Attached files
file | filename |
---|---|
EX-31.1 - EXHIBIT 31.1 - MEDLINK INTERNATIONAL, INC. | ex-31_1.htm |
EX-32.1 - EXHIBIT 32.1 - MEDLINK INTERNATIONAL, INC. | ex-32_1.htm |
EX-31.2 - EXHIBIT 31.2 - MEDLINK INTERNATIONAL, INC. | ex-31_2.htm |
EX-32.2 - EXHIBIT 32.2 - MEDLINK INTERNATIONAL, INC. | ex-32_2.htm |
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549
|
||||||||
Form
10-K
|
||||||||
[x]
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|||||||
For
the fiscal year ended December 31,
2009
|
||||||||
[ ]
|
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from ...........to...............
|
|||||||
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 is the issuer is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act Yes o No þ
Indicate
by check if the issuer is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. Yes þ No o
Indicate
by check mark whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes þ
No o
Indicate
by check mark if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. þ
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.
Large
accelerated filer o
|
Accelerated
filer
o
|
Non-accelerated
filer o
|
Smaller
reporting company þ
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o No þ
MedLink International, Inc. revenues
from continuing operations for the fiscal year ended December 31, 2009 were
$520,473
The aggregate market value of the
voting and non-voting equity held by non-affiliates as of March 31, 2010 based
upon the closing price of the Common Stock on the Over-the-Counter Bulletin
Board and Frankfurt Stock Exchange for such date was $9,460,217 as of March 31,
2010. There were a total of approximately 18,772,003 shares held by
non-affiliates as of such date.
Indicate the number of shares
outstanding of each of the issuer’s classes of common stock as of the latest
practicable date.
Class
|
Shares
Outstanding as of December 31, 2009
|
Class
A Common Stock, $0.001 par value
|
31,567,236
|
Class
B Common Stock, $0.001 par value
|
5,361,876
|
TABLE
OF CONTENTS
TO
ANNUAL REPORT ON FORM 10-K
FOR
YEAR ENDED DECEMBER 31, 2009
Page
|
||
Part
I
|
||
Item
1.
|
4
|
|
Item
1A.
|
21
|
|
Item
1B.
|
42
|
|
Item
2.
|
43
|
|
Item
3.
|
43
|
|
Item
4.
|
43
|
|
Part
II
|
||
Item
5
|
43
|
|
Item
6
|
47
|
|
Item
7
|
47
|
|
Item
7A.
|
58
|
|
Item
8.
|
58
|
|
Item
9
|
79
|
|
Item9AT.
|
79
|
|
Part
III
|
||
Item
10.
|
|
82
|
Item
11.
|
84
|
|
Item
12.
|
85
|
|
Item
13.
|
86
|
|
Item
14.
|
86
|
|
PART
IV
|
||
Item
15.
|
87
|
|
88
|
2
April 15,
2010
STATEMENT
OF FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K
contains certain “forward-looking” statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995) and information relating to
MedLink International, Inc. and its subsidiaries (collectively the “Company”)
that are based on the beliefs of the Company’s management, as well as,
assumptions made by and information currently available to management. When used
in this report, the words “estimate,” “project,” “believe,” “anticipate,”
“intend,” “expect” and similar expressions are intended to identify
forward-looking statements. The Company’s actual results may vary materially
from the forward-looking statements made in this report due to important
factors, including, but not limited to: the Company's need to obtain
additional financing or equity; uncertainties associated with changes in state
and federal regulations, including the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”), and certain other factors detailed below
under Risk Factors.
As for the forward-looking statements
that relate to future financial results and other projections, actual results
will be different due to the inherent uncertainty of estimates, forecasts and
projections and may be better or worse than projected. Given these
uncertainties, you should not place any reliance on these forward-looking
statements. These forward-looking statements also represent our estimates and
assumptions only as of the date that they were made. The Company expressly
disclaims a duty to provide updates to these forward-looking statements, and the
estimates and assumptions associated with them, after the date of this filing to
reflect events or changes in circumstances or changes in expectations or the
occurrence of anticipated events.
The Company undertakes no obligation to
publicly update any forward-looking statement, whether as a result of new
information, future events or otherwise. You are advised, however, to
consult any additional disclosures the Company makes in its Form 10-K, Form 10-Q
and Form 8-K reports to the SEC. This discussion is provided as permitted by the
Private Securities Litigation Reform Act of 1995.
Information regarding market and
industry statistics contained in this Report is included based on information
available to the Company which it believes is accurate. The Company
has not reviewed or included data from all sources, and cannot assure
stockholders of the accuracy or completeness of the data included in this
Report. Forecasts and other forward-looking information obtained from these
sources are subject to the same qualifications and the additional uncertainties
accompanying any estimates of future market size, revenue and market acceptance
of products and services.
Throughout
this report we refer to MedLink International and its consolidated subsidiaries
as “MedLink,” “the Company,” “we,” “us,” and “our.”
3
PART I
Business
Overview
MedLink
is a healthcare information enterprise system business focused on the physician
sector headquartered in Ronkonkoma, NY. 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 radiology centers, laboratories and
hospital 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 and channel partners provides a
framework for physician adoption and a captive audience to target a focused
sales and marketing plan.
The
market demand for EHRs has never been more promising given the number of
government initiatives to promote adoption of EHRs by healthcare
providers. President Obama considers healthcare information
technology as a key piece of his plan to fix the nation’s ailing healthcare
system and in February 2009, signed the federal stimulus bill which provides
over $19 billion in incentive payments for EHR use. Recent and
existing government programs provide funds that represent significant income
opportunities for existing EHR users and new EHR adopters.
MedLink
is well positioned to capitalize on the demand trend for EHR
adoption. MedLink was recently chosen as a preferred vendor by
Interboro RHIO, a New York based RHIO in Queens County. In addition,
MedLink is working with other organizations, including the New York City
Department of Health and Mental Hygiene (“NYC DOH”), to implement EHR
applications. The Company is also also a finalist for other RHIO organizatios
and Regional Extension Centers across the country. These contracts will
represent a significant revenue opportunity for the Company over the next
several years.
4
MedLink
International, Inc. is a Delaware corporation. The Company’s Class A
Common Stock trades on the Over-the Counter Bulletin Board under the symbol
“MLKNA.OB” and its Class B Common Stock trades on the Frankfurt Stock Exchange
under the symbol “WM6B”.
The
Company’s web site address is www.medlinkus.com.
The
MedLink Vision:
Our goal
is to create one of the largest hub for health records in the United
States. We plan to achieve this by meeting our stated mission
statement below.
“We will
offer the medical community applications and services that we believe will ease
accessibility to information related to patient care through the creation of a
secure digital environment, while making it accessible to institutions both
large and small at an affordable price in order to achieve the highest level of
participation.”
We are
dedicated to creating and providing the digital backbone for the delivery of
enhanced medical services to healthcare professionals worldwide through a suite
of network, communication, management, financial and value-added solutions
through the utilization of our Virtual Private Network (“VPN”). Our VPN connects
healthcare professionals with vital information and key resources creating
efficiencies and thereby achieving optimal, real-time delivery of patient
information.
We are
driven by our vision of creating a national, paperless, healthcare hub,
combining the wisdom of healthcare professionals and the latest in integrated
technology to provide solutions for the current and future challenges facing the
healthcare industry. We are determined to become a market leader that physicians
and healthcare professionals will turn to for real-time, cost-effective access
to a myriad of patient information at the touch of a button.
MedLink Product
Offerings
MedLink
TotalOffice EHR 3.1
MedLink’s
core product offering is its MedLink TotalOffice EHR (“MedLink EHR”), a 2008
CCHIT Certified product. The MedLink EHR is a healthcare
information enterprise system that provides physician practices with electronic
access and control over patient records. It enables the primary
provider to easily manage the process of creating, maintaining and adding to
patient electronic health records. TotalOffice EHR contains the
patient's demographic information, notes, appointments, lab results,
prescriptions, documents, history of visits, as well as all insurance and
financial information. It is also designed to centralize the
patient's medical records and streamline the diagnostic and treatment process
while connecting the physician seamlessly with outside resources such as
radiology centers, labs, pharmacies and insurance companies. MedLink
EHR includes a billing application which enables the product to achieve full
revenue cycle management capabilities.
A key
feature of the MedLink EHR is the MedLink Virtual Private Network (“MedLink
VPN”).The MedLink VPN allows physician practices to securely communicate with
each other and remotely access and retrieve patient records, lab results,
X-Rays, CAT Scans and other Personal Health Information (“PHI”). The data is stored and
replicated in two separate data centers located in different regions of New
York. The system is compliant with the Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”) and HL7.
MedLink
TotalOffice can improve healthcare quality and reduce costs by preventing
medical errors, reduce paperwork and reduce administrative
inefficiencies. Additionally, it automates administrative workflow,
including scheduling, patient billing and collection and claims management,
providing medical clinics with a true end-to-end ‘Total Office’ solution for
both their respective clinical and revenue cycle management needs.
5
MedLink
EHR Lite
The MedLink EHR Lite (“EHR Lite”) works in
conjunction with the MedLink EHR for referring physicians to view radiology
reports and images, submit and receive lab results and to prescribe medications
electronically. The referring physicians of radiology centers and
laboratories affiliated with MedLink and the Company’s Strategic Partners
utilize the EHR Lite, free of charge, to view current and past reports on their
patients enabling them to generate a more accurate electronic health record of
their patients, while providing the practice with additional functionality such
as scheduling, tasks, patient chart, e-prescription, e-labs and
e-radiology. The seamless integration into a patient’s electronic
health record is unique to our products and we hope to make the
process the standard moving forward for the delivery of reports and images from
radiology centers. We believe EHR Lite will help to speed the
diagnostic process and significantly reduce patient wait times, while providing
a stepping stone to full EHR functionality provided by the MedLink
EHR.
Channel
Partners
In
addition to our employed sales force, we maintain business relationships with
individuals and organizations that promote or support our sales or services
within specific industries or geographic regions, which we refer to as channel
partners and value added resellers. In most cases, these relationships are
generally agreements that compensate channel partners for providing us sales,
and vary based on the specific relationship with channel partners providing the
Company introductions to other Channel Partners that have fully established
sales, implementation and support infrastructure to support their respective
clients and the MedLink TotalOffice EHR. MedLink focused on
developing the Channel Partners program during 2009 and expects a significant
part of the Company’s revenues to be derived from Channel Partners in 2010. Our
channel relationships include state medical societies, local medical societies,
laboratories, imaging centers, Regional Health Information Exchanges, Revenue
Cycle Management organizations, and consulting firms. Examples of these types of
channel relationships include:
·
|
New
York County Medical Society
|
·
|
Clinical
Laboratory Management
|
·
|
Doshi
Diagnostic Imaging
|
·
|
Sunrise
Diagnostic Laboratories
|
·
|
Healthcare
DPS
|
·
|
Avision
Technologies
|
In March
of 2010, we entered into an agreement with Caliber Point, a division of
Hexaware, for Caliber Point to become a value added reseller of the MedLink
TotalOffice EHR. Caliber Point is a global organization with offices
in 7 countries and 13 states with a significant sales force and support
infrastructure. According to Caliber Point, they expect to grow their
healthcare division significantly in 2010 and have established a dedicated
division and resources to support the sale and support of the MedLink
TotalOffice EHR. Caliber Point has an extensive reach across the country
servicing thousands of medical offices and we expect them to play a significant
part in MedLink’s growth in 2010.
6
Key Business
Attributes
The
Company has compelling opportunities in the attractive and dynamic healthcare
information technology industry. The Company is poised for
significant revenue growth and profitability through its strategic partnerships
and best of breed technology and software solutions.
Significant
Market Opportunity
·
|
Currently,
out of the estimated 600,000 physicians in the U.S., only 15-20% are
estimated to have employed EHRs for their
practice.
|
·
|
This
market is expected to grow significantly in the next several years as
legislation and federal directives drive EHR adoption among
physicians.
|
|
-
|
The
Bush Administration mandated that physicians switch all patient records to
electronic form by 2014. The mandate has received bi-partisan
support from Congress and President
Obama;
|
|
-
|
Medicare
Electronic Medication and Safety Protection Act provides financial
incentives for physicians to use e-prescribing systems that have current
year CCHIT certification;
|
|
-
|
Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 permits
hospitals and other organizations to provide e-prescribing and EHR
software, information technology and training services to physicians;
and
|
|
-
|
Private
and public initiatives for healthcare IT adoption have currently made
available more than $700 million. The majority of subsidies and
grants require current year CCHIT
certification.
|
|
- More
than $20 billion was provided for the adoption of healthcare IT in early
2009
|
Value-Added
Strategic Partners
·
|
The
Company has received endorsements from one of the largest medical
associations in the U.S. as well as four New York based medical
societies.
|
·
|
The
Company continues to form valuable strategic partnerships with imaging
centers, laboratories, RHIO’s and other facilities through the integration
of their systems with the Company’s
EHR.
|
Targeted
Installation Base
·
|
The
Company’s value-added partners provide a “captive” base of physicians as
customers for the Company’s
products.
|
·
|
The
Company has a focused sales and marketing effort underway to leverage this
prime access opportunity to reach these
physicians.
|
Attractive
Value Proposition
·
|
The
primary barrier to EHR adoption among physicians is cost. The
Company offers an attractive value proposition through MedLink EHR and EHR
Lite. EHR Lite provides physicians with basic EMR functionality
at no upfront cost to the physician, creating a sticking point for later
full EHR conversion.
|
·
|
The
Company’s EHR is priced below competing products with similar
services.
|
·
|
Quick
deployment of the Company’s EHR, makes the product very attractive to
physicians and counterparties.
|
2008
CCHIT Certification
·
|
The
Company’s EHR was one of 8 products which received full certification in
October, 2008.
|
·
|
This
certification creates a tremendous competitive advantage for the Company
in its targeted customer base, the small to medium sized physician office
marketplace, as financial incentives are available to providers who use a
2008 CCHIT certified EHR product.
|
7
HEALTHCARE
INFORMATION TECHNOLOGY MARKET
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 $65,000
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 $65,000 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.
EHR
INDUSTRY
The EHR
industry is not new, and has been in existence for over twenty
years. In its infancy, the EHR industry focused on solving problems
of large medical institutions as they had many disparate systems as well as the
budgets for such expenditures, whereas private practices typically did
not. Recent innovations in technology have brought EHR systems within
reach of private practice owners.
The
market for Ambulatory EHR solutions and services is competitive, but limited for
Vendors that offer a full solution that will meet the clinical, financial,
interoperability and adhere to the federal incentive
requirements. Current Industry leaders in the physician healthcare
information enterprise systems include Allscripts,
Epic, eClinicalWorks, Quality Systems (NextGen), GE and McKesson,
each of which offers a suite of software solutions and services that compete
with many of the Company’s software solutions in the physician practice
market. The main competitive factors in this market include the
breadth and quality of the EHR solution, ease of use, the ongoing support for
the system and the potential for enhancements, interoperability and
cost.
MedLink
believes that it offers as comprehensive of an EHR application as its
competitors, at a fraction of the cost as the MedLink EHR is built on cutting
edge technology platform that was built specifically for the small to medium
sized physician market. In reaction to the 2004 government mandate
for physicians to adopt EHR in the next 10 years, many of the current industry
leaders quickly scrambled to adapt their legacy hospital information systems
(that in many cases were developed almost 30 years ago), to address the
physician practice EHR market. Although this strategy provided for a
rapid deployment to market of an EHR solution, the legacy systems originally
built to provide for large hospital organizations rely on costly software and
database licenses and are far too complex for the physician practice market,
creating significant implementation and lengthy training challenges and
fees. As a result, these solutions are far too costly and are
primarily marketed to the larger Physician Practice groups, which is highly
competitive.
8
HIT
MARKET
Despite
the turbulence in the worldwide macroeconomic environment, we believe the
fundamental drivers for healthcare IT demand and adoption remain intact. We
believe our primary end market, healthcare, is likely to be more resilient to
tough economic conditions than most segments. Our solutions play an important
role in improving safety, efficiency and cost and are therefore usually ranked
high against competing priorities. Most of our clients also believe they must
invest in IT to meet current and future regulatory, compliance and government
reimbursement models.
New
changes to the Medicare Modernization ACT (MMA) Part D regulations will require
prescriptions for Medicare Part D be transmitted electronically effective
January 1, 2009. The Company views this as a major development that
will spur growth in its EHR solutions, and significant adoption of its EHR Lite
solution. Some of the major private insurance carriers are discussing
similar policies and the company expects e-prescription to become the standard
in the next few years, compared to 2007 where only 2% of all prescriptions were
submitted electronically.
Medicare physicians who use
e-prescribing technology will be eligible for incentive
payments:
·
|
2%
in fiscal year 2009 and 2010
|
·
|
1%
in 2011 and 2012
|
·
|
0.5%
in 2013
|
Physicians participating in Medicare
who do not e-prescribe:
·
|
1%
payment cut in 2012
|
·
|
1.5%
payment cut in 2013
|
·
|
2%
in subsequent years
|
With
healthcare spending estimated at over $2 trillion and 16% of the U.S. Gross
Domestic Product and growing, politicians and policy makers agree that the
current healthcare system is unsustainable. And leaders of both parties express
commitment to the intelligent use of information systems that improve health
outcomes and correspondingly drive down cost. We believe one reason for the
bi-partisan support of HIT is a study by RAND Corp. published in
October 2005 that concluded widespread adoption of HIT could cut the total
cost of healthcare by about 10%. Although policy experts have different opinions
on the rates of HIT adoption and how quickly benefits can be realized, there is
consensus that HIT has the potential to contribute to significant costs
savings.
9
Also,
increasing healthcare spending, safety and quality concerns, and inefficient
care are not issues isolated to the United States. Most other countries are
experiencing similar trends, a fact that creates a favorable environment
internationally for HIT solutions and related services.
Overall,
while the current economic turmoil warrants close monitoring, our end markets
appear to remain solid. But we understand the possibility that a sustained
recession and credit crunch could impact our clients’ ability to invest in
HIT.
The
Healthcare Industry Overview
United
States healthcare expenditures are a significant and growing component of the
U.S. economy, representing $2.1 trillion in 2006, or 16 percent of
GDP. Expenditures increased by 6.5 percent in 2005 and 6.7 percent in
2006 and are expected to almost double to $4.3 trillion and represent nearly 20
percent of GDP, in 2017.1
As an
industry, healthcare services are generally provided through a fragmented group
of providers that have, in many cases, historically under-invested in
administrative and clinical solutions. The administrative portion of
healthcare costs for providers is expected to continue to expand due in part to
the increasing complexity in the public and private reimbursement
process. Thus, a greater administrative burden is being placed on
providers, or physicians, to accurately report and document healthcare services
provided to the patient. This is further compounded by the fact that
many providers, which are grouped in small physician practices, lack the
technological infrastructure and human resources to bill, collect and obtain
full reimbursement for their services, and instead rely on inefficient,
labor-intensive processes to perform these functions. Healthcare is a
relatively information-intensive industry and the lack of information technology
adoption by healthcare providers has resulted in a largely paper-based records
system that is inefficient and time-consuming. Industry experts
believe there is significant potential to transform a paper-based system into
electronic records system and then leverage the resulting information with
analytics to provide better care with lower administrative costs.
