction
During the period ended March 31, 2010, MedLink recorded a profitable quarter and exceeded its full year revenues for 2009 during the first three months of 2010 alone. The company invested heavily in the expansion of its sales force during the first quarter and increased it inside sales and marketing staff to 16 full-time employees. MedLink increased revenues from the first quarter were primarily attributable to increased sales of the MedLink TotalOffice EHR, which were spurred through RHIO’s subsidies of physicians and through the expansion of its lab outreach program. During the first quarter the Company also announced that it was only 1 of 7 EHR Vendors to be qualified by the Center for Medicare and Medicaid Services (“CMS”) for direct submission of PQRI data which the management of the Company views as a compelling competitive advantage and a cornerstone for Providers to achieve to “meaningful use”. 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. Significant First quarter highlights included:
· | Selection by CMS as 1 of 7 ‘Qualified Vendors’ |
· | Launch of the MedLink TotalOffice EHR through the Interboro RHIO Program |
· | Expansion of internal sales team to 16 full time employees |
· | Finalist in the New York Regional Extension Center |
· Expanded VAR program, including the introduction of Caliber Point, a $200m + multi-national sales organization
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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’s TotalOffice EHR is priced below competing products with similar comprehensive services and is only one of seven EHR’s to be qualified by CMS. MedLink also offers a “lite” version of its application, the MedLink EHR Lite, which provides physicians with basic EHR functionality at no cost to physicians. Through business partnerships, MedLink offers physician practices complete billing, collection, hardware and network infrastructure and use of the TotalOffice EHR, all for a fixed fee determined by the practice’s annual billing revenue.
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 EHR Lite 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
MedLink Qualified by the Centers for Medicare and Medicaid Services (CMS)
In January 2010, MedLink and its CCHIT 2008 certified MedLink TotalOffice EHR 3.1 was “Qualified” by CMS to participate in the Physician Quality Reporting Initiative (“PQRI”) 2010 EHR direct reporting program. PQRI is a voluntary quality reporting program that offers financial incentives to eligible healthcare providers. The program provides for the payment of up to 2% of the total allowed charges. PQRI reporting focuses on quality of care measures, such as prevention, chronic care management, acute episode of care management, procedural related care, resource utilization and care coordination. The 2% PQRI payments are in addition to the 2% e-prescribing incentive available to physicians who utilize e-prescriptions tools, available through MedLink’s TotalOffice EHR.
In January of 2010, MedLink successfully completed the third and final phase of the CMS testing program and was “Qualified” 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.
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Expanded Lab Program
During the first quarter, the Company hired Mr. Jack Redding as Executive Vice President of Clinical Integrations to heads its expanded lab outreach program. The Company will provide its lab provider portal along with integration to the MedLink EHR and MedLink Data Aggregator to laboratories and hospital outpatient labs to improve communication with their referring physicians. The Company charges a one-time integration cost to the lab or hospital and a monthly fee per physician for access to the portal. The lab outreach portal is a natural extension for the Company and its suite of EHR products with lab communication being a key component in Providers achieving ‘meaningful use’.
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 1st 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.
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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.
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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 March 31, 2010:
Operating lease obligations | Total | Less Than 1 Year | 1-3 Years |
$337,932 | $78,932 | $259,000 |
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 March 31, 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 March 31, 2010 Compared to Three Months Ended March 31, 2009.
The Company's revenues from continuing operations for the period ending March 31, 2010 and 2009 were $610,769 and $144,187, respectively. The increase in revenue is primarily attributable to expanded sales of the MedLink TotalOffice EHR and integration fees with labs and radiology centers.
Expenses for the period ending March 31, 2010 and 2009 were $410,068 and $527,634, respectively. The decrease in 2010 is primarily attributable to decreased stock-based compensation expenses although the Company’s payroll has increased significantly with a staff of over 40 full time employees.
The Company had net profit/(loss) of $13,000 and ($386,531) for the period ending March 31, 2010 and 2009, respectively. The net profit is primarily attributable to increase sales of the MedLink Total Office EHR, Lab and Radiology Integrations fee’s, the scale back of the Company’s operations in California and decreased compensation expenses due to decreased stock-based compensation expenses.
Liquidity and Capital Resources
At March 31, 2010, the Company had a working capital deficiency of ($1,387,520). While the Company believes revenue that will be earned from the sales of the MedLink EHR, 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.
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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. |
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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.
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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/A. 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.
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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.
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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 first quarter of 2010, the Company issued 300 shares of the Company’s Class A series preferred with two accredited investors for a total contribution of $135,000. 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 May 20, 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 May 20, 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 May 20, 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 May 20, 2010.* | |
* Filed herewith. |
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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: May 20, 2010
By: /s/ James Rose
James Rose
Chief Financial Officer
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