Payment
for healthcare services generally occurs through complex and frequently changing
reimbursement mechanisms involving multiple parties, such as commercial payors
(insurance companies) and government payors (Medicare and Medicaid
programs). The federal government contributed 46 percent of
healthcare payments in 2006 and government mandates continue to increase the
complexity of the reimbursement process. In addition, private
insurance accounts for 35 percent of healthcare payments in 2006 and tends to
follow the government’s reimbursement policies, which adds another layer of
reimbursement complexity. Despite significant consolidation among
private payers in recent years, claims systems have often not been sufficiently
integrated, resulting in persistently high costs associated with administering
these plans. Government payers also continue to introduce more
complex rules to align payments with the appropriate care
provided. As a result, the Company believes payers and providers will
continue to seek solutions that automate and simplify the administrative and
clinical processes of healthcare.
Peter R.
Orszag, Director of the United States Congressional Budget Office, recently
said, “health care represents the central fiscal challenge facing the
nation.” Sometime
in President-elect Obama’s first term, Medicare Part A (hospital insurance) is
expected to turn cash flow negative. If Medicare had to be accounted
for similar to that of a company pension fund, it would be under funded by $34
trillion. In order to solve this problem, the government is promoting
higher investment in HIT and President-elect Obama pledged to spend $10 billion
annually for five years to improve HIT adoption by healthcare providers, which
is a core component of his plan to improve the U.S. healthcare
system.
Larger
and more populated states are likely to present greater healthcare IT
opportunities than smaller states, due to the increased number of hospitals and
physician practices. MedLink has endorsements and affiliations with
Value-Added Strategic Partners in California, New York and Texas, three of the
top five states.
10
Market
Drivers
According
to American Medical Association data, there are over 600,000 physicians in the
U.S. practicing medicine and approximately 220,000 physician
practices. Because the physician practice market is highly fragmented
and there has been little financial or clinical incentive for physician
practices to adopt an EHR solution, it is estimated that only approximately 13
percent of physician practices have employed electronic health records for their
practice. Thus, the market for adoption will be driven by factors
such as federal and state mandates as well as industry standards.
Electronic
Health Records
The main
market driver which is leading to EHR adoption is President Bush’s federal
mandate that all physicians utilize electronic health records by
2014. President Obama has reiterated the need for greater investment
in HIT and supports the Bush Administration’s mandate. President
Obama has pledged to spend $10 billion a year over five years to invest in
HIT. Furthermore, HIT spending was included as one of the five
components of the Economic Recovery Plan.
Federal
Initiatives
Rep. Pete
Stark (D-Calif.), Chairman of the House Ways and Means Health Subcommittee,
introduced the Health-e Information Technology Act of 2008 in September 2008,
with incentives that could total millions of dollars for
doctors. Financial incentives through Medicare to doctors and
hospitals that adopt and use EHR systems that are certified as meeting standards
for interoperability, security, and clinical utility (e.g.
CCHIT). Physicians who install and utilize an approved system would
be eligible for incentive payments totaling up to approximately $40,000 over
five years. One of Speaker Nancy Pelosi's senior health policy
advisers attended a HIT industry forum in late October 2008 and emphasized the
Democrats' belief that improving HIT is the foundation of improving the U.S.
healthcare system.
Healthcare
spending continues to expand. The nonpartisan Congressional Budget Office
projects that, if left unchecked, total spending on healthcare in the United
States would rise from 16 percent of the gross national product in 2007 to
25 percent in 2025. HIT is one of the few answers. A study by RAND Corp.
published in October 2005 found that widespread adoption of HIT could cut
the total cost of healthcare by about 10 percent.
Another
factor we believe is favorable for the HIT industry in the United States is the
continued focus by Centers for Medicare and Medicaid Services (CMS) and
other payers on linking medical care payments to quality and safety, an approach
commonly referred to as “pay for performance.” Some pay for performance plans
offer additional reimbursement for healthcare providers that can demonstrate
high levels of quality and safety. Based on CMS’ final rule for changes to the
2008 inpatient prospective payment system (IPPS), there will also be instances
where providers are not paid for treatment of conditions acquired while in the
hospital if the condition is deemed reasonably preventable through the
application of evidence-based guidelines. This change, effective in October
2008, is positive for the HIT industry because ensuring compliance with
evidence-based guidelines is easier for organizations with an HIT system.
Additionally, an expected increase in the number of Diagnosis-Related Groups
(DRGs) that are used to determine how much providers are reimbursed for
providing care will also contribute to the need for HIT systems that can be used
to more efficiently and accurately document and accurately submit care for
reimbursement.
11
In 2009,
rising costs and varying quality have solidified healthcare as a tier-one issue.
Presidential candidates in both parties favor using HIT to create efficiencies
in the system and address the underlying issue of chronic illness.
Increasing
healthcare spending and challenges in the quality and efficiencies of care are
not isolated to the United States. Most other countries are experiencing similar
trends, a fact that creates a favorable environment internationally for HIT
solutions and related services.
Reflective
of these favorable national and global trends, the HIT market remains very
competitive. The market could be impacted by factors such as changes in
reimbursement rates to hospitals and physicians, a slowdown in adoption of HIT
and changes in the political, economic and regulatory environment.
State
Initiatives
From
January 2007 to August 2008, more than 370 bills with provisions relating to HIT
were introduced by state legislators according to the National Conference of
State Legislatures. During this same time frame, 132 bills were
enacted in 44 states and the District of Columbia. Of the 132 bills
that were passed, a majority of the legislation focused on five policy trends:
planning; targeted financing initiative; updated privacy laws to facilitate
health information exchange; promoting health information exchange; and
advancing adoption and use. Thus, States are pursuing a “carrot and stick”
approach by providing mandates, but also encouraging adoption through financial
incentives to the physician through grants and reimbursement as well as actively
convening stakeholders to promote market acceptance.
Regional
Health Information Organizations
As part
of its growth strategy to expand its customer base and rapidly increase
revenues, MedLink has submitted responses to request for proposals for inclusion
as a preferred vendor to a number of Regional Health Information Organizations
(“RHIO”). MedLink is various stages of a targeted
marketing plan with several RHIOs as RHIOs are quickly becoming key
intermediaries to support federal and state financial incentive programs by
allocating subsidies and grants to physicians in order to pay for EHR software
and installation. The Company has responded to several Requests for
Quotations (“RFQs”), was invited to various interview rounds and has
demonstrated its EHR products with some of the following organizations: Primary
Care Information Project (1,400 physicians & $60mm in EHR grants); The
American College of Physicians (126,000 physicians); Western New York Clinical
Information Exchange (a.k.a. HealtheLink – 3,000 physicians & $5.2mm in EHR
grants); Interboro RHIO (150 physicians & $7.7mm in EHR grants); Long Island
Patient Information Exchange (5,000 physicians & $19mm in EHR grants); and
State Volunteer Mutual Insurance Company (17,000 physicians). Public and private
initiatives have currently made available more than $700 million in initiatives
for HIT adoption of EHR software and implementation costs. MedLink
expects to receive endorsements from several RHIOs located in the New York
regional area representing approximately $104.6 million in EHR initiatives.
Prior to receiving 2008 CCHIT certification, MedLink was not eligible to
participate as a vendor to RHIOs. Since the Company’s CCHIT
certification, it has begun to aggressively submit RFQs to these
organizations. RHIO participation is a key component of MedLink’s
growth strategy and is consistent with the Company’s business model to provide
low-cost products to physicians.
An
example of a RHIOs’ impact on an EHR company is E-Clinical Works’ endorsement
from Primary Care Information Project as a result of their 2006 CCHIT
certification. E-Clinical received several such endorsements and was
able to realize revenue growth of $7 million to $60 million in just three
years.
12
Pay
for Performance
The CMS,
as well as commercial and private payers, are continuing to focus on linking
medical care payments to quality and safety, an approach commonly referred to as
“pay for performance”. Some pay for performance plans offer
additional reimbursement for healthcare providers that can demonstrate high
levels of quality and safety. Based on CMS’ final rule for changes to
the 2008 inpatient prospective payment system, there will also be instances
where providers are not paid for treatment of conditions acquired while in the
hospital if the condition is deemed reasonably preventable through the
application of evidence-based guidelines. This change, effective in
October 2008, is a positive factor for the HIT industry because ensuring
compliance with evidence-based guidelines is far easier for organizations with
an HIT system. Additionally, an expected increase in the number of
diagnosis-related groups that are used to determine reimbursement to providers
will also contribute to the need for HIT systems that can be used to more
efficiently and accurately document and submit care charges for
reimbursement.
In July
2008, the Medicare Improvements for Patients and Providers Act of 2008 was
passed. It places a two percent increase on reimbursement for
physicians who use e-prescription in 2009 and 2010, a one percent increase in
2011 and 2012 and one half percent increase in 2013. Healthcare providers who do
not use e-prescription by 2012 will be penalized. A recent study at
Brigham and Women's Hospital in Boston found that e-prescribing systems that
include formulary decision support can save $845,000 per 100,000 patients a
year. The study examined data collected over 18 months from two
Massachusetts insurers covering 1.5 million patients.
At the
end of October 2008, Blue Cross Blue Shield of Massachusetts (“BCBSMA”) decided
to require physicians to electronically prescribe medications in order to
qualify for any of its physician incentive programs effective January 1,
2011. Additionally, BCBSMA plans to help doctors by supporting a
number of new licenses in 2009. The initiative addresses recent “pay
for performance” e-prescribing measures, coming one year before the CMS deadline
for prescribing without penalty.
CCHIT
CCHIT is
a private, nonprofit initiative for certification of electronic health records
and their networks, which was formed in 2004. In 2005, the Department
of Health and Human Services awarded CCHIT with a contract to develop, create
prototypes for, and evaluate the certification criteria and inspection process
for EHRs. Since CCHIT began certifying two years ago, it has
certified 150 EHR products, representing 50 percent of all EHR vendors and 75
percent of the EHR market. However, as the HIT industry has
developed, certification standards have increased significantly and only ten
physician focused EHR products were certified in 2008 for the certification
period beginning September 30, 2008 continuing through the third or fourth
quarter of 2009. Companies must reapply each year for certification
in order to receive all associated benefits. MedLink has already
begun development upgrades for the 2009 CCHIT
certification. Although, CCHIT is planning to offer independent
certification for a personal health record and e-prescription applications,
MedLink personal health record and e-prescription applications are currently
certified through their 2008 certification. MedLink plans to continue
to certify all of its products through CCHIT.
CCHIT is
endorsed by many professional organizations, including the American Medical
Association and Medical Group Management Association. CCHIT
certification is an important designation as many healthcare providers are
mandated to purchase healthcare information technology with this
designation. CCHIT has interoperability criteria for each year and
companies must reapply for current year certification to receive all associated
benefits. Interoperability is the ability of different information technology
systems and software applications to communicate; to exchange data accurately,
effectively and consistently; and to use the information that has been
exchanged. A new study from the Center for Information Technology
Leadership at Partners Healthcare System has found that widespread adoption of
interoperable personal health records could save the U.S. health care system
more than $19 billion annually after expenses. CCHIT certification ensures that
certified EHR products will communicate with healthcare systems and ease
adoption in the marketplace.
After the
2008 presidential election, it was announced at a healthcare IT advisory panel
meeting that the CCHIT will stay in place. Additionally, Robert
Kolodner, National Coordinator for Health Information Technology (a permanent
Department of Health and Human Services position that will not change under the
Obama administration), praised CCHIT.
13
The Bush
administration has mandated that all physicians utilize electronic health
records by 2014. There are currently over 600,000 physicians in the U.S. and
only fifteen percent (15%) of them have employed electronic health records for
their practice. This creates a tremendous opportunity and MedLink is
addressing this $28 billion dollar market with its innovative,
cost-effective technology that will be in major demand by medical professionals,
a market which is expected to grow aggressively in years to come.
The Health
Information Technology (HIT) marketplace remains strong. Domestically, the
overall financial condition of hospitals remains solid, and there continues to
be incentive for them to purchase health information technology to address
safety, quality, and efficiency needs. With annual HIT spending in the United
States of $1.9 trillion, or 16 percent of the gross domestic product, there is
still broad bipartisan support of HIT, with several pieces of pending
legislation containing provisions that encourage both hospitals and physician
practices to adopt HIT. Globally, there continues to be a high level of interest
in HIT at the country-wide and regional levels that is driven by similar
safety, quality, and efficiency needs as those driving demand in the United
States
In a
report published by IDC’s Health Industry Insights, the research and advisory
firm forecasts total information technology (IT) spending for the electronic
health record (EHR) market in the United States to increase to $4.8 billion in
2015. The study reveals a compounded annual growth rate (CAGR) of
15.8% in the EHR market over the next ten years, with current spending in that
market estimated at $1.1 billion in 2005.
Policy
Reforms
The
federal government is currently using its position as the nation’s leading
purchaser of healthcare products and services to promote HIT use. For example,
CMS and the Office of the Inspector General (OIG) are allowing acute care
organizations to help provide referring physicians with hardware, software,
training and support necessary to implement e-prescribing or interoperable
electronic medical record systems.
To
increase the availability of healthcare pricing information, CMS posts
information on what Medicare will pay for 30 common elective procedures and
other hospital admissions. We believe this focus on transparency could incent
healthcare organizations to use technology to improve safety and
efficiency.
Private
Sector Approaches
Healthcare
costs are a significant issue for employers as well. According to the Journal of
Occupational and Environmental Medicine, productivity losses related to personal
and family health problems cost U.S. employers $1,685 per employee per year or
about $226 billion annually. The cost of health insurance rose
7.7 percent in 2006, much higher than the overall rate of inflation (3.5
percent) or the increase in workers’ earnings (3.8 percent).
Faced
with these costs, some large employers have become advocates of HIT. For
example, Applied Materials, Inc., BP America, Inc., Cardinal Health, Inc., Intel
Corporation, Pitney Bowes, Inc. and Wal-Mart Stores, Inc. founded an initiative
in 2006 focused on creating personal health records for their employees. We
believe this type of employer activism is a positive for the HIT industry as it
supports wider-spread adoption of electronic medical records.
14
Competition
The
market for HIT solutions and services is intensely competitive, rapidly evolving
and subject to swift technological change. The Company’s principal
existing competitors in the physician healthcare information enterprise systems
include: Allscripts, Athenahealth, E-Clinical, and Greenway Medical, each of
which offers a suite of software solutions and services that compete with many
of the Company’s software solutions and services in the physician practice
market. In addition, the Company expects that major software
information systems companies, large information technology consulting service
providers, system integrators, managed care companies and others specializing in
the security industry may offer competitive software solutions or
services.
The pace
of change in the HIT market is rapid and there are frequent new software
solution introductions, software solution enhancements and evolving industry
standards and requirements. The main competitive factors in this
market include: the breadth and quality of system and software solution
offerings, the stability of the information systems provider, the features and
capabilities of the information systems, the ongoing support for the system and
the potential for enhancements and future compatible software
solutions. MedLink believes that with the CCHIT certification
initiative, the market will become less fragmented. MedLink also
believes its strategic alliances with healthcare associations and medical
societies will enable it to become a leading provider of such services to
physicians in both large and small physician practices.
MedLink
TotalOffice EHR meets all industry standards set by CCHIT for 2008 and is well
positioned against the offerings of MedLink’s closest competitors.
Future
Capital Requirements
In 2008,
MedLink engaged Shattuck Hammond Partners, one of the nation's premier
investment banks focused on Healthcare services companies and a division of
Morgan Keegan & Company, Inc. Shattuck Hammond will act as the
exclusive financial advisor and investment banker for MedLink and assist the
Company in an equity raise to fund the Company’s aggressive organic growth and
acquisition strategies. Our primary needs for cash over the next
twelve months will be to fund increased marketing expenses, working capital,
fund capital expenditures, contractual obligations and investment needs of our
current business.
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 December 31,
2009:
Less
than
|
|||||||||||
Total
|
1
year
|
1-3
years
|
|||||||||
Operating
lease obligations
|
$
|
850,992
|
$
|
129,500
|
$
|
460,032
|
The commitments under our operating
leases shown above consist primarily of lease payments for our Ronkonkoma, New
York corporate headquarters and our Atascadero, California
location.
15
Off-Balance
Sheet Arrangements
As of
December 31, 2009 and December 31, 2008, 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.
Recent
Business Developments
Interboro
RHIO
MedLink
was selected by Interboro RHIO, in December 2009 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. The subsidy (detailed below) represents substantial
financial incentives for physicians, who may be on the fence on whether to
purchase an EHR in the near term.
New
York City Department of Health
In
December 2009, the Company signed an agreement with New York City Department of
Health ( NYC DOH) which 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.
16
Center
for Medicare and Medicaid 2009 PQRI
In
January 2010, MedLink announced that its CCHIT 2008 certified MedLink Total
Office EHR 3.1 had been “Qualified” by the Centers for Medicare and Medicaid
Services (CMS) for the Physician Quality Reporting Initiative (PQRI) of 2010 EHR
Program. MedLink qualified and was among only 7 other HIT Vendors to meet the
vigorous qualification testing to facilitate simplifying physician reporting
under PQRI.
New
Corporate Headquarters
In March 2009, MedLink moved to new
corporate headquarters in Ronkonkoma, NY. The new office increases
MedLink’s headquarters from 4,000 square feet to 7,400 square
feet. The additional office space is leased through 2014 and will
meet the company’s growth needs. The new office is located in a free
trade zone in the town Of Islip, NY, reducing the overall cost for the company
compare to its previous lease.
Regional
Health Information Organization (RHIO)
Since realizing 2008 CCHIT
certification the Company has qualified and been approached by numerous RHIO’s
to submit RFQ’s. Currently the MedLink EHR and its related services
are finalists for the E-Health Network of Long Island RHIO, Long Island
Information Exchange (LIPIX) and Interboro RHIO. The Company expects
decisions from these RHIO’s and other RHIO’s over the course of the 2nd
quarter of 2009.
The
Market for MedLink Products and Services
MedLink believes that the market for
its products and services consist of small and medium size medical practices
that are looking to reduce their communication costs and increase employee
efficiency, however the MedLink EHR is scalable for larger clinics but the
company intends to focus on the aforementioned practices. MedLink
believes that the best way to market to these doctors is by establishing a
relationship with medical societies, Labs and radiology centers they are
affiliated with, as it has done this with Imaging Centers, Labs, VAR’s, and
Medical Societies.
Currently,
to the extent that MedLink has engaged in any marketing activities, it has
focused solely on small to medium sized practices primarily that are affiliated
with its Partners.
Customer
Dependence
MedLink is in the early stages of its
business. MedLink believes that its future success will be dependent
on it developing relationships with medical societies, RHIO’s, labs and
radiology centers for access to their doctors. Without these
relationships, MedLink’s business is unlikely to succeed.
17
Intellectual
Property
We use
trademarks, trade names and service marks for healthcare information services
and technology solutions, including: MedLink TotalOffice EHR, MedLink EHR Lite,
MedLink Remote PACS, and MyMedLinkChart. We also use other registered
and unregistered trademarks and service marks for our various services. In
addition to our trademark registrations and applications, we have registered the
domain names that either are or may be relevant to conducting our business,
including: "www.medlinkus.com, www.medlinkvpn.com, www.krad.com,
www.medlinkchart.com, www.mymedlinkchart.com, www.cbsmedlink.com, www.mlvpn.com,
www.medlinktv.com, www.medlinktotaloffice.com, www.medlinkto.com,
www.medlinkdocmanager.com, www.medlinkpacs.com, www.totalofficemd.com,
www.medlinkint.com, www.cnicoding.com, www.dinddstv.com, www.medlinkccr.com,
medlinkphr.com, medlinktv.net, mymedlinkus.com, petmdchart.com, petvetchart.com,
pinmdtv.com." We also rely on a variety of intellectual property rights that we
license from third parties, including various software and healthcare content
used in our services. We rely upon a combination of patent, trade
secret, copyright and trademark laws, license agreements, confidentiality
procedures, nondisclosure agreements and technical measures to protect the
intellectual property used in our business. We generally enter into
confidentiality agreements with our employees, consultants, vendors and
customers. We also seek to control access to and distribution of our
technology, documentation and other proprietary information.
The steps
we have taken to protect our copyrights, trademarks, servicemarks and other
intellectual property may not be adequate, and third parties could infringe,
misappropriate or misuse our intellectual property. If this were to
occur, it could harm our reputation and adversely affect our competitive
position or results of operations.
Research
& Development
MedLink
in 2009 committed heavily towards research and development, the majority of
which was spent on development of the MedLink EHR and meeting the stringent and
ever evolving industry standards. The Company intends to increase its
research and development activities in 2010 to continue enhancements on the
MedLink EHR to keep up with the ever changing HIT market by expanding its
R&D center in Hyderabad, India.
Government
Regulation
The
healthcare industry is required to comply with extensive and complex laws and
regulations at the federal and state levels. Although many regulatory
and governmental requirements do not directly apply to our operations, our
customers are required to comply with a variety of laws, and we may be impacted
by these laws as a result of our contractual obligations. We may also
be impacted by laws regulating the banking and financial services industry as a
result of payment and remittance services and products we offer. For
many of these requirements, there is little history of regulatory or judicial
interpretation upon which to rely. We have attempted to structure our
operations to comply with applicable legal requirements, but there can be no
assurance that our operations will not be challenged or impacted by enforcement
initiatives.
We are
unable to predict the future course of federal, state or local legislation and
regulatory efforts. Further changes in the law, regulatory framework or the
interpretation of applicable laws and regulations could reduce our revenue or
increase our costs and have an adverse effect on our business, financial
condition or results of operations.
18
Health
Insurance Portability and Accountability Act (“HIPAA”)
MedLink
believes that its current products and services are HIPAA compliant and that its
future products and services will be HIPAA compliant because it utilizes
third-party solutions, which it believes to be fully secure and HIPAA
compliant. In the event that it is found not to be HIPAA compliant,
we may be subject to lawsuits and regulatory liabilities and we would be unable
to provide services in the medical community.
General. The
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) mandated a
package of interlocking administrative simplification rules to establish
standards and requirements for the electronic transmission of certain healthcare
claims and payment transactions. These regulations are intended to
encourage electronic commerce in the healthcare industry and apply directly to
health plans, most providers and healthcare clearinghouses (“Covered
Entities”). Certain of our businesses, including some of our
operations, are considered Covered Entities under HIPAA and its implementing
regulations. Other aspects of our operations are considered a “business
associate” under HIPAA, and indirectly impacted by the HIPAA regulations as a
result of our contractual obligations to our customers and interactions with
other constituents in the healthcare industry that are Covered Entities
(“Business Associates”).
Transaction
Standards. The standard transaction regulations established
under HIPAA (“Transaction Standards”) mandate certain format and data content
standards for the most common electronic healthcare transactions, using
technical standards promulgated by recognized standards publishing
organizations. These transactions include healthcare claims,
enrollment, payment and eligibility. The Transaction Standards are
applicable to that portion of our business involving the processing of
healthcare transactions among payers, providers, patients and other healthcare
industry constituents. Failure to comply with the Transaction
Standards may subject us to civil and potentially criminal penalties and breach
of contract claims. The Centers for Medicare & Medicaid Services
is responsible for enforcing the Transaction Standards.
Payers
and providers who are unable to exchange data in the required standard formats
can achieve Transaction Standards compliance by contracting with a clearinghouse
to translate between standard and non-standard formats. As a result,
use of a clearinghouse has allowed numerous payers and providers to establish
compliance with the Transaction Standards independently and at different times,
reducing transition costs and risks. In addition, the standardization
of formats and data standards envisioned by the Transaction Standards has only
partially occurred. Multiple versions of a HIPAA standard claim have
emerged as each payer defines for itself what constitutes a “HIPAA-compliant”
claim. To date, payers have published more than 600 different
“companion documents” setting forth their individual interpretations and
implementation of the government guidelines.
In order
to help prevent disruptions in the healthcare payment system, CMS has permitted
the use of “contingency plans” under which claims and other covered transactions
can be processed, in some circumstances, in either HIPAA standard or legacy
formats. CMS terminated the Medicare contingency plan for incoming
claims in 2005. The Medicare contingency plan for HIPAA transactions,
other than claims, remains in effect. Our contingency plan, pursuant
to which we process HIPAA-compliant standard transactions and legacy
transactions, as appropriate, based on the needs of our customers, remains in
effect. We cannot provide assurance regarding how CMS will enforce the
Transaction Standards or how long CMS will permit constituents in the healthcare
industry to utilize contingency plans. We continue to work with
payers and providers, healthcare information system vendors and other healthcare
constituents to implement fully the Transaction Standards.
In August
2008, CMS proposed adopting updated standard code sets for certain diagnoses and
procedures known as the ICD-10 code sets and making related changes to the
formats used for certain electronic transactions. If these or other
changes impacting electronic transactions become final, we will be required to
update our software and may be required to implement other related changes to
our systems. These changes may result in errors and otherwise
negatively impact our service levels, and we may experience complications
related to supporting customers that are not fully compliant with the revised
requirements as of the applicable compliance date.
NPI Standard. The
national provider identifier (“NPI”) regulations established under HIPAA (“NPI
Standard”) require providers that transmit any health information in electronic
form in connection with a HIPAA-standard transaction to obtain a single, 10
position all-numeric NPI and to use the NPI in standard transactions for which a
provider identifier is required. Health plans and healthcare
clearinghouses must use a provider’s NPI to identify the provider on all
standard transactions requiring a provider identifier. The NPI Standard took
effect on May 23, 2007; however, CMS permitted Covered Entities to use legacy
identifiers through May 23, 2008.
19
All of
our clearinghouse systems are fully capable of transmitting transactions that
include the NPI. We continue to process transactions using legacy
identifiers for non-Medicare claims that are sent to us to the extent that the
intended recipients have not instructed us to suppress those legacy
identifiers. We cannot provide assurance regarding how CMS will
enforce the NPI Standard or how CMS will view our practice of including legacy
identifiers for non-Medicare claims. We continue to work with payers,
providers, practice management system vendors and other healthcare industry
constituents to implement the NPI Standard. Any CMS regulatory change
or clarification or enforcement action that prohibited the processing by
healthcare clearinghouses or private payers of transactions containing legacy
identifiers could have an adverse effect on our business.
Employees
As of the date of this report, MedLink
has 34 full time employees.
Potential
Future Acquisitions by the Company
The Company may seek, investigate, and
if warranted, acquire interests in companies in exchange for debt, equity, cash
or a combination thereof. While the Company currently intends to
search for businesses that have synergies with MedLink, the Company may not
restrict its search for a business opportunity to any particular industry or
geographical area and may, therefore, engage in essentially any business in any
industry. The Company has unrestricted discretion in seeking and
participating in a business opportunity, subject to the availability of such
opportunities, economic conditions and other factors.
The
selection of a business opportunity in which to participate is complex and
extremely risky and will be made by management in the exercise of its business
judgment. There is no assurance that the Company will be able to
identify and acquire any business opportunity which will ultimately prove to be
beneficial to the Company and its shareholders.
The
activities of the Company are subject to several significant risks which arise
primarily as a result of the fact that the Company may acquire or participate in
a business opportunity based on the decision of management which will, in all
probability, act without the consent, vote, or approval of the Company’s
shareholders.
Business
opportunities may be available to the Company from various sources, including
its officers and directors, consultants, professional advisers, securities
broker-dealers, venture capitalists, members of the financial community, and
others who may present unsolicited proposals. The Company will seek a
potential business opportunity from all known sources, but will rely principally
on personal contacts of its officers, directors and consultants as well as
indirect associations between them and other business and professional
people.
Although
the Company does not anticipate engaging professional firms specializing in
business acquisitions or reorganizations, if management deems it in the best
interests of the Company, such firms may be retained. The Company may
also publish notices or advertisements seeking a potential business opportunity
in financial or trade publications.
The
Company may acquire a business opportunity or enter into a business in any
industry and in any stage of development. The Company may enter into
a business or opportunity involving a start-up or new company. The
Company may acquire a business opportunity in various stages of its
operation.
In
analyzing prospective business opportunities, management will consider such
matters as synergies with the Company’s existing businesses, available Company
technical, financial and managerial resources, working capital and other
financial requirements, history of operations, if any, prospects for the future,
the nature of present and expected competition, the quality and experience of
management services which may be available and the depth of the management, the
need for further research, development or exploration, the potential for growth
and expansion, the potential for profit, the perceived public recognition or
acceptance of products, services, trade or service marks, name identification
and other relevant factors.
20
Generally,
the Company will analyze all available facts and circumstances and make a
determination based upon a composite of available facts, without reliance upon
any single factor as controlling.
Methods
of Participation of Acquisition
Specific business opportunities will be
reviewed and, on the basis of that review, the legal structure or method of
participation deemed by management to be suitable will be
selected. Such structures and methods may include, but are not
limited to, leases, purchase and sale agreements, licenses, joint ventures,
other contractual arrangements, and may involve a reorganization, merger or
consolidation transaction. The Company may act directly or indirectly
through an interest in a partnership, corporation, or other form of
organization.
Procedures
As part of the Company's investigation
of business opportunities, officers and directors may meet personally with
management and key personnel of the firm sponsoring the business opportunity,
visit and inspect material facilities, obtain independent analysis or
verification of certain information provided, check references of management and
key personnel, and undertake other reasonable procedures.
The Company will generally request that
it be provided with written materials regarding the business opportunity
containing such items as a description of product, service and company history,
management resumes, financial information, available projections with related
assumptions upon which they are based, an explanation of proprietary products
and services, evidence of existing patents, trademarks or service marks or
rights thereto, present and proposed forms of compensation to management, a
description of transactions between the prospective entity and its affiliates,
relevant analysis of risks and competitive conditions, a financial plan of
operation and estimated capital requirements, and other information deemed
relevant. The Company may not be able to obtain audited financial
statements prior to the closing of a transaction and therefore, the actual
financial state of a business opportunity may be different than
represented. However, the Company will endeavor to obtain audited
financial statements prior to the closing of any transaction as well as
contractual protection against any material changes not reflected in unaudited
financial statements. The Company also will insure that if an
acquired company would be considered to be a significant subsidiary of the
Company, the audited financial statements of the acquired company that are
required to be filed by the Company with the Securities and Exchange Commission
in connection with such acquisition will be available for timely
filing.
Many
risks affect our business. These risks include, but are not limited to,
those described below, each of which may be relevant to decisions regarding an
investment in or ownership of our stock. We have attempted to organize the
description of these risks into logical groupings to enhance readability, but
many of the risks interrelate or could be grouped or ordered in other ways, so
no special significance should be attributed to these groupings or order. The
occurrence of any of these risks could have a significant adverse effect on our
reputation, business, financial condition or results of operations.
21
RISKS
RELATING TO DEVELOPMENT AND OPERATION OF OUR SOFTWARE
Our
software may not operate properly, which could damage our reputation and impair
our sales.
Software
development is time consuming, expensive and complex. Unforeseen
difficulties can arise. We may encounter technical obstacles and additional
problems that prevent our software from operating properly. Client environments
and practice patterns are widely divergent; consequently, there is significant
variability in the configuration of our software from client to client, and we
are not able to identify, test for, and resolve in advance all issues that may
be encountered when clients place the system into use at their facilities. If
our software contains errors or does not function consistent with software
specifications or client expectations, clients could assert liability claims
against us and/or attempt to cancel their contracts with us. These risks
are generally more significant for newer software, until it has been used for
enough time in enough client locations for us to have addressed issues that are
discovered through use in disparate circumstances and environments, and for new
installations, until potential issues associated with each new client’s
particular environment and configurability are identified and
addressed. Due to our ongoing development efforts, at any point in time, we
generally have significant software that could be considered relatively new and
therefore more vulnerable to these risks. It is also possible that future
releases of our software, which would typically include additional features, may
be delayed or may require additional work to address issues that may be
discovered as the software comes into use in our client base. If we fail to
deliver software with the features and functionality promised to our clients, we
could be subject to significant contractual damages and face serious harm to our
reputation, and our results of operations could be negatively
impacted.
Our
software development efforts may be inefficient or ineffective, which could
adversely affect our results of operations.
We face
intense competition in the marketplace and are confronted by rapidly changing
technology, evolving user needs and the frequent introduction of new software
and enhancements by our competitors to meet the needs of clients. As a result,
our future success will depend in part upon our ability to enhance our existing
software and services, and to timely develop and introduce competing new
software and services with features and pricing that meet changing client and
market requirements. We schedule and prioritize these development efforts
according to a variety of factors, including our perceptions of market trends,
client requirements, and resource availability. Our software is complex and
requires a significant investment of time and resources to develop, test, and
introduce into use. This can take longer than we expect. We may encounter
unanticipated difficulties that require us to re-direct or scale-back our
efforts and we may need to modify our plans in response to changes in client
requirements, market demands, resource availability, regulatory requirements, or
other factors. These factors place significant demands upon our software
development organization, require complex planning and decision making, and can
result in acceleration of some initiatives and delay of others. If we do
not manage our development efforts efficiently and effectively, we may fail to
produce, or timely produce, software that responds appropriately to our clients’
needs, or we may fail to meet client expectations regarding new or enhanced
features and functionality.
As we
evolve our offering in an attempt to anticipate and meet market demand, clients
and potential clients may find our software and services less appealing. In
addition, if software development for the healthcare information technology
market becomes significantly more expensive due to changes in regulatory
requirements or healthcare industry practices, or other factors, we may find
ourselves at a disadvantage to larger competitors with more financial resources
to devote to development. If we are unable to enhance our existing software or
develop new software to meet changing healthcare information technology market
requirements and standards in a timely manner, demand for our software could
suffer.
Market
changes could decrease the demand for our software, which could harm our
business and decrease our revenues.
The
healthcare information technology market is characterized by rapidly changing
technologies, evolving industry standards and new software introductions and
enhancements that may render existing software obsolete or less competitive. Our
position in the market could erode rapidly due to the development of regulatory
or industry standards that our software may not fully meet or due to changes in
the features and functions of competing software, as well as the pricing models
for such software. Our future success will depend in part upon our ability
to enhance our existing software and services, and to timely develop and
introduce competing new software and services with features and pricing that
meet changing client and market requirements. If our products rapidly become
obsolete, it makes it more difficult to recover the cost of product development,
which could adversely affect our operating results.
22
Our
software strategy is dependent on the continued development and support by
Microsoft of its .NET Framework and other technologies.
Our
software strategy is substantially dependent upon Microsoft’s .NET Framework and
other Microsoft technologies. If Microsoft were to cease actively supporting
.NET or other technologies that we use, fail to update and enhance them to keep
pace with changing industry standards, encounter technical difficulties in the
continuing development of these technologies or make them unavailable to us, we
could be required to invest significant resources in re-engineering our
software. This could lead to lost or delayed sales, loss of functionality;
client costs associated with platform changes, unanticipated development
expenses and harm our reputation, and would cause our financial results and
business to suffer.
Any
failure by us to protect our intellectual property, or any misappropriation of
it, could enable our competitors to market software with similar features, which
could reduce demand for our software.
We are
dependent upon our proprietary information and technology. Our means of
protecting our proprietary rights may not be adequate to prevent
misappropriation. In addition, the laws of some foreign countries may not enable
us to protect our proprietary rights in those jurisdictions. Also, despite the
steps we have taken to protect our proprietary rights, it may be possible for
unauthorized third parties to copy aspects of our software, reverse engineer our
software or otherwise obtain and use information that we regard as proprietary.
In some limited instances, clients can access source-code versions of our
software, subject to contractual limitations on the permitted use of the source
code. Furthermore, it may be possible for our competitors to copy or gain access
to our content. Although our license agreements with clients attempt to prevent
misuse of the source code or trade secrets, the possession of our source code or
trade secrets by third parties increases the ease and likelihood of potential
misappropriation of our software. Furthermore, others could independently
develop technologies similar or superior to our technology or design around our
proprietary rights.
Failure
of security features of our software could expose us to significant liabilities
and harm our reputation.
Clients
use our systems to store and transmit highly confidential patient health
information. Because of the sensitivity of this information, security
features of our software are very important. If, notwithstanding our
efforts, our software security features do not function properly, or client
systems using our software are compromised, we could face claims for contract
breach, fines, penalties and other liabilities for violation of applicable laws
or regulations, significant costs for remediation and re-engineering to prevent
future occurrences, and serious harm to our reputation.
RISKS
RELATED TO SALES AND IMPLEMENTATION OF OUR SOFTWARE
Our
sales process can be long and expensive and may not result in revenues. In
addition, the length of our sales and implementation cycles may adversely affect
our operating results.
We
typically experience long sales and implementation cycles. How and when to
implement, replace, expand or substantially modify an information system, or
modify or add business processes, are major decisions for healthcare
organizations, our target client market. Furthermore, our software generally
requires significant capital expenditures by our clients. The sales cycle for
our software ranges from 2 to 12 months or more from initial contact to
contract execution. Our implementation cycle has generally ranged from 1 to
6 months from contract execution to completion of implementation. During
the sales and implementation cycles, we will expend substantial time,
effort
and
resources preparing contract proposals, negotiating the contract and
implementing the software. Our sales efforts may not result in a sale, in which
case, we will not realize any revenues to offset these expenditures. If we do
complete a sale, accounting principles may not allow us to recognize revenues in
the same periods in which corresponding sales and implementation expenses were
incurred. Additionally, any decision by our clients to delay purchasing or
implementing our software or reduce the scope of products purchased would likely
adversely affect our results of operations.
23
We
may experience implementation delays that could harm our reputation and violate
contractual commitments.
Some of
our software is complex and requires a lengthy and expensive implementation
process. Implementation also requires our clients to make a substantial
commitment of their own time and resources and to make significant
organizational and process changes, and if our clients are unable to fulfill
their implementation responsibilities in a timely fashion, our projects may be
delayed or become less profitable. Each client’s situation is different, and
unanticipated difficulties and delays may arise as a result of failures by us or
the client to meet our respective implementation responsibilities or other
factors. Because of the complexity of the implementation process, delays are
sometimes difficult to attribute solely to us or the client. Implementation
delays could motivate clients to delay payments or attempt to cancel their
contracts with us or seek other remedies from us. Any inability or perceived
inability to implement our software consistent with a client’s schedule could
harm our reputation and be a competitive disadvantage for us as we pursue new
business. Our ability to improve sales depends upon many factors, including
successful and timely completion of implementation and successful use of our
software in live environments by clients who are willing to become reference
sites for us.
Implementation
costs may exceed our expectations, which can negatively affect our operating
results.
Each
client’s circumstances may include unforeseen issues that make it more difficult
or costly than anticipated to implement our software. As a result, we may fail
to project, price or manage our implementation services correctly. If we do
not have sufficient qualified personnel to fulfill our implementation
commitments in a timely fashion, related revenue may be delayed, and if we must
supplement our capabilities with third-party consultants, which are generally
more expensive, our costs will increase. Similarly, our operating results will
be negatively affected if our personnel take longer than budgeted to implement
our solutions.
Some of
our software is complex and highly configurable and many clients value our
ability to adapt the software to their specific needs. However, this high
degree of configurability has resulted in significant implementation costs,
which have made our offering too expensive for some clients. Our ability to
reach our goals for expansion and to sell to clients with budgetary constraints
depends upon our ability to develop less costly ways of implementing our
software.
Our
earnings can vary significantly depending on periodic software
revenues.
In any
financial reporting period, the periodic software revenues include traditional
license fees associated with sales made in the financial reporting period, as
well as revenues from contract backlog that had not previously been recognized
pending contract performance that occurred or was completed during the period,
and certain other activities during the period associated with existing client
relationships. Although these periodic software revenues represent a relatively
small portion of our overall revenue in any period, they generally have high
margins, and are therefore an important element of our earnings in any period.
These periodic revenues can fluctuate because economic conditions, market
factors, client-specific situations, and other issues can result in significant
variations in the type and magnitude of sales and other contract and client
activity in any period. These variations make it difficult to predict the nature
and amount of these periodic revenues. We believe economic conditions, and
resulting cash conservation by clients, adversely affected our periodic software
revenues in the second half of 2008, and if these conditions and client
reactions continue in 2009, or if for other reasons periodic software revenues
in any period decline from prior periods or fall short of our expectations, our
earnings will be adversely affected.
RISKS
RELATED TO OUR INFORMATION TECHNOLOGY (“IT”) OR TECHNOLOGY SERVICES
Various
risks could interrupt clients’ access to their data residing in our service
center, exposing us to significant costs and other liabilities.
We
provide remote hosting services that involve running our software and
third-party vendors’ software for clients in our Technology Solutions
Center. The ability to access the systems and the data that the Technology
Solution Center hosts and supports on demand is critical to our
clients. Our operations and facilities are vulnerable to interruption
and/or damage from a number of sources, many of which are beyond our control,
including, without limitation: (i) power loss and telecommunications
failures; (ii) fire, flood, hurricane and other natural disasters;
(iii) software and hardware errors, failures or crashes; and
(iv) computer viruses, hacking and similar disruptive problems. We
attempt to mitigate these risks through various means including redundant
infrastructure, disaster recovery plans, separate test systems and change
control and system security measures, but our precautions may not protect
against all problems. If clients’ access is interrupted because of problems
in the operation of our facilities, we could be exposed to significant claims by
clients or their patients, particularly if the access interruption is associated
with problems in the timely delivery of medical care. We maintain disaster
recovery and business continuity plans that rely upon third-party providers of
related services, and if those vendors fail us at a time that our center is not
operating correctly, we could fail to fulfill our contractual service
commitments, which could result in a loss of revenue and liability under our
client contracts. Furthermore, any significant instances of system downtime
could negatively affect our reputation and ability to sell our remote hosting
services.
24
Any
breach of confidentiality of client or patient data in our possession could
expose us to significant expense and harm our reputation.
We must
maintain facility and systems security measures to preserve the confidentiality
of data belonging to our clients and their patients that resides on computer
equipment in our hosting center or that is otherwise in our possession.
Notwithstanding the efforts we undertake to protect data, our measures can be
vulnerable to infiltration as well as unintentional lapse, and if confidential
information is compromised, we could face claims for contract breach, penalties
and other liabilities for violation of applicable laws or regulations,
significant costs for remediation and re-engineering to prevent future
occurrences, and serious harm to our reputation.
Inability
to obtain consents needed from third party software providers could impair our
ability to provide remote IT or technology services.
We and
our clients need consent from some third-party software providers as a condition
to running the providers’ software in our service center, or to allow our
employees who work in client locations under facilities management arrangements
to have access to their software. Vendors’ refusal to give such consents,
or insistence upon unreasonable conditions to such consents, could reduce our
revenue opportunities and make our IT or technology services less viable for
some clients.
RISKS
RELATED TO THE HEALTHCARE IT INDUSTRY AND MARKET
We
operate in an intensely competitive market that includes companies that have
greater financial, technical and marketing resources than we do.
We face
intense competition in the marketplace. We are confronted by rapidly changing
technology, evolving user needs and the frequent introduction by our competitors
of new and enhanced software. Our principal competitors in our software business
include Cerner, Eclypsis, Allscripts, Quality Systems, GE Healthcare, McKesson
Corporation, and E-Clinical Works. Other software competitors include providers
of practice management, general decision support and database systems, as well
as segment-specific applications and healthcare technology consultants. Our
services business competes with large consulting firms, as well as independent
providers of technology implementation and other services. Several of
our existing and potential competitors are better established, benefit from
greater name recognition and have significantly more financial, technical and
marketing resources than we do. In addition, some competitors, particularly
those with a more diversified revenue base or that are privately held, may have
greater flexibility than we do to compete aggressively on the basis of
price. Vigorous and evolving competition could lead to a loss of our market
share or pressure on our prices and could make it more difficult to grow our
business profitably.
The
principal factors that affect competition within our market include software
functionality, performance, flexibility and features, use of open industry
standards, speed and quality of implementation and client service and support,
company reputation, price and total cost of ownership. We anticipate
continued consolidation in both the information technology and healthcare
industries and large integrated technology companies may become more active in
our markets, both through acquisition and internal investment. There are a
finite number of hospitals and other healthcare providers in our target
market. As costs fall, technology improves, and market factors continue to
compel investment by healthcare organizations in software and services like
ours, market saturation may change the competitive landscape in favor of larger
competitors with greater scale.
Clients
that use our legacy software are vulnerable to sales efforts of our
competitors.
A
significant part of our revenue comes from relatively high-margin legacy
software that was installed by our clients many years ago. We attempt to convert
clients using legacy software to our newer generation software, but such
conversions may require significant investments of time and resources by
clients. As the marketplace becomes more saturated and technology advances,
there will be competition to retain existing clients, particularly those using
older generation products, and loss of this business would adversely affect our
results of operations.
25
The
healthcare industry faces financial constraints that could adversely affect the
demand for our software and services.
The
healthcare industry faces significant financial constraints. For example,
managed healthcare puts pressure on healthcare organizations to reduce costs,
and regulatory changes and payor requirements have reduced reimbursements to
healthcare organizations. Federal, state and local governments and
private payors are imposing requirements that may have the effect of reducing
payments to healthcare organizations. Our software often involves a significant
financial commitment by our clients. Our ability to grow our business is largely
dependent on our clients’ information technology budgets, which in part depends
on the client’s cash generation and access to other sources of liquidity. Recent
financial market disruptions have adversely affected the availability of
external financing, and led to tighter lending standards and volatile interest
rates. These factors can reduce access to cash for our clients and potential
clients. In addition, many of our clients’ budgets rely in part on investment
earnings, which decrease when portfolio investment values decline. Economic
factors are causing many clients to take a conservative approach to investments,
including the purchase of systems like we sell. If healthcare information
technology spending declines or increases more slowly than we anticipate, demand
for our software could be adversely affected and our revenue could fall short of
our expectations. Challenging economic conditions also may impair the ability of
our clients to pay for our software and services for which they have contacted.
As a result, reserves for doubtful accounts and write-offs of accounts
receivable may increase.
Healthcare
industry consolidation could put pressure on our software prices, reduce our
potential client base and reduce demand for our software.
Many
healthcare organizations have consolidated to create larger healthcare
enterprises with greater market power. If this consolidation trend continues, it
could reduce the size of our target market and give the resulting enterprises
greater bargaining power, each of which may lead to erosion of the prices for
our software. In addition, when healthcare organizations combine they often
consolidate infrastructure including IT systems, and acquisitions of our clients
could erode our revenue base.
Changes in standards applicable to
our software could require us to incur substantial additional development
costs.
Integration
and interoperability of the software and systems provided by various vendors are
important issues in the healthcare industry. Market forces, regulatory
authorities and industry organizations are causing the emergence of standards
for software features and performance that are applicable to our products.
Healthcare delivery and ultimately the functionality demands of the electronic
health record are now expanding to support community health, public health,
public policy and population health initiatives. In addition, interoperability
and health information exchange features that support emerging and enabling
technologies are becoming increasingly important to our clients and require us
to undertake large scale product enhancements and redesign.
For
example, the Certification Commission for Healthcare Information Technology, or
CCHIT, is developing comprehensive sets of criteria for the functionality,
interoperability, and security of healthcare software in the U.S. Achieving
CCHIT certification is evolving as a de facto competitive requirement, resulting
in increased research and development expense to conform to these requirements.
Similar dynamics are evolving in international markets. CCHIT requirements may
diverge from our software’s characteristics and our development
direction. We may choose not to apply for CCHIT certification of certain
modules of our software or to delay applying for certification. The CCHIT
application process requires conformity with 100% of all criteria applicable to
each module in order to achieve certification and there is no assurance that we
will receive or retain certification for any particular module notwithstanding
application. Certification for a software module lasts for two years and must
then be re-secured, and certification requirements evolve, so even
certifications we receive may be lost.
U.S.
government initiatives and related industry trends are resulting in
comprehensive and evolving standards related to interoperability, privacy, and
other features that are becoming mandatory for systems purchased by governmental
healthcare providers and other providers receiving governmental payments,
including Medicare and Medicaid reimbursement. Various state and foreign
governments are also developing similar standards which may be different and
even more demanding.
26
Our
software does not conform to all of these standards, and conforming to these
standards is expected to consume a substantial and increasing portion of our
development resources. If our software is not consistent with emerging
standards, our market position and sales could be impaired and we will have to
upgrade our software to remain competitive in the market. We expect compliance
with these kinds of standards to become increasingly important to clients and
therefore to our ability to sell our software. If we make the wrong decisions
about compliance with these standards, or are late in conforming our software to
these standards, or if despite our efforts our software fails standards
compliance testing, our reputation, business, financial condition and results of
operations could be adversely affected.
RISKS
RELATED TO OUR BUSINESS STRATEGY
Our
business strategy includes expansion into markets across North America, which
will require increased expenditures and if our operations are not successfully
implemented, such expansion may cause our operating results and reputation to
suffer.
We are
working to further expand operations in markets across North America. There is
no assurance that these efforts will be successful. We have limited experience
in marketing, selling, implementing and supporting our software. Expansion of
our sales and operations will require a significant amount of attention from our
management, establishment of service delivery and support capabilities to handle
that business and commensurate financial resources, and will subject us to risks
and challenges that we would not face if we conducted our business only locally.
We may not generate sufficient revenues from international business to cover
these expenses.
RISKS
RELATED TO OUR OPERATING RESULTS, ACCOUNTING CONTROLS AND FINANCES
We
have a history of operating losses and future profitability is not
assured.
We
experienced operating losses in the years ended December 31, 2002 through
2008. We may continue to incur losses in the future, and it is not certain that
we will increase profitability.
Our
operating results may fluctuate significantly and may cause our stock price to
decline.
We have
experienced significant variations in revenues and operating results from
quarter to quarter. Our operating results may continue to fluctuate due to a
number of factors, including:
•
|
the
performance of our software and our ability to promptly and efficiently
address software performance shortcomings or warranty
issues;
|
||
|
•
|
the
cost, timeliness and outcomes of our software development and
implementation efforts, including expansion of our development center in
India;
|
|
|
•
|
the
timing, size and complexity of our software sales and
implementations;
|
|
|
•
|
healthcare
industry conditions and the overall demand for healthcare information
technology;
|
|
|
•
|
variations
in periodic software license revenues;
|
|
|
•
|
the
financial condition of our clients and potential
clients;
|
|
•
|
market
acceptance of new services, software and software enhancements introduced
by us or our competitors;
|
||
•
|
client
decisions regarding renewal or termination of their
contracts;
|
||
|
•
|
software
and price competition;
|
|
|
•
|
investment
required to support our international expansion
efforts;
|
|
|
•
|
personnel
changes and other organizational changes and related
expenses;
|
|
|
•
|
significant
judgments and estimates made by management in the application of generally
accepted accounting principles;
|
|
|
•
|
healthcare
reform measures and healthcare regulation in general;
|
|
|
•
|
lower
investment returns due to recent disruptions in U.S. and international
financial markets; and
|
|
|
•
|
fluctuations
in general economic and financial market conditions, including interest
rates.
|
27
It is
difficult to predict the timing of revenues that we receive from software sales,
because the sales cycle can vary depending upon several factors. These include
the size and terms of the transaction, the changing business plans of the
client, the effectiveness of the client’s management, general economic
conditions and the regulatory environment. In addition, the timing of our
revenue recognition could vary considerably depending upon whether our clients
license our software under our subscription. Because a significant percentage of
our expenses are relatively fixed, a variation in the timing of sales and
implementations could cause significant variations in operating results from
quarter to quarter. We believe that period-to-period comparisons of our
historical results of operations are not necessarily meaningful. Investors
should not rely on these comparisons as indicators of future
performance.
In
addition, prices for our common stock may be influenced by investor perception
of us and our industry in general, research analyst recommendations, and our
ability to meet or exceed quarterly performance expectations of investors or
analysts.
Early
termination of client contracts or contract penalties could adversely affect
results of operations.
Client
contracts can change or terminate early for a variety of reasons. Change of
control, financial issues, declining general economic conditions or other
changes in client circumstances may cause us or the client to seek to modify or
terminate a contract. Further, either we or the client may generally
terminate a contract for material uncured breach by the other. If we breach
a contract or fail to perform in accordance with contractual service levels, we
may be required to refund money previously paid to us by the client, or to pay
penalties or other damages. Even if we have not breached, we may deal with
various situations from time to time for the reasons described above which may
result in the amendment or termination of a contract. These steps can
result in significant current period charges and/or reductions in current or
future revenue.
Because
in many cases we recognize revenues for our software monthly over the term of a
client contract, downturns or upturns in sales will not be fully reflected in
our operating results until future periods.
We
recognize a significant portion of our revenues from clients monthly over the
terms of their agreements. As a result, much of the revenue that we report each
quarter is attributable to agreements executed during prior quarters.
Consequently, a decline in sales, client renewals, or market acceptance of our
software in one quarter may negatively affect our revenues and profitability in
future quarters. In addition, we may be unable to rapidly adjust our cost
structure to compensate for reduced revenues. This monthly revenue recognition
also makes it more difficult for us to rapidly increase our revenues through
additional sales in any period, as a significant portion of revenues from new
clients or new sales may be recognized over the applicable agreement
term.
Impairment
of intangible assets could increase our expenses.
A
significant portion of our assets consists of intangible assets, including
capitalized development costs, goodwill and other intangibles acquired in
connection with acquisitions. Current accounting standards require us to
evaluate goodwill on an annual basis and other intangibles if certain triggering
events occur, and adjust the carrying value of these assets to net realizable
value when such testing reveals impairment of the assets. Various factors,
including regulatory or competitive changes, could affect the value of our
intangible assets. If we are required to write-down the value of our
intangible assets due to impairment, our reported expenses will increase,
resulting in a corresponding decrease in our reported profit.
Failure
to maintain effective internal controls could adversely affect our operating
results and the market price of our common stock.
Section 404
of the Sarbanes-Oxley Act of 2002 requires that we maintain internal control
over financial reporting that meets applicable standards. If we are unable,
or are perceived as unable, to produce reliable financial reports due to
internal control deficiencies, investors could lose confidence in our reported
financial information and operating results, which could result in a
negative market reaction.
28
Inability
to obtain other financing could limit our ability to conduct necessary
development activities and make strategic investments.
In all
likelihood, we may in the future need to obtain other financing. The
availability of such financing is limited by the tightening of the global credit
markets. Our ability to obtain financing could be impaired if current market
conditions continue or worsen. In addition, if credit is available, lenders
may seek more restrictive lending provisions and higher interest rates that may
reduce our borrowing capacity and increase our costs, which could have a
material adverse effect on our business.
If other
financing is not available on acceptable terms, or at all, we may not be able to
respond adequately to these changes or maintain our business, which could
adversely affect our operating results and the market price of our common stock.
Alternatively, we may be forced to obtain additional financing by selling
equity, and this could be dilutive to our existing stockholders.
RISKS
OF LIABILITY TO THIRD PARTIES
Our
software and content are used by clinicians in the course of treating patients.
If our software fails to provide accurate and timely information or is
associated with faulty clinical decisions or treatment, clients, clinicians or
their patients could assert claims against us that could result in substantial
cost to us, harm our reputation in the industry and cause demand for our
software to decline.
We
provide software and content that provides information and tools for use in
clinical decision-making, provides access to patient medical histories and
assists in creating patient treatment plans. If our software fails to provide
accurate and timely information, or if our content or any other element of our
software is associated with faulty clinical decisions or treatment, we could
have liability to clients, clinicians or their patients. The assertion of such
claims, whether or not valid, and ensuing litigation, regardless of its outcome,
could result in substantial cost to us, divert management’s attention from
operations and decrease market acceptance of our software. We attempt to limit
by contract our liability for damages and to require that our clients assume
responsibility for medical care and approve all system rules and protocols.
Despite these precautions, the allocations of responsibility and limitations of
liability set forth in our contracts may not be enforceable, may not be binding
upon our client’s patients, or may not otherwise protect us from liability for
damages. We maintain general liability and errors and omissions insurance
coverage, but this coverage may not continue to be available on acceptable terms
or may not be available in sufficient amounts to cover one or more large claims
against us. In addition, the insurer might disclaim coverage as to any future
claim. One or more large claims could exceed our available insurance
coverage.
Complex
software such as ours may contain errors or failures that are not detected until
after the software is introduced or updates and new versions are released. It is
challenging for us to envision and test our software for all potential problems
because it is difficult to simulate the wide variety of computing environments,
medical circumstances or treatment methodologies that our clients may deploy or
rely upon. Despite extensive testing by us and clients, from time to time we
have discovered defects or errors in our software, and additional defects or
errors can be expected to appear in the future. Defects and errors that are not
timely detected and remedied could expose us to risk of liability to clients,
clinicians and their patients and cause delays in software introductions and
shipments, result in increased costs and diversion of development resources,
require design modifications or decrease market acceptance or client
satisfaction with our software.
Our
software and software provided by third parties that we include in our offering
could infringe third-party intellectual property rights, exposing us to costs
that could be significant.
Infringement
or invalidity claims or claims for indemnification resulting from infringement
claims could be asserted or prosecuted against us based upon design or use of
software we provide to clients, including software we develop as well as
software provided to us by third parties. Regardless of the validity of any
claims, defending against these claims could result in significant costs and
diversion of our resources, and vendor indemnity might not be available. The
assertion of infringement claims could result in injunctions preventing us from
distributing our software, or require us to obtain a license to the disputed
intellectual property rights, which might not be available on reasonable terms
or at all. We might also be required to indemnify our clients at significant
expense.
29
RISKS
RELATED TO OUR STRATEGIC RELATIONSHIPS AND INITIATIVES
We
depend on licenses from third parties for rights to some of the technology we
use, and if we are unable to continue these relationships and maintain our
rights to this technology, our business could suffer.
We depend
upon licenses for some of the technology used in our software from a number of
third-party vendors. Most of these licenses expire within one to five years, can
be renewed only by mutual consent and may be terminated if we breach the terms
of the license and fail to cure the breach within a specified period of time. We
may not be able to continue using the technology made available to us under
these licenses on commercially reasonable terms or at all. As a result, we may
have to discontinue, delay or reduce software sales until we obtain equivalent
technology, which could hurt our business. Most of our third-party licenses are
non-exclusive. Our competitors may obtain the right to use any of the technology
covered by these licenses and use the technology to compete directly with us. In
addition, if our vendors choose to discontinue support of the licensed
technology in the future or are unsuccessful in their continued research and
development efforts, particularly with regard to Microsoft, we may not be able
to modify or adapt our own software.
Our
software offering often includes modules provided by third parties, and if these
third parties do not meet their commitments, our relationships with our clients
could be impaired.
Some of
the software modules we offer to clients are provided by third parties. We
often rely upon these third parties to produce software that meets our clients’
needs and to implement and maintain that software. If these third parties
are unable or unwilling to fulfill their responsibilities, our relationships
with affected clients could be impaired, and we could be responsible to clients
for the failures. We might not be able to recover from these third parties
for any or all of the costs we incur as a result of their failures.
Any
acquisitions we undertake may be disruptive to our business and could have an
adverse effect on our future operations and the market price of our common
stock.
An
important element of our business strategy has been expansion through
acquisitions and while there is no assurance that we will identify and complete
any future acquisitions, any acquisitions would involve a number of risks,
including the following:
•
|
The
anticipated benefits from the acquisition may not be achieved, including
as a result of loss of customers or personnel of the
target.
|
||
|
•
|
The
identification, acquisition and integration of acquired businesses require
substantial attention from management. The diversion of management’s
attention and any difficulties encountered in the transition process could
hurt our business.
|
|
|
•
|
The
identification, acquisition and integration of acquired businesses
requires significant investment, including to harmonize product and
service offerings, expand management capabilities and market presence, and
improve or increase development efforts and software features and
functions.
|
|
|
•
|
In
future acquisitions, we could issue additional shares of our common stock,
incur additional indebtedness or pay consideration in excess of book
value, which could dilute future earnings.
|
|
|
•
|
Acquisitions
also expose us to the risk of assumed known and unknown
liabilities.
|
|
|
•
|
New
business acquisitions generate significant intangible assets that result
in substantial related amortization charges to us and possible
impairments.
|
RISKS
RELATED TO INDUSTRY REGULATION
Changes
in federal and state regulations relating to patient data could depress the
demand for our software and impose significant software redesign costs on
us.
Clients
use our systems to store and transmit highly confidential patient health
information and data. State and federal laws and regulations and their
foreign equivalents govern the collection, security, use, transmission and other
disclosures of health information. These laws and regulations may change rapidly
and may be unclear, or difficult or costly to apply.
30
Federal
regulations under the Health Insurance Portability and Accountability Act of
1996, or HIPAA, and related laws and regulations, impose national health data
standards on healthcare providers that conduct electronic health transactions,
healthcare clearinghouses that convert health data between HIPAA-compliant and
non-compliant formats, and health plans and entities providing certain services
to these organizations. These standards require, among other things, transaction
formats and code sets for electronic health transactions; protect individual
privacy by limiting the uses and disclosures of individually identifiable health
information; and require covered entities to implement administrative, physical
and technological safeguards to ensure the confidentiality, integrity,
availability and security of individually identifiable health information in
electronic form. Most of our clients are covered by these regulations and
require that our software and services adhere to HIPAA standards, and evolving
privacy regulations are expected to apply to us directly. Any failure or
perception of failure of our software or services to meet HIPAA standards and
related regulations could adversely affect demand for our software and services
and force us to expend significant capital, research and development and other
resources to modify our software or services to address the privacy and security
requirements of our clients.
States in
which we or our clients operate have adopted, or may adopt, privacy standards
that are similar to or more stringent than the federal HIPAA privacy standards.
This may lead to different restrictions for handling individually identifiable
health information. As a result, our clients may demand, and we may be required
to provide information technology solutions and services that are adaptable to
reflect different and changing regulatory requirements which could increase our
development costs. In the future, federal, or state governmental or regulatory
authorities or industry bodies may impose new data security standards or
additional restrictions on the collection, use, transmission and other
disclosures of health information. We cannot predict the potential impact that
these future rules may have on our business. However, the demand for our
software and services may decrease if we are not able to develop and offer
software and services that can address the regulatory challenges and compliance
obligations facing us and our clients.
RISKS
RELATED TO OUR PERSONNEL AND ORGANIZATION
Our
growing operations in India expose us to risks that could have an adverse effect
on our results of operations.
We now
have a significant workforce employed in India engaged in a broad range of
development activities that are integral to our business and critical to our
profitability. This involves significant challenges that are increased by our
lack of prior experience managing operations in India. Further, while there are
certain cost advantages to operating in India, significant growth in the
technology sector in India has increased competition to attract and retain
skilled employees with commensurate increases in compensation costs. In the
future, we may not be able to hire and retain such personnel at compensation
levels consistent with our existing compensation and salary structure. Many of
the companies with which we compete for hiring experienced employees have
greater resources than we have and may be able to offer more attractive terms of
employment. In addition, our operations in India require ongoing capital
investments and expose us to foreign currency fluctuations, which may
significantly reduce or negate any cost benefit anticipated from such
expansion.
In
addition, our reliance on a workforce in India exposes us to disruptions in the
business, political and economic environment in that region. Maintenance of a
stable political environment is important to our operations, and terrorist
attacks and acts of violence or war may directly affect our physical facilities
and workforce or contribute to general instability.
THE
COMPANY CURRENTLY DEPENDS UPON A LIMITED NUMBER OF EMPLOYEES
The Company’s ability to successfully
complete an acquisition depends on the efforts of the Company’s three Directors
and three Officers. Three of the Company’s Directors also serves as,
Officers. The Company has not obtained “key man” life insurance on
any Officers or Directors. If the Company were to lose the services of any
Officer or Director, this could have a material, adverse effect on our ability
to achieve the Company’s business objectives.
One of the Company’s Officers, who also
serves as a Director, Konrad Kim, is also President of KRAD. Therefore, he has
conflicts of interest in allocating management time between the Company and
KRAD. We will rely on Mr. Kim's and our other Officers’ expertise.
31
If
we fail to attract, motivate and retain highly qualified technical, marketing,
sales and management personnel, our ability to execute our business strategy
could be impaired.
Our
success depends, in significant part, upon the continued services of our key
technical, marketing, sales and management personnel, and on our ability to
continue to attract, motivate, afford and retain highly qualified employees.
Competition for these employees is intense and we maintain at-will employment
terms with our employees. In addition, the process of recruiting personnel
with the combination of skills and attributes required to execute our business
strategy can be difficult, time-consuming and expensive. We believe that our
ability to implement our strategic goals depends to a considerable degree on our
senior management team. The loss of any member of that team could hurt our
business.
If
we lose the services of our key personnel, we may be unable to replace them, and
our business, financial condition and results of operations could be adversely
affected.
Our
success largely depends on the continued skills, experience, efforts and
policies of our management and other key personnel and our ability to continue
to attract, motivate and retain highly qualified employees. In particular, the
services of Ray Vuono, our Chairman and Chief Executive Officer, are integral to
the execution of our business strategy. If one or more of our key employees
leaves our employment, we will have to find a replacement with the combination
of skills and attributes necessary to execute our strategy. Because competition
for skilled employees is intense, and the process of finding qualified
individuals can be lengthy and expensive, we believe that the loss of the
services of key personnel could adversely affect our business, financial
condition and results of operations. We cannot assure you that we will continue
to retain such personnel. We do not maintain keyman insurance for any of our key
employees.
RISKS
RELATED TO OUR EQUITY STRUCTURE
Provisions
of our charter documents and Delaware law may inhibit potential acquisition bids
that stockholders may believe are desirable, and the market price of our common
stock may be lower as a result.
Our board
of directors has the authority to issue up to 5,000,000 shares of preferred
stock. Our board of directors can fix the price, rights, preferences, privileges
and restrictions of the preferred stock without any further vote or action by
our stockholders. The issuance of shares of preferred stock may discourage,
delay or prevent a merger or acquisition of our company. The issuance of
preferred stock may result in the loss of voting control to other stockholders.
We have no current plans to issue any shares of preferred stock, but we may use
preferred stock to inhibit a potential acquisition of the company.
We are
also subject to provisions of Section 203 of the Delaware General
Corporation Law which prohibits us from engaging in any business combination
with an interested stockholder for a period of three years from the date the
person became an interested stockholder, unless certain conditions are met.
These provisions make it more difficult for stockholders or potential acquirers
to acquire us without negotiation and may apply even if some of our stockholders
consider the proposed transaction beneficial to them. For example, these
provisions might discourage a potential acquisition proposal or tender offer,
even if the acquisition proposal or tender offer is at a premium over the then
current market price for our common stock. These provisions could also limit the
price that investors are willing to pay in the future for shares of our common
stock.
32
You
should carefully consider the risks and uncertainties described below and other
information in this report. These are not the only risks and uncertainties that
we face. Additional risks and uncertainties that we do not currently know about
or that we currently believe are immaterial may also harm our business
operations. If any of these risks or uncertainties occurs, it could have a
material adverse effect on our business.
INVESTMENT
CONSIDERATIONS AND RISK FACTORS
THE
COMPANY HAS A LIMITED OPERATING HISTORY ON WHICH TO EVALUATE OUR CURRENT
PROSPECTS
The
Company was incorporated in July, 1977. The businesses the Company previously
operated were liquidated in the late 1980s and early 1990s. The Company became a
corporate shell in 1991 and remained a corporate shell through October 31, 2000.
On October 31, the Company acquired KRAD. KRAD began doing business
in February, 2000 and, to date, has had limited revenues. On January 1, 2002,
the Company acquired MedLink, which also had had limited revenues to
date. In May of 2007, the company acquired majority control of
Anywhere MD, Inc. and acquired all the assets of Anywhere MD on Dec 31,
2007. Other than the acquisitions of K-Rad, MedLink, and Anywhere MD
our activities have been very limited.
THE
COMPANY MAY HAVE OUTSTANDING LIABILITIES ABOUT WHICH OUR PRESENT MANAGEMENT IS
UNAWARE
Until
1991, the Company operated in several business lines through at least five
different subsidiaries. The Company’s records are not complete with respect to
all transactions between 1977 and 1991, and very few corporate records exist for
the period 1992 through 1999. The Company understands that during the period
1992 - October, 2000, the Company was dormant and did not engage in any business
activity. While the Company does not believe any material liabilities exist, it
is possible such liabilities do exist. For example, there may be presently
unknown obligations by the Company to pay monies, issue stock or perform
specific actions under a contract. While the Company does not believe
any such liabilities exist, the incomplete record of transactions makes
assurance that none exist impossible.
If
we are unable to successfully integrate businesses we acquire, our ability to
expand our product and service offerings and our customer base may be
limited.
In order
to expand our product and service offerings and grow our business by reaching
new customers, we may continue to acquire businesses that we believe are
complementary. The successful integration of acquired businesses is critical to
our success. Such acquisitions, involve numerous risks, including difficulties
in the assimilation of the operations, services, products and personnel of the
acquired company, the diversion of management’s attention from other business
concerns, entry into markets in which we have little or no direct prior
experience, the potential loss of the acquired company’s key employees and our
inability to maintain the goodwill of the acquired businesses. If we fail to
successfully integrate acquired businesses or fail to implement our business
strategies with respect to these acquisitions, we may not be able to achieve
projected results or support the amount of consideration paid for such acquired
businesses.
The
successful implementation of our acquisition strategy depends on our ability to
identify suitable acquisition candidates, acquire companies on acceptable terms,
integrate their operations and technology successfully with our own and maintain
the goodwill of the acquired business. We are unable to predict whether or when
any prospective acquisition candidate will become available or the likelihood
that any acquisition will be completed. Moreover, in pursuing acquisition
opportunities, we may compete for acquisition targets with other companies with
similar growth strategies. Some of these competitors may be larger and have
greater financial and other resources than we have. Competition for these
acquisition targets could also result in increased prices of acquisition
targets.
33
Our
business depends in part on and will continue to depend in part on our ability
to establish and maintain additional strategic relationships.
To be
successful, we must continue to maintain our existing strategic relationships
and establish additional strategic relationships with leaders in a number of
healthcare and healthcare information technology industry segments. This is
critical to our success because we believe that these relationships contribute
towards our ability to:
•
|
extend
the reach of our products and services to a larger number of physicians
and hospitals and to other participants in the healthcare
industry;
|
||
•
|
develop
and deploy new products and services;
|
||
•
|
further
enhance the MedLink brand; and
|
||
•
|
generate
additional revenue and cash flows.
|
Entering
into strategic relationships is complicated because strategic partners may
decide to compete with us in some or all of our markets. In addition, we may not
be able to maintain or establish relationships with key participants in the
healthcare industry if we conduct business with their competitors. We depend, in
part, on our strategic partners’ ability to generate increased acceptance and
use of our products and services. If we lose any of these strategic
relationships or fail to establish additional relationships, or if our strategic
relationships fail to benefit us as expected, we may not be able to execute our
business plan, and our business, financial condition and results of operations
may suffer.
If
our products fail to perform properly due to undetected errors or similar
problems, our business could suffer.
Complex
software such as ours often contains undetected defects or errors. It is
possible that such errors may be found after introduction of new software or
enhancements to existing software. We continually introduce new solutions and
enhancements to our solutions, and, despite testing by us, it is possible that
errors might occur in our software. If we detect any errors before we introduce
a solution, we might have to delay deployment for an extended period of time
while we address the problem. If we do not discover software errors that affect
our new or current solutions or enhancements until after they are deployed, we
would need to provide enhancements to correct such errors. Errors in our
software could result in:
•
|
harm
to our reputation;
|
||
•
|
lost
sales;
|
||
•
|
delays
in commercial release;
|
||
•
|
product
liability claims;
|
||
•
|
delays
in or loss of market acceptance of our solutions;
|
||
•
|
license
terminations or renegotiations; and
|
||
•
|
unexpected
expenses and diversion of resources to remedy
errors.
|
Furthermore,
our customers might use our software together with products from other
companies. As a result, when problems occur, it might be difficult to identify
the source of the problem. Even when our software does not cause these problems,
the existence of these errors might cause us to incur significant costs, divert
the attention of our technical personnel from our solution development efforts;
impact our reputation and cause significant customer relations
problems.
Our
future success depends upon our ability to grow, and if we are unable to manage
our growth effectively, we may incur unexpected expenses and be unable to meet
our customers’ requirements.
We will
need to expand our operations if we successfully achieve market acceptance for
our products and services. We cannot be certain that our systems, procedures,
controls and existing space will be adequate to support expansion of our
operations. Our future operating results will depend on the ability of our
officers and key employees to manage changing business conditions and to
implement and improve our technical, administrative, financial control and
reporting systems. We may not be able to expand and upgrade our systems and
infrastructure to accommodate these increases. Difficulties in managing any
future growth could have a significant negative impact on our business,
financial condition and results of operations because we may incur unexpected
expenses and be unable to meet our customers’ requirements.
34
The
market for our products and services is fragmented, intensely competitive and is
characterized by rapidly evolving industry standards, technology and user needs
and the frequent introduction of new products and services. Some of our
competitors may be more established, benefit from greater name recognition and
have substantially greater financial, technical and marketing resources than us.
Moreover, we expect that competition will continue to increase as a result of
consolidation in both the information technology and healthcare industries. If
one or more of our competitors or potential competitors were to merge or partner
with one of our competitors, the change in the competitive landscape could
adversely affect our ability to compete effectively. We compete on the basis of
several factors, including:
•
|
breadth
and depth of services;
|
||
|
•
|
reputation;
|
|
|
•
|
reliability,
accuracy and security;
|
|
|
•
|
client
service;
|
|
|
•
|
price;
and
|
|
|
•
|
industry
expertise and experience.
|
There can
be no assurance that we will be able to compete successfully against current and
future competitors or that the competitive pressures that we face will not
materially adversely affect our business, financial condition and results of
operations.
If
we are deemed to infringe on the proprietary rights of third parties, we could
incur unanticipated expense and be prevented from providing our products and
services.
We could
be subject to intellectual property infringement claims as the number of our
competitors grows and our applications’ functionality overlaps with competitive
products. While we do not believe that we have infringed or are infringing on
any proprietary rights of third parties, we cannot assure you that infringement
claims will not be asserted against us or that those claims will be
unsuccessful. We could incur substantial costs and diversion of management
resources defending any infringement claims. Furthermore, a party making a claim
against us could secure a judgment awarding substantial damages, as well as
injunctive or other equitable relief that could effectively block our ability to
provide products or services. In addition, we cannot assure you that licenses
for any intellectual property of third parties that might be required for our
products or services will be available on commercially reasonable terms, or at
all.
Factors
beyond our control could cause interruptions in our operations, which would
adversely affect our reputation in the marketplace and our business, financial
condition and results of operations.
To
succeed, we must be able to operate our systems without interruption. Certain of
our communications and information services are provided through our third-party
service providers. Our operations are vulnerable to interruption by damage from
a variety of sources, many of which are not within our control, including
without limitation: (1) power loss and telecommunications failures;
(2) software and hardware errors, failures or crashes; (3) computer
viruses and similar disruptive problems; and (4) fire, flood and other
natural disasters.
Any
significant interruptions in our services would damage our reputation in the
marketplace and have a negative impact on our business, financial condition and
results of operations.
We
may be liable for use of data we provide.
We
provide data for use by healthcare providers in treating patients. Third-party
contractors provide us with most of this data. If this data is incorrect or
incomplete, adverse consequences, including death, may occur and give rise to
product liability and other claims against us. In addition, certain of our
solutions provide applications that relate to patient clinical information, and
a court or government agency may take the position that our delivery of health
information directly, including through licensed practitioners, or delivery of
information by a third party site that a consumer accesses through our websites,
exposes us to personal injury liability, or other liability for wrongful
delivery or handling of healthcare services or erroneous health information.
While we maintain product liability insurance coverage in an amount that we
believe is sufficient for our business, we cannot assure you that this coverage
will prove to be adequate or will continue to be available on acceptable terms,
if at all. A claim brought against us that is uninsured or under-insured could
harm our business, financial condition and results of operations. Even
unsuccessful claims could result in substantial costs and diversion of
management resources.
35
If
we do not maintain and expand our business with our existing customers, our
business, financial condition and results of operations could be adversely
affected.
Our
business model depends on the success of our efforts to sell additional products
and services to our existing customers. In addition, as we deploy new
applications and features for our existing solutions or introduce new solutions
and services, our current customers could choose not to purchase these new
offerings. If we fail to generate additional business from our current
customers, our revenue could grow at a slower rate or even
decrease.
Risks
Related to Our Industry
We
are subject to a number of existing laws, regulations and industry initiatives,
non-compliance with certain of which could shut down our operations or otherwise
adversely affect our business, financial condition and results of operations,
and we are susceptible to a changing regulatory environment.
As a
participant in the healthcare industry, our operations and relationships, and
those of our customers, are regulated by a number of federal, state and local
governmental entities. The impact of this on us is direct, to the extent we are
ourselves subject to these laws and regulations, and is also indirect in that,
in a number of situations, even though we may not be directly regulated by
specific healthcare laws and regulations, our products must be capable of being
used by our customers in a manner that complies with those laws and regulations.
Inability of our customers to do so could affect the marketability of our
products or our compliance with our customer contracts, or even expose us to
direct liability on a theory that we had assisted our customers in a violation
of healthcare laws or regulations. Because our business relationships with
physicians are unique, and the healthcare technology industry as a whole is
relatively young, the application of many state and federal regulations to our
business operations and to our customers is uncertain. Indeed, there are federal
and state fraud and abuse laws, including anti-kickback laws and limitations on
physician referrals. It is possible that a review of our business practices or
those of our customers by courts or regulatory authorities could result in a
determination that could adversely affect us. In addition, the healthcare
regulatory environment may change in a way that restricts our existing
operations or our growth. The healthcare industry is expected to continue to
undergo significant changes for the foreseeable future, which could have an
adverse effect on our business, financial condition and results of operations.
We cannot predict the effect of possible future legislation and
regulation.
Specific
risks include, but are not limited to, risks relating to:
•
|
Patient
Information. As part of the operation of our business, our
customers provide to us patient-identifiable medical information related
to the prescription drugs that they prescribe and other aspects of patient
treatment. Government and industry legislation and rulemaking, especially
the Health Insurance Portability and Accountability Act of 1996 (HIPAA),
and standards and requirements published by industry groups such as the
Joint Commission on Accreditation of Healthcare Organizations, require the
use of standard transactions, standard identifiers, security
and other standards and requirements for the transmission of certain
electronic health information. National standards and procedures under
HIPAA include the “Standards for Electronic
Transactions and Code Sets” (the Transaction Standards); the “Security Standards”
(the Security Standards); and the “Standards for Privacy of
Individually Identifiable Health Information” (the Privacy
Standards). The Transaction Standards require the use of specified data
coding, formatting and content in all specified “Health Care Transactions”
conducted electronically. The Security Standards require the adoption of
specified types of security for healthcare information. The Privacy
Standards grant a number of rights to individuals as to their identifiable
confidential medical information (called Protected Health Information) and
restrict the use and disclosure of Protected Health Information by Covered
Entities, defined as “health care providers, health care payers, and
health care clearinghouses.” Generally, the HIPAA standards directly
affect Covered Entities. We have reviewed our activities and believe that
we are a Covered Entity to the extent that we maintain a “group health
plan” for the benefit of our employees. Such a plan, even if not a
separate legal entity from us as its sponsor, is included in the HIPAA
definition of Covered Entities. We have taken steps we believe to be
appropriate and required to bring our group health plan into compliance
with HIPAA. We do not believe that we are a Covered Entity as a health
care provider or as a health care clearinghouse; however, the definition
of a health care clearinghouse is broad and we cannot offer any assurance
that we could not be considered a health care clearinghouse under HIPAA or
that, if we are determined to be a healthcare clearinghouse; the
consequences would not be adverse to our business, financial condition and
results of operations. In addition, the Privacy and Security Standards
affect third parties that create, access, or receive Protected Health
Information in order to perform a function or activity on behalf of a
Covered Entity. Such third parties are called “Business Associates.”
Covered Entities must have a written “Business Associate Agreement” with
such third parties, containing specified written satisfactory assurances,
consistent with the Privacy and Security standards, that the third party
will safeguard Protected Health Information that it creates or accesses
and will fulfill other material obligations to support the Covered
Entity’s own HIPAA compliance. Most of our customers are Covered Entities,
and we function in many of our relationships as a Business Associate of
those customers. We would face liability under our Business Associate
Agreements if we do not comply with our Business Associate obligations. In
addition, the federal agencies with enforcement authority have taken the
position that a Covered Entity can be subject to HIPAA civil penalties and
sanctions for a breach of a Business Associate Agreement. The penalties
for a violation of HIPAA by a Covered Entity are significant and could
have an adverse impact upon our business, financial condition and results
of operations, if such penalties ever were imposed. Additionally, Covered
Entities will be required to adopt a unique standard National Provider
Identifier (NPI) for use in filing and processing health care claims and
other transactions. Subject to the discussion set forth above, we believe
that the principal effects of HIPAA are, first, to require that our
systems be capable of being operated by our customers in a manner that is
compliant with the various HIPAA standards and, second, to require us to
enter into and comply with Business Associate Agreements with our Covered
Entity customers. For most Covered Entities, the deadlines for compliance
with the Privacy Standards and the Transaction Standards occurred in 2003.
Covered Entities, with the exception of small health plans (as that term
is defined by the Privacy Standards), were required to be in compliance
with the Security Standards by April 20, 2005 and to use NPIs in
standard transactions no later than the compliance dates, which are
May 23, 2007 for all but small health plans and one year later for
small health plans. We have policies and procedures that we believe assure
compliance with all federal and state confidentiality requirements for the
handling of Protected Health Information that we receive and with our
obligations under Business Associate Agreements. In particular, we believe
that our systems and products are capable of being used by our customers
in compliance with the Transaction Standards and Security Standards and
are, or will be, capable of being used by our customers in compliance with
the NPI requirements. If, however, we do not follow those procedures and
policies, or they are not sufficient to prevent the unauthorized
disclosure of Protected Health Information, we could be subject to
liability, fines and lawsuits, termination of our customer contracts or
our operations could be shut down. Moreover, because all HIPAA Standards
are subject to change or interpretation and because certain other HIPAA
Standards, not discussed above, are not yet published, we cannot predict
the full future impact of HIPAA on our business and operations. In the
event that the HIPAA standards and compliance requirements change or are
interpreted in a way that requires any material change to the way in which
we do business, our business, financial condition and results of
operations could be adversely affected. Additionally, certain state laws
are not preempted by HIPAA and may impose independent obligations upon our
customers or us. Additional legislation governing the acquisition, storage
and transmission or other dissemination of health record information and
other personal information, including social security numbers, has been
proposed at both the state and federal level. Such legislation may require
holders of such information to implement additional security, reporting or
other measures that may require substantial expenditures and may impose
liability for a failure to comply with such requirements. In many cases,
such proposed state legislation includes provisions that are not preempted
by HIPAA. There can be no assurance that changes to state or federal laws
will not materially restrict the ability of providers to submit
information from patient records using our products and
services.
|
36
|
•
|
Electronic
Prescribing. The use of our software by physicians to perform a
variety of functions, including electronic prescribing, electronic routing
of prescriptions to pharmacies and dispensing, is governed by state and
federal law, including fraud and abuse laws. States have differing
prescription format requirements, which we have programmed into our
software. Many existing laws and regulations, when enacted, did not
anticipate methods of e-commerce now being developed. While federal law
and the laws of many states permit the electronic transmission of
prescription orders, the laws of several states neither specifically
permit nor specifically prohibit the practice. Given the rapid growth of
electronic transactions in healthcare, and particularly the growth of the
Internet, we expect the remaining states to directly address these areas
with regulation in the near future. In addition, on November 7, 2005,
the Department of Health and Human Services published its final
“E-Prescribing and the Prescription Drug Program” regulations
(E-Prescribing Regulations). These regulations are required by the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA) and became effective beginning on January 1, 2006. The
E-Prescribing Regulations consist of detailed standards and requirements,
in addition to the HIPAA standards discussed above, for prescription and
other information transmitted electronically in connection with a drug
benefit covered by the MMA’s Prescription Drug Benefit. These standards
cover not only transactions between prescribers and dispensers for
prescriptions but also electronic eligibility and benefits inquiries and
drug formulary and benefit coverage information. The standards apply to
prescription drug plans participating in the MMA’s Prescription Drug
Benefit. Aspects of our clinical products are affected by such regulation
because of the need of our customers to comply, as discussed above.
Compliance with these regulations could be burdensome, time-consuming and
expensive. We also could become subject to future legislation and
regulations concerning the development and marketing of healthcare
software systems. For example, regulatory authorities such as the U.S.
Department of Health and Human Services’ Center for Medicare and Medicaid
Services may impose functionality standards with regard to electronic
prescribing and EHR technologies. These could increase the cost and time
necessary to market new services and could affect us in other respects not
presently foreseeable.
|
|
•
|
Electronic
Health Records.
A number of important federal and state laws govern the use and
content of electronic health record systems, including fraud and abuse
laws that may affect the donation of such technology. As a company that
provides EHR systems to a variety of providers of healthcare, our systems
and services must be designed in a manner that facilitates our customers’
compliance with these laws. Because this is a topic of increasing state
and federal regulation, we must continue to monitor legislative and
regulatory developments that might affect our business practices as they
relate to EHR systems. We cannot predict the content or effect of possible
future regulation on our business
practices.
|
If
the electronic healthcare information market fails to develop as quickly as
expected, our business, financial condition and results of operations will be
adversely affected.
The
electronic healthcare information market is in the early stages of development
and is rapidly evolving. A number of market entrants have introduced or
developed products and services that are competitive with one or more components
of the solutions we offer. We expect that additional companies will continue to
enter this market. In new and rapidly evolving industries, there is significant
uncertainty and risk as to the demand for, and market acceptance of, recently
introduced products and services. Because the markets for our products and
services are new and evolving, we are not able to predict the size and growth
rate of the markets with any certainty. We cannot assure you that markets for
our products and services will develop or that, if they do, they will be strong
and continue to grow at a sufficient pace. If markets fail to develop, develop
more slowly than expected or become saturated with competitors, our business,
financial condition and results of operations will be adversely
affected.
Consolidation
in the healthcare industry could adversely affect our business, financial
condition and results of operations.
Many
healthcare industry participants are consolidating to create integrated
healthcare delivery systems with greater market power. As provider networks and
managed care organizations consolidate, thus decreasing the number of market
participants, competition to provide products and services like ours will become
more intense, and the importance of establishing relationships with key industry
participants will become greater. These industry participants may try to use
their market power to negotiate price reductions for our products and services.
Further, consolidation of management and billing services through integrated
delivery systems may decrease demand for our products. If we were forced to
reduce our prices, our business would become less profitable unless we were able
to achieve corresponding reductions in our expenses
37
WE
HAVE LIMITED RESOURCES AND LIMITED REVENUES
We have limited resources. At the
present time, our only source of revenue is MedLink, which has not generated any
significant revenues. In addition, there can be no assurance that we will obtain
significant revenues through the acquisition of other companies or that the
Company will be able to operate on a profitable basis.
THE
COMPANY HAS INCURRED LOSSES SINCE IT BEGAN ITS OPERATIONS IN 2001 AND EXPECTS TO
CONTINUE TO INCUR LOSSES FOR THE FORESEEABLE FUTURE WHICH RAISES DOUBTS ABOUT
OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent auditor prepared a
report for the Company’s financial statements for the year ended December 31,
2009. The report states we might not be able to continue as a going concern. A
“going-concern” opinion indicates that the financial statements are prepared
assuming the business will continue as a going-concern, but there can be no
guarantee that it will continue as a going concern.
If we are unable to curb our losses and
achieve profitability we have substantial doubts about our ability to continue
as a going concern unless we can raise additional capital, all of which there
can be no assurance.
THE
COMPANY MAY NEED ADDITIONAL FINANCING IN ORDER TO EXECUTE ITS BUSINESS
PLAN
The Company has had limited revenues to
date. The Company will be entirely dependent on its limited financial resources
to seek additional acquisitions and run and grow the businesses of
MedLink. For this reason, the acquisitions of KRAD and MedLink were
paid in common stock. There can be no assurance that other potential
acquisition candidates will not require payment in cash. The Company cannot,
therefore, ascertain, with any certainty, what will be the precise capital
requirements for successful execution of its business plan. If the Company’s
limited resources prove insufficient to implement our plan, due, for example, to
the size of the acquisition, the Company may have to seek additional financing.
Even if the Company is successful in completing an acquisition, it may require
additional financing for operations or our business growth.
ADDITIONAL
FINANCING MAY NOT BE AVAILABLE TO THE COMPANY
There can be no assurance additional
financing will be available on acceptable terms. It may not be available at all.
Additional financing is likely to be necessary and if unavailable when needed,
the Company may have to abandon certain of its plans. Any failure to secure
necessary, additional financing would have a material adverse effect on
continued development and/or growth of the Company’s businesses.
There are no current limitations on the
Company’s ability to borrow funds to increase the Company’s capital to assist
MedLink or to effect acquisition(s). However, the Company’s limited resources
and lack of operating history will make it difficult to borrow funds. The amount
and nature of the Company’s borrowings will depend on, among other things, the
Company’s capital requirements, and perceived ability to meet debt service on
borrowings and prevailing financial market and economic conditions. There can be
no assurance that debt financing, if sought, would be available on commercially
acceptable terms, given the best interests of the Company’s business. An
inability to borrow funds to acquire companies or to generate funds for the
Company’s businesses could have a material, adverse effect on the Company’s
financial condition and future prospects. Even if debt financing is ultimately
available, borrowings may subject the Company to risks associated with
indebtedness. These risks would include, among other things, interest rate
fluctuations and insufficiency of cash flow to pay principal and interest. If
these risks were realized, they could lead to a default. Moreover, if a company
the Company acquires already has borrowings, we might become liable for
them.
THE
COMPANY EXPECTS THAT ITS ACCOUNTING FOR STOCK OPTIONS AND SHARE-BASED PAYMENTS
TO EMPLOYEES WILL HAVE A MATERIAL ADVERSE AFFECT UPON ITS OPERATING
RESULTS
The
Company expects that accounting for employee stock options using the fair value
method will have a material impact on its consolidated results of operations and
earnings per share. The FASB has
issued SFAS 123R, which will require the Company to recognize, in its
financial statements, all share-based payments to its employees, including
grants of employee stock options, based on their fair values beginning with the
first quarter of 2007. The Company expects that the adoption of SFAS 123R
will have a material impact on the Company’s consolidated results of operations
and earnings per share. The Company cannot predict what effect the increase in
its net loss or reduction in its net income, if any, may have on the market
prices of the Company’s securities.
38
SINCE
THE COMPANY PROVIDES SOFTWARE SOLUTIONS TO HEALTHCARE PROVIDERS, THE COMPANY MAY
BE SUBJECT TO LIABILITIES FOR ITS PRODUCT MALFUNCTIONS OR SYSTEM
ERRORS
Many of
the Company’s software solutions provide data for use by healthcare providers in
providing care to patients. Although no such claims have been brought against
the Company to date regarding injuries related to the use of its software
solutions, such claims may be made in the future. Although the Company maintains
product liability insurance coverage in an amount that it believes is sufficient
for its business, there can be no assurance that such coverage will cover a
particular claim that may be brought in the future, prove to be adequate or that
such coverage will continue to remain available on acceptable terms, if at
all.
The
Company’s systems are very complex. As with complex systems offered by others,
the Company’s systems may contain errors, especially when first introduced.
Although the Company conducts extensive testing, it has discovered software
errors in its software solutions after their introduction. The Company’s systems
are intended for use in collecting and displaying clinical information used in
the diagnosis and treatment of patients. Therefore, users of the Company
software solutions have a greater sensitivity to system errors than the market
for software products generally. Failure of a client’s system to meet these
criteria could constitute a material breach under such contracts allowing the
client to cancel the contract and obtain a refund and/or damages, or could
require the Company to incur additional expense in order to make the system meet
these criteria. The Company’s contracts with its clients generally limit the
Company’s liability arising from such claims but such limits may not be
enforceable in certain jurisdictions or circumstances.
A
successful claim brought against the Company, which claim is uninsured or
under-insured, could materially harm the Company’s business, results of
operations or financial condition.
ANY
ACQUISITIONS THE COMPANY MAKES COULD RESULT IN DILUTION TO EXISTING STOCKHOLDERS
AND COULD BE DIFFICULT TO INTEGRATE WHICH COULD CAUSE DIFFICULTIES IN MANAGING
THE COMPANY’S BUSINESS, RESULTING IN A DECREASE TO THE VALUE OF THE COMPANY’S
STOCKHOLDERS INVESTMENT
The
Company believes that it will need to make strategic acquisitions of other
businesses in order to achieve growth and profitability. Evaluating acquisition
targets is difficult and acquiring other businesses involves risk. The
consummation of the acquisition of other businesses would subject the Company to
a number of risks, including the following:
|
-
|
difficulty
in integrating the acquired operations and retaining acquired
personnel;
|
- limitations
on the Company’s ability to retain acquired sales and distribution channels and
customers;
|
-
|
diversion
of management's attention and disruption of the Company’s ongoing
business; and
|
- limitations
on the Company’s ability to incorporate acquired technology and rights into its
product offerings and maintain uniform standards, controls, procedures and
policies.
Furthermore,
the Company may incur indebtedness or issue equity securities to pay for future
acquisitions. The issuance of equity or convertible debt securities would be
dilutive to the Company’s then existing stockholders.
THE
COMPANY DOES NOT EXPECT TO PAY CASH DIVIDENDS
The Company does not expect to pay
dividends on the common stock. Payment of dividends, if any, will depend on the
Company’s revenues and earnings. It will also depend on capital requirements and
the Company’s general financial condition. Payment of dividends, if any, will be
within the Board of Directors' discretion. The Company presently intends to
retain all earnings, if any, for use in its business operations. Accordingly,
the Company’s Board does not anticipate declaring dividends in the foreseeable
future.
39
THE
COMPANY’S STOCK PRICE MAY BE VOLATILE
The
trading price of the Company’s common stock may be volatile. The market for the
Company’s common stock may experience significant price and volume fluctuations
in response to a number of factors including actual or anticipated quarterly
variations in operating results, rumors about the Company’s performance or
software solutions, changes in expectations of future financial performance,
governmental regulatory action, healthcare reform measures, client relationship
developments, changes occurring in the securities markets in general and other
factors, many of which are beyond the Company’s control.
Furthermore,
the stock market in general, and the market for software and healthcare and
information technology companies in particular, has experienced extreme
volatility that often has been unrelated to the operating performance of
particular companies. These broad market and industry fluctuations may adversely
affect the trading price of the Company’s common stock, regardless of actual
operating performance.
THERE
EXIST RISKS TO STOCKHOLDERS RELATING TO DILUTION: AUTHORIZATION OF ADDITIONAL
SECURITIES AND REDUCTION OF PERCENTAGE SHARE OWNERSHIP FOLLOWING AN ACQUISITION
OR OTHER TRANSACTION IN WHICH THE COMPANY ISSUES STOCK
The
Company’s certificate of incorporation authorizes the issuance of 200,000,000
shares of Common Stock. The Company may issue a substantial number of
shares in connection with or following acquisition transactions.
If the
Company issues a substantial number of shares of common stock in connection
with, or following, an acquisition, a change in control may
occur. This could affect, among other things, the Company’s ability
to utilize net operating loss carry forwards, if any. The issuance of a
substantial number of shares of common stock may adversely affect the prevailing
market price, if any, for the common stock. It could also impair the Company’s
ability to raise additional capital through the sale of equity
securities.
The
Company uses and intends to continue using stock and options, in lieu of cash,
which presently is not available, to compensate its employees, consultants and
third parties who provide services. Some employees, consultants or third parties
have been and will be paid in cash, stock, options or other of our securities.
This could result in a substantial, additional dilution to
investors.
WE
MAY NOT BE ABLE TO COMPLY WITH THE SARBANES-OXLEY ACT
The
enactment of the Sarbanes-Oxley Act in July 2002 created a significant number of
new corporate governance requirements and additional requirements may be enacted
in the future. Although we expect to implement the requisite changes
to become compliant with existing and new requirements when they do apply to us,
we may not be able to do so, or to do so in a timely manner.
IN
THE EVENT THE SEC REVIEWS OUR FORM 10-K AND CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED THEREIN, IT MAY BE DETERMINED THAT INFORMATION DISCLOSED THEREIN MUST
BE AMENDED
In the
event that the SEC determines to review our financial statements the SEC Staff
may determine that information contained therein must be modified, removed or
amended, in whole or in part, including but not limited to, certain accounting
issues and treatments, which could result in the restatement and/or adjustment
of our financial statements for the years ended December 31, 2009 and December
31, 2008. In the event we are required to make any such modifications,
removals or amendments, including but not limited to, accounting adjustments,
reclassifications and/or write-downs of a material amount of our assets, our
results of operations for the restated periods could be materially adversely
affected and our financial condition could be adversely
affected.
THERE
ARE LIMITATIONS IN CONNECTION WITH THE AVAILABILITY OF QUOTES AND ORDER
INFORMATION ON THE OTCBB
Trades
and quotations on the OTCBB involve a manual process and the market information
for such securities cannot be guaranteed. In addition, quote information, or
even firm quotes, may not be available. The manual execution process may delay
order processing and intervening price fluctuations may result in the failure of
a limit order to execute or the execution of a market order at a significantly
different price. Execution of trades, execution reporting and the delivery of
legal trade confirmation may be delayed significantly. Consequently, one may not
able to sell shares of our common stock at the optimum trading
prices.
40
THERE
ARE DELAYS IN ORDER COMMUNICATION ON THE OTCBB
Electronic
processing of orders is not available for securities traded on the OTCBB and
high order volume and communication risks may prevent or delay the execution of
one's OTCBB trading orders. This lack of automated order processing may affect
the timeliness of order execution reporting and the availability of firm quotes
for shares of our common stock. Heavy market volume may lead to a delay in the
processing of OTCBB security orders for shares of our common stock, due to the
manual nature of the market. Consequently, one may not able to sell shares of
our common stock at the optimum trading prices.
PENNY
STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF OUR
SECURITIES
The SEC
has adopted regulations which generally define a “penny stock” to be any equity
security that has a market price (as defined) of less than $5.00 per share or an
exercise price of less than $5.00 per share, subject to certain
exceptions. As a result, our shares of common stock are subject to
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established clients and “accredited
investors”. For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior to
the transaction, of a risk disclosure document mandated by the SEC relating to
the penny stock market. The broker-dealer must also disclose the
commission payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. Consequently,
the “penny stock” rules may restrict the ability of broker-dealers to sell our
shares of common stock and may affect the ability of investors to sell such
shares of common stock in the secondary market and the price at which such
investors can sell any of such shares.
Investors
should be aware that, according to the SEC, the market for penny stocks has
suffered in recent years from patterns of fraud and abuse. Such
patterns include:
|
-
|
control
of the market for the security by one or a few broker-dealers that are
often related to the promoter or
issuer;
|
|
-
|
manipulation
of prices through prearranged matching of purchases and sales and false
and misleading press releases;
|
|
-
|
“boiler
room” practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales
persons;
|
|
-
|
excessive
and undisclosed bid-ask differentials and markups by selling
broker-dealers; and
|
|
-
|
the
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with the
inevitable collapse of those prices with consequent investor
losses.
|
Our
management is aware of the abuses that have occurred historically in the penny
stock market.
THERE
IS A RISK OF MARKET FRAUD
OTCBB
securities are frequent targets of fraud or market manipulation. Not
only because of their generally low price, but also because the OTCBB reporting
requirements for these securities are less stringent than for listed or NASDAQ
traded securities, and no exchange requirements are imposed. Dealers may
dominate the market and set prices that are not based on competitive
forces. Individuals or groups may create fraudulent markets and
control the sudden, sharp increase of price and trading volume and the equally
sudden collapse of the market price for shares of our common stock.
41
THERE
IS LIMITED LIQUIDITY ON THE OTCBB
When
fewer shares of a security are being traded on the OTCBB, volatility of prices
may increase and price movement may outpace the ability to deliver accurate
quote information. Due to lower trading volumes in shares of our
common stock, there may be a lower likelihood of one's orders for shares of our
common stock being executed, and current prices may differ significantly from
the price one was quoted by the OTCBB at the time of one's order
entry.
THERE
IS A LIMITATION IN CONNECTION WITH THE EDITING AND CANCELING OF ORDERS ON THE
OTCBB
Orders
for OTCBB securities may be canceled or edited like orders for other securities.
All requests to change or cancel an order must be submitted to, received and
processed by the OTCBB. Due to the manual order processing involved in handling
OTCBB trades, order processing and reporting may be delayed, and one may not be
able to cancel or edit one's order. Consequently, one may not able to sell
shares of our common stock at the optimum trading prices.
INCREASED
DEALER COMPENSATION COULD ADVERSELY AFFECT THE STOCK PRICE
The
dealer's spread (the difference between the bid and ask prices) may be large and
may result in substantial losses to the seller of shares of our common stock on
the OTCBB if the stock must be sold immediately. Further, purchasers
of shares of our common stock may incur an immediate "paper" loss due to the
price spread. Moreover, dealers trading on the OTCBB may not have a
bid price for shares of our common stock on the OTCBB. Due to the
foregoing, demand for shares of our common stock on the OTCBB may be decreased
or eliminated.
SHARES
ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET
From time
to time, certain of our stockholders may be eligible to sell all or some of
their shares of common stock by means of ordinary brokerage transactions in the
open market pursuant to Rule 144, promulgated under the Securities Act of 1933
(Securities Act), subject to certain limitations. In general, pursuant to Rule
144, a stockholder (or stockholders whose shares are aggregated) who has
satisfied a one-year holding period may, under certain circumstances, sell
within any three-month period a number of securities which does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume of the class during the four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, the sale of
securities, without any limitation, by our stockholders that are non-affiliates
that have satisfied a two-year holding period. Any substantial sale of our
common stock pursuant to Rule 144 or pursuant to any resale prospectus may have
material adverse effect on the market price of our securities.
DIRECTOR
AND OFFICER LIABILITY IS LIMITED
As
permitted by Delaware law, our certificate of incorporation limits the liability
of our directors for monetary damages for breach of a director's fiduciary duty
except for liability in certain instances. As a result of our charter
provision and Delaware law, stockholders may have limited rights to recover
against directors for breach of fiduciary duty. In addition, our
certificate of incorporation provides that we shall indemnify our directors and
officers to the fullest extent permitted by law.
Not
Applicable
42
We
believe that our offices and other facilities are in good operating condition
and adequate for our current operations and that additional leased space can be
obtained on acceptable terms if needed.
Headquarters
We lease
our corporate headquarters offices in Ronkonkoma, New York, which consists of
approximately 7,400 square feet of space, under a lease that expires in
February, 2014.
Additional
Locations
MedLink
leases additional 3,000 square feet of office space in Hyderabad, India, this
office is leased on a year to year basis with monthly lease payments of $525
with the lease expiring and renewable in May of each year.
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
adversely affect our financial position, results of operations or
liquidity.
During
the Calendar year of 2009 there was no submission of matter to a vote by the
Company’s shareholders
Part II
The
Company's common equity is quoted in the National Association of Securities
Dealers over-the-counter Bulletin Board under the symbol
MLKNA.OB. The high and low sales prices of the Company's common stock
for each quarter within the last two fiscal years are set forth
below. On August 15, 2001, the Company’s common stock was authorized
for quotation on the over-the-counter Bulletin Board after being delisted in
2000. At most times during the last two fiscal years, trades in the
Company’s common stock were sporadic and therefore, published prices may not
represent a liquid and active trading market which would be indicative of any
meaningful market value.
Period
|
High
|
Low
|
1st
Quarter 2008
|
$1.50
|
$0.71
|
2nd
Quarter 2008
|
$1.25
|
$0.71
|
3rd
Quarter 2008
|
$1.76
|
$0.50
|
4th
Quarter 2008
|
$2.00
|
$0.65
|
1st
Quarter 2009
|
$1.00
|
$0.35
|
2nd
Quarter 2009
|
$0.90
|
$0.45
|
3rd
Quarter 2009
|
$1.00
|
$0.53
|
4th
Quarter 2009
|
$0.65
|
$0.43
|
1st
Quarter 20010
|
$1.67
|
$0.35
|
43
The above
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The source of
the above quotations is Yahoo Finance.
The
Company also has a secondary listing for its class A common shares on the
Berlin-Bremen stock exchange and trades under the symbol WM6A, and has a trading
platform for its Class B common shares that trades under the symbol WM6B on the
Frankfurt Stock Exchange, Xetra and Berlin Bremen Stock Exchanges.
As of
December 31, 2009 there were 992 holders of record of our Class A commons stock
in addition to those who hold shares in street name.
As of
December 31, 2009 there were 0 holders of record of our Class B common stock in
addition to those who hold shares in street name.
No
dividends have been declared by the Company during the last two fiscal
years. There are no restrictions which affect or are likely to affect
the Company's ability to pay dividends in the future. The Company
intends to retain its future earnings, if any, for reinvestment into the
Company.
Equity Compensation Plan
Information
The
following table contains information concerning the Company's only existing
equity compensation plans which cover certain officers, employees and
consultants. Each of the officers and consultants entered into an
agreement with the Company for the provision of services which obligates the
Company to pay option compensation.
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance
|
(a)
|
(b)
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|||
Equity
compensation plans not approved by security holders (1)
|
1,152,964
(1,2)
1,000,000
(1)
4,000,000(3)
200,000
(4)
|
$0.30
$0.85
$0.51
$0.51
|
16,000,000
(3)
|
Total
|
6,352,964
|
16,000,000
|
(1) On
January 1, 2006, the Company entered into an employment agreement with Mr. Vuono
for him to serve as the Company’s Chief Executive Officer. The term
of the agreement is for five years and it provides for a salary of $187,190 in
cash compensation. Mr Vuono has agreed to accept shares in lieu of
his salary which amounted to 1,376,400 shares in 2008. In January of
2007, the board of Directors approved a 20% raise in Mr. Vuono’s salary which
Mr. Vuono has the option to take in stock compensation lieu of
cash. Pursuant to the employment agreement Mr. Vuono is to receive
480,000 options of the Company’s common stock on the first business day of the
year at an exercise price equal to the fair market value of the Company’s common
stock on that date. The options are to have a ten-year
term. The common stock and options each have a two year vesting
period during which they will be forfeited if Mr. Vuono is terminated for cause
or leaves the Company prior to the end of the term. The vesting
period is accelerated in the event of a change in control of the
Company.
44
On
January 1, 2006, the Company entered into an employment agreement with Mr. Rose
for him to serve as the Company’s Chief Financial Officer. The term
of the agreement is for five years and it provides for a salary of $158,400 in
cash compensation. Mr. Rose has agreed to accept shares in lieu of
his salary which amounted to 1,164,707 shares in 2008. In January of
2007, the board of Directors approved a 20% raise in Mr. Rose’s salary which Mr.
Rose has the option to take in stock compensation lieu of
cash. Pursuant to the employment agreement Mr. Rose is to receive
400,000 options of the Company’s common stock on the first business day of the
year at an exercise price equal to the fair market value of the Company’s common
stock on that date. The options are to have a ten-year
term. The common stock and options each have a two year vesting
period during which they will be forfeited if Mr. Rose is terminated for cause
or leaves the Company prior to the end of the term. The vesting
period is accelerated in the event of a change in control of the
Company.
On
January 1, 2006, the Company entered into an employment agreement with Mr. Kim
for him to serve as the Company’s Chief Technology Officer. The term
of the agreement is for five years and it provides for a salary of $46,080 in
cash compensation. Mr. Kim has agreed to accept shares in lieu of his
salary which amounted to 338,824 shares in 2008. In January of 2007,
the board of Directors approved a 20% raise in Mr. Kim’s salary which Mr. Kim
has the option to take in stock compensation lieu of cash. Pursuant
to the employment agreement Mr. Kim is to receive 120,000 options of the
Company’s common stock on the first business day of the year at an exercise
price equal to the fair market value of the Company’s common stock on that
date. The options are to have a ten-year term. The common
stock and options each have a two year vesting period during which they will be
forfeited if Mr. Kim is terminated for cause or leaves the Company prior to the
end of the term. The vesting period is accelerated in the event of a
change in control of the Company.
(2) On
February 21, 2007, the Company entered into compensation agreements with key
employees. Pursuant to the agreement the key employees collectively
received 360,000 options of the Company’s common stock at an exercise price of
$0.31, equal to the fair market value of the Company’s common stock on that
date. The options are to have a four-year term. The common
stock and options each have a one year vesting period during which they will be
forfeited if the employees are terminated for cause or leaves the Company prior
to the end of the term. The vesting period is accelerated in the
event of a change in control of the Company.
(3) On
May 11, 2009, the Company entered into an employment agreement with Mr. Vuono
for him to serve as the Company’s Chief Executive Officer. The term
of the agreement is for five years and it provides for a salary of $360,000 in
cash compensation. Mr. Vuono has agreed to accept shares in lieu of
his salary which amounted to 955,882 shares in
2009. Pursuant to the employment agreement Mr. Vuono is
to receive 2,000,000 options of the Company’s common stock on the first business
day of the year at an exercise price equal to the fair market value of the
Company’s common stock on that date. The options are to have a
seven-year term and a one year vesting period which is accelerated in the event
of a change in control of the Company.
On May
11, 2009, the Company entered into an employment agreement with Mr. Rose for him
to serve as the Company’s Chief Financial Officer. The term of the
agreement is for five years and it provides for a salary of $324,000 in cash
compensation. Mr. Rose has agreed to accept shares in lieu of his
salary which amounted to 808,824 shares in 2009. Pursuant
to the employment agreement Mr. Rose is to receive 1,500,000 options of the
Company’s common stock on the first business day of the year at an exercise
price equal to the fair market value of the Company’s common stock on that
date. The options are to have a seven-year term and a one year
vesting period which is accelerated in the event of a change in control of the
Company.
45
On May
11, 2009, the Company entered into an employment agreement with Mr. Vuono for
him to serve as the Company’s Chief Executive Officer. The term of
the agreement is for five years and it provides for a salary of $120,000 in cash
compensation. Mr. Kim has agreed to accept shares in lieu of his
salary which amounted to 235,294 shares in 2009. Pursuant
to the employment agreement Mr. Kim is to receive 500,000 options of the
Company’s common stock on the first business day of the year at an exercise
price equal to the fair market value of the Company’s common stock on that
date. The options are to have a seven-year term and a one year
vesting period which is accelerated in the event of a change in control of the
Company.
(4) On
May 11, 2009, the Company entered into compensation agreements with key
employees. Pursuant to the agreement the key employees collectively
received 200,000 options of the Company’s common stock at an exercise price of
$0.51, equal to the fair market value of the Company’s common stock on that
date. The options are to have a four-year term. The common
stock and options each have a one year vesting period during which they will be
forfeited if the employees are terminated for cause or leaves the Company prior
to the end of the term. The vesting period is accelerated in the
event of a change in control of the Company.
(5) Consists
of the following number of options held by the following officers and directors
which were received pursuant to the agreements set forth above:
Ray
Vuono
|
2,752,964
|
||
Dr.
Michael Carvo
|
0
|
||
Konrad
Kim
|
740,000
|
||
Totals
|
5,792,964
|
(6)
Consists of the following number of shares of common stock options which can be
exercised by the following officers in 2010, 2011, 2012 and 2013 pursuant to
their employment agreements dated May 11, 2009:
Options
|
Options
|
Options
|
Options
|
|
2010
|
2011
|
2012
|
2013
|
|
Ray
Vuono
|
2,000,000
|
2,000,000
|
2,000,000
|
2,000,000
|
James
Rose
|
1,500,000
|
1,500,000
|
1,500,000
|
1,500,000
|
Konrad
Kim
|
500,000
|
500,000
|
500,000
|
500,000
|
Totals
|
4,000,000
|
4,000,000
|
4,000,000
|
4,000,000
|
Recent sales of unregistered
securities
In 2009,
the Company entered into various subscription agreements for private placements
in the amount of $115,000 to purchase 186,586 shares of the Company’s stock for
an average purchase price per share of $0.56 a share.
In 2009,
the Company issued 2,346,281 shares of the Company’s stock in exchange for
consulting and marketing services to various consultants. The shares were valued
at the closing stock price of the Company’s common shares on the dates of the
agreements.
46
In 2008,
an officer of the Company exercised their options to purchase 207,036 shares of
the Company’s stock for $62,111.
The
Company has employment agreements with three individuals. The
individuals serve as the Company’s Chief Executive Officer, Chief Financial
Officer and Chief Technical Officer. The term of the agreements are
for five years and provides for cash compensation for a total of $272,000 per
year, however, the three employees have agreed to accept 2,000,000 shares of the
company’s restricted common stock in lieu of cash compensation. The
three individuals received a 20% raise for 2008, resulting in cash compensation
of $391,670 and agreed to accept 2,879,931 shares of the Company’s common stock
in lieu of salary. The executives also received an option to purchase
1,000,000 shares of the Company’s common stock. The exercise price of
the options shall be the fair value market value of the common stock and options
each have a two year vesting period during which they will be forfeited if the
employee is terminated for cause or leaves the Company prior to the end of the
term. The vesting period is accelerated in the event of a change in
control of the Company.
The
financial statements of the Company appear under Item 8. of this
report.
Introduction
During
the year ended December 31, 2009, MedLink continued to progress and realized
some significant contracts that should result in significant growth in 2010 as
these contracted initiatives are deployed. 2009 saw increasing
revenues of more than 70% percent when compared to the same period in
2008. 2008 was highlighted by the MedLink EHR TotalOffice being
selected by the Interboro RHIO and only 1 of 7 companies meeting the strict and
exhaustive testing program to become a “Qualified” EHR by CMS. The
Company continues to gain traction and garner significant contracts that will
have a positive result on the Company’s operations in 2010. Significant 2009
Highlights include:
·
|
Selection
of the MedLink TotalOffice EHR by the Interboro
RHIO
|
·
|
Finalist
in the New York Regional Extension
Center
|
·
|
One
of only 7 vendors to become “Qualified” by
CMS
|
·
|
New
York City Department of Health
Contract
|
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.
47
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
Interboro
RHIO
MedLink
was 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 overwhelming and MedLink recently hired an
additional 8 sales representatives 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.
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.
48
New
York City Department of Health Contract
In
December of 2009, 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.
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.
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”).
49
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.
EHR
Industry
The EHR
industry is not new, and has been in existence for over twenty
years. In its infancy, the EHR industry focused on solving problems
of large medical institutions as they had many disparate systems as well as the
budgets for such expenditures, whereas private practices typically did
not. Recent innovations in technology have brought EHR systems within
reach of private practice owners.
The
market for Ambulatory EHR solutions and services is competitive, but limited for
Vendors that offer a full solution that will meet the clinical, financial,
interoperability and adhere to the federal incentive
requirements. Current Industry leaders in the physician healthcare
information enterprise systems include Allscripts,
Epic, eClinicalWorks, Quality Systems (NextGen), GE and McKesson,
each of which offers a suite of software solutions and services that compete
with many of the Company’s software solutions in the physician practice
market. The main competitive factors in this market include the
breadth and quality of the EHR solution, ease of use, the ongoing support for
the system and the potential for enhancements, interoperability and
cost.
MedLink
believes that it offers as comprehensive of an EHR application as its
competitors, at a fraction of the cost as the MedLink EHR is built on cutting
edge technology platform that was built specifically for the small to medium
sized physician market. In reaction to the 2004 government mandate
for physicians to adopt EHR in the next 10 years, many of the current industry
leaders quickly scrambled to adapt their legacy hospital information systems
(that in many cases were developed almost 30 years ago), to address the
physician practice EHR market. Although this strategy provided for a
rapid deployment to market of an EHR solution, the legacy systems originally
built to provide for large hospital organizations rely on costly software and
database licenses and are far too complex for the physician practice market,
creating significant implementation and lengthy training challenges and
fees. As a result, these solutions are far too costly and are
primarily marketed to the larger Physician Practice groups, which is highly
competitive.
MedLink
expects that recent legislation will significantly drive EHR adoption which will
require Medicare physicians to adopt electronic prescribing (e-prescribing).
Under the Medicare Electronic Medication and Safety Protection Act, physicians
would receive financial incentives to use e-prescribing systems. Grants would
help offset start-up costs, and physicians who use the technology would receive
up to a 2 percent bonus for every claim that includes an e-prescription, and
per-claim penalties for providers that do not comply.
As of December 31, 2009 we had 34
full time employees split between New York and Hyderabad, India and recently
added an additional 8 sales representative to focus on the Interboro RHIO
opportunity. We expect growth to continue through the remainder of
2010 as our R&D expenditures and business development efforts come to
fruition.
The
MedLink Vision:
Our goal
is to create one of the largest hub for health records in the United
States. We plan to achieve this by meeting our stated mission
statement below.
“We will
offer the medical community applications and services that we believe will ease
accessibility to information related to patient care through the creation of a
secure digital environment, while making it accessible to institutions both
large and small at an affordable price in order to achieve the highest level of
participation.”
50
We are
dedicated to creating and providing the digital backbone for the delivery of
enhanced medical services to healthcare professionals worldwide through a suite
of network, communication, management, financial and value-added solutions
through the utilization of our Virtual Private Network (“VPN”). Our VPN connects
healthcare professionals with vital information and key resources creating
efficiencies and thereby achieving optimal, real-time delivery of patient
information.
We are
driven by our vision of creating a national, paperless, healthcare hub,
combining the wisdom of healthcare professionals and the latest in integrated
technology to provide solutions for the current and future challenges facing the
healthcare industry. We are determined to become a market leader that physicians
and healthcare professionals will turn to for real-time, cost-effective access
to a myriad of patient information at the touch of a button.
MedLink Product
Offerings
MedLink
TotalOffice EHR 3.1
MedLink’s
core product offering is its MedLink TotalOffice EHR (“MedLink EHR”), a 2008
CCHIT Certified product. The MedLink EHR is a healthcare
information enterprise system that provides physician practices with electronic
access and control over patient records. It enables the primary
provider to easily manage the process of creating, maintaining and adding to
patient electronic health records. TotalOffice EHR contains the
patient's demographic information, notes, appointments, lab results,
prescriptions, documents, history of visits, as well as all insurance and
financial information. It is also designed to centralize the
patient's medical records and streamline the diagnostic and treatment process
while connecting the physician seamlessly with outside resources such as
radiology centers, labs, pharmacies and insurance companies. MedLink
EHR includes a billing application which enables the product to achieve full
revenue cycle management capabilities.
A key
feature of the MedLink EHR is the MedLink Virtual Private Network (“MedLink
VPN”).The MedLink VPN allows physician practices to securely communicate with
each other and remotely access and retrieve patient records, lab results,
X-Rays, CAT Scans and other Personal Health Information (“PHI”). The data is stored and
replicated in two separate data centers located in different regions of New
York. The system is compliant with the Health Insurance Portability
and Accountability Act of 1996 (“HIPAA”) and HL7. The MedLink VPN
also incorporates streaming video technology, enabling remote viewing of
procedures or delivery of continuing education or training materials by a
hospital to its doctors and staff, and communications software allowing for
secure messaging among hospital personnel.
MedLink
TotalOffice can improve healthcare quality and reduce costs by preventing
medical errors, reduce paperwork and reduce administrative
inefficiencies. Additionally, it automates administrative workflow,
including scheduling, patient billing and collection and claims
management.
MedLink
EHR Lite
The MedLink EHR Lite (“EHR Lite”) works in
conjunction with the MedLink EHR for referring physicians to view radiology
reports and images, submit and receive lab results and to prescribe medications
electronically. The referring physicians of radiology centers and
laboratories affiliated with MedLink and the Company’s Strategic Partners
utilize the EHR Lite, free of charge, to view current and past reports on their
patients enabling them to generate a more accurate electronic health record of
their patients, while providing the practice with additional functionality such
as scheduling, tasks, patient chart, e-prescription, e-labs and
e-radiology. The seamless integration into a patient’s electronic
health record is unique to our products and we hope to make the
process the standard moving forward for the delivery of reports and images from
radiology centers. We believe EHR Lite will help to speed the
diagnostic process and significantly reduce patient wait times, while providing
a stepping stone to full EHR functionality provided by the MedLink
EHR.
51
Key Business
Attributes
The
Company has compelling opportunities in the attractive and dynamic healthcare
information technology industry. The Company is poised for
significant revenue growth and profitability through its strategic partnerships
and opportunities.
Significant
Market Opportunity
·
|
Currently,
out of the estimated 600,000 physicians in the U.S., only 15-20% are
estimated to have employed EHRs for their
practice.
|
·
|
This
market is expected to grow significantly in the next several years as
legislation and federal directives drive EHR adoption among
physicians.
|
|
-
|
The
Bush Administration mandated that physicians switch all patient records to
electronic form by 2014. The mandate has received bi-partisan
support from Congress and President
Obama;
|
|
-
|
Medicare
Electronic Medication and Safety Protection Act provides financial
incentives for physicians to use e-prescribing systems that have current
year CCHIT certification;
|
|
-
|
Medicare
Prescription Drug, Improvement, and Modernization Act of 2003 permits
hospitals and other organizations to provide e-prescribing and EHR
software, information technology and training services to physicians;
and
|
|
-
|
Private
and public initiatives for healthcare IT adoption have currently made
available more than $700 million. The majority of subsidies and
grants require current year CCHIT
certification.
|
|
- More
than $20 billion was provided for the adoption of healthcare IT in early
2009
|
Value-Added
Strategic Partners
·
|
The
Company has received endorsements from one of the largest medical
associations in the U.S. as well as four New York based medical
societies.
|
·
|
The
Company continues to form valuable strategic partnerships with imaging
centers, laboratories, RHIO’s and other facilities through the integration
of their systems with the Company’s
EHR.
|
Targeted
Installation Base
·
|
The
Company’s value-added partners provide a “captive” base of physicians as
customers for the Company’s
products.
|
·
|
The
Company has a focused sales and marketing effort underway to leverage this
prime access opportunity to reach these
physicians.
|
Attractive
Value Proposition
·
|
The
primary barrier to EHR adoption among physicians is cost. The
Company offers an attractive value proposition through MedLink EHR and EHR
Lite. EHR Lite provides physicians with basic EMR functionality
at no upfront cost to the physician, creating a sticking point for later
full EHR conversion.
|
·
|
The
Company’s EHR is priced below competing products with similar
services.
|
·
|
Quick
deployment of the Company’s EHR, makes the product very attractive to
physicians and counterparties.
|
2008
CCHIT Certification
·
|
The
Company’s EHR was one of 8 products which received full certification in
October, 2008.
|
·
|
This
certification creates a tremendous competitive advantage for the Company
in its targeted customer base, the small to medium sized physician office
marketplace, as financial incentives are available to providers who use a
2008 CCHIT certified EHR product.
|
52
HEALTHCARE
INFORMATION TECHNOLOGY MARKET
The
lingering downturn in the worldwide economy has impacted almost all industries.
While healthcare is not immune to economic cycles, we believe it is more
resilient than most segments of the economy. The impact of the current economic
conditions on our existing and prospective clients has been mixed. Some
organizations are doing well operationally, but others face challenges such as
higher levels of uninsured patients and Medicaid payments being impacted by the
weakened financial condition of state governments.
We
believe the result of these challenges is that healthcare organizations are
focusing on strategic spending that generates a return on their investment.
Because HIT solutions play an important role in healthcare by improving safety,
efficiency and reducing cost, they are often viewed as more strategic than other
potential purchases. Most healthcare providers also recognize that they must
invest in HIT to meet regulatory, compliance and government reimbursement
requirements.
Overall,
while the economy has certainly impacted and could continue to impact our
business, we believe there are several macro trends that are favorable for the
HIT industry. One example is the need to curb the growth of United States
healthcare spending, which analysts from the Centers for Medicare and Medicaid
Services estimate at $2.5 trillion or 17.3 percent of Gross Domestic
Product in 2009. In the United States, politicians and policymakers agree that
the growing cost of our healthcare system is unsustainable. Leaders of both
parties say the intelligent use of information systems will improve health
outcomes and, correspondingly, drive down costs. They cite a 2005 study by RAND
Corp., which estimated that the widespread adoption of HIT in the United States
could cut healthcare costs by $162 billion annually.
In 2009,
the broad recognition that HIT is essential to helping control healthcare costs
contributed to the inclusion of HIT incentives in the American Recovery and
Reinvestment Act (ARRA). The Health Information Technology for Economic and
Clinical Health (HITECH) provisions within ARRA include more than
$35 billion (in the form of incentives and penalties) to help healthcare
organizations modernize operations through the acquisition and wide-spread use
of HIT. We believe ARRA could represent the single biggest United States HIT
opportunity in history. We believe the Company is well-positioned to benefit
from these incentives over the next several years.
Market
Drivers
According
to American Medical Association data, there are over 600,000 physicians in the
U.S. practicing medicine and approximately 220,000 physician
practices. Because the physician practice market is highly fragmented
and there has been little financial or clinical incentive for physician
practices to adopt an EHR solution, it is estimated that only approximately 13
percent of physician practices have employed electronic health records for their
practice. Thus, the market for adoption will be driven by factors
such as federal and state mandates as well as industry standards.
Competition
The
market for HIT solutions and services is intensely competitive, rapidly evolving
and subject to swift technological change. The Company’s principal
existing competitors in the physician healthcare information enterprise systems
include: Allscripts, Athenahealth, E-Clinical, and Greenway Medical, each of
which offers a suite of software solutions and services that compete with many
of the Company’s software solutions and services in the physician practice
market. In addition, the Company expects that major software
information systems companies, large information technology consulting service
providers, system integrators, managed care companies and others specializing in
the security industry may offer competitive software solutions or
services.
53
The pace
of change in the HIT market is rapid and there are frequent new software
solution introductions, software solution enhancements and evolving industry
standards and requirements. The main competitive factors in this
market include: the breadth and quality of system and software solution
offerings, the stability of the information systems provider, the features and
capabilities of the information systems, the ongoing support for the system and
the potential for enhancements and future compatible software
solutions. MedLink believes that with the CCHIT certification
initiative, the market will become less fragmented. MedLink also
believes its strategic alliances with healthcare associations and medical
societies will enable it to become a leading provider of such services to
physicians in both large and small physician practices.
MedLink
TotalOffice EHR meets all industry standards set by CCHIT for 2008 and is well
positioned against the offerings of MedLink’s closest competitors.
Future
Capital Requirements
The
Company is actively seeking to raise capital to expand its operations to take
advantage of the market opportunity and existing contracts. Our
primary needs for cash over the next twelve months will be to fund increased
marketing, implementation, training, customer support and staffing
expenses.
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
December 31, 2009:
Less
than
|
|||||||||||
Total
|
1
year
|
1-3
years
|
|||||||||
Operating
lease obligations
|
$
|
360,746
|
$
|
80,780
|
$
|
253,450
|
The commitments under our operating
leases shown above consist primarily of lease payments for our Ronkonkoma, New
York corporate headquarters and our Atascadero, California
location.
Off-Balance
Sheet Arrangements
As of
December 31, 2009 and December 31, 2008, 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
The
Company's revenues from continuing operations for the year ended December 31,
2009 and 2008 were $520,473 and $94,467, respectively. The increase in revenue
is primarily attributable to sales of the MedLink Total Office EHR and interface
income associated with integrations to labs, imaging center and
hospitals. Sales of the MedLink TotalOffice increased significantly
in 2009 as compared to the same period in 2008 with the full commercialization
of the TotalOffice EHR and industry recognition with CCHIT certification and the
selection by RHIOs. In 2009, the company discontinued the
operations of AutoDoc, resulting in decreased sales and support income of the
AutoDoc software. Sales of the MedLink TotalOffice EHR and its
related services accounted for more than 90% of total sales in 2009 as compared
to less than 20% in 2008. The Company believes that with its
continued focus on sales of the MedLink TotalOffice EHR through RHIOs, Regional
Extension Centers, Channel Partners and strategic partnerships with labs and
imaging centers control will lead to overall profitability.
54
Expenses
for the fiscal year ended December 31, 2009 and 2008 were $4,180,031 and
$4,270,184, respectively. For the year ended December 31, 2009,
$3,733,128 of the expenses was related to non-cash expenses including
stock-based compensation, loss from discontinued operations, goodwill impairment
and depreciation expense. The decrease in 2009 is primarily
attributable to the contraction of AutoDoc operations and the closing of the
California office and its related expenses directly attributable to the AutoDoc
division.
The
Company had net losses of $(3,793,804) and $(4,365,769) in the fiscal years
ended December 31, 2009 and December 31, 2008, respectively. The net loss for
2009 included a goodwill impairment of $904,396 and a loss from the discontinued
operations of $134,246. On an operational standpoint, not including
expenses for goodwill impairment, discontinued operations, stock based
compensation and depreciation expense, the Company realized a Net Profit of
$73,570 for the year ending December 31, 2009. The net loss, for the
year ended December 31, 2009 was primarily attributable to non-cash expenses as
described above and an increase in personnel related expenses
Liquidity
and Capital Resources
At
December 31, 2009, the Company had a working capital deficiency of $(1,657,418).
While the Company believes revenue that will be earned from the sales of the
MedLink EHR 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. In the event the Company has to
raise additional capital, there can be no assurance that such capital will be
available when needed, or that it will be available on satisfactory
terms.
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
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 Statement of
Position ("SOP") 97-2 "Software Revenue Recognition," as amended by SOP 98-9,
and Staff Accounting Bulletin ("SAB") 104 "Revenue Recognition,". SOP 97-2 and
SAB 104, as amended, require 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.
55
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 SOP 98-9 "Modification of SOP 97-2, 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. Accordingly, these arrangements are
accounted for pursuant to paragraphs 48 and 49 of SOP 97-2 "Software Revenue
Recognition."
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 paragraph 65 of
SOP 97-2.
Hardware
Hardware
is recognized upon delivery pursuant to SAB 104.
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.
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.
56
Goodwill
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
The FASB
issued a revision of SFAS 123 (“SFAS 123(R)”) that 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. SFAS 123(R) replaces SFAS 123 and is
effective January 1, 2007. 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.
Earning
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 the Financial Accounting Standards Board (FASB) under
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Shares". Diluted EPS reflects the potential dilution of securities that could
share in the earnings.
57
Disclosure
about Derivative Instruments and Hedging Activities
In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative
Instruments and Hedging Activities,” an amendment of FASB
Statement No. 133, (SFAS 161). This statement requires that objectives for using
derivative instruments be disclosed in terms of underlying risk and accounting
designation. The Company is required to adopt SFAS 161 on January 1, 2009. The
Company is currently evaluating the potential impact of SFAS No. 161 on the
Company’s consolidated financial statements.
Determination
of the Useful Life of Intangible Assets
In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets,”, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
intangible assets under FASB 142 “Goodwill and Other Intangible
Assets”. The intent of this FSP is 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.
We do not
currently use derivative financial instruments or enter into foreign currency
hedge transactions. Foreign currency fluctuations through December 31, 2009 have
not had a material impact on our financial position or results of operations. We
continually monitor our exposure to foreign currency fluctuations and may use
derivative financial instruments and hedging transactions in the future if, in
our judgment, the circumstances warrant their use. Generally, our expenses are
denominated in the same currency as our revenue and the exposure to rate changes
is minimal. Our development center in India is not naturally hedged for foreign
currency risk since their obligations are paid in their local currency but are
funded in U.S. dollars. There can be no guarantee that foreign currency
fluctuations in the future will not be significant.
MEDLINK
INTERNATIONAL INC.
CONSOLIDATED
FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2009 and 2008
_________________________________________________________________________________
Part
I: Financial Statements
Page
No.
|
|
59
|
|
Financial
Statements
|
|
60
|
|
61
|
|
62
|
|
63
|
|
Notes
to Consolidated Financial Statements
|
65
|
58
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders of
MedLink
International, Inc.
We have
audited the accompanying consolidated balance sheets of MedLink International,
Inc. and Subsidiaries as of December 31, 2009 and 2008 and the related
consolidated statements of operations, changes in stockholders' deficit, and
cash flows for the years ended December 31, 2009 and 2008. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of MedLink International, Inc. and
Subsidiaries as of December 31, 2009 and 2008 and the results of its operations
and its cash flows for the years then ended December 31, 2009 and 2008 in
conformity with accounting principles generally accepted in the United States of
America.
These
accompanying financial statements referred to above have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 2, the Company’s need to seek new sources or methods of financing or
revenue to pursue its business strategy, raise substantial doubt about the
Company’s ability to continue as a going concern. Management’s plans
as to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/
JEWETT, SCHWARTZ, WOLFE & ASSOCIATES
Hollywood,
Florida
April 15,
2010
59
MEDLINK
INTERNATIONAL INC.
FOR THE
YEARS ENDED DECEMBER 31, 2009 and 2008
___________________________________________________________________________________
For
the years ended
|
||||||||
December
31,
|
||||||||
2009
(Audited)
|
2008
(Audited)
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
4,843 | |||||||
Accounts
Receivable
|
289,346 | 20,731 | ||||||
Assets
from discontinued operations
|
- | 40,867 | ||||||
Total
current assets
|
294,189 | 61,598 | ||||||
Office
equipment (at cost) net of accumulated depreciation
|
186,205 | 144,539 | ||||||
Intangible
asset (at cost), net of accumulated amortization
|
10,938 | 40,450 | ||||||
Goodwill
|
- | 1,252,129 | ||||||
Security
deposit
|
12,950 | 5,400 | ||||||
Other
assets
|
- | 20,438 | ||||||
TOTAL ASSETS:
|
$ | 504,281 | $ | 1,524,554 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued expenses
|
145,044 | 330,114 | ||||||
Bank
overdraft
|
- | 21,232 | ||||||
Note
payable
|
514,480 | |||||||
Due
to related party
|
1,002,430 | 1,002,988 | ||||||
Liabilities
from discontinued operations
|
804,141 | 335,712 | ||||||
TOTAL
CURRENT LIABILITIES
|
1,951,605 | 2,204,526 | ||||||
Stockholders'
deficit:
|
||||||||
Common
stock Class A $.001 par value; authorized 150,000,000 shares; 31,567,236
and 26,947,333 shares issued, respectively
|
31,567 | 26,947 | ||||||
Common
stock B Class B $.001 par value; authorized 50,000,000; 5,361,876 issued
and outstanding
|
5,362 | 5,362 | ||||||
Subscription
receivable
|
- | (300,000 | ) | |||||
Additional
paid-in capital
|
20,093,341 | 17,371,500 | ||||||
Accumulated
deficit
|
(21,447,044 | ) | (17,653,240 | ) | ||||
Treasury
stock
|
(130,551 | ) | (130,551 | ) | ||||
Total
stockholders' deficit
|
(1,447,325 | ) | (679,982 | ) | ||||
TOTAL STOCKHOLDERS’ LIABILITIES AND STOCKHOLDER
EQUITY
|
$ | 504,282 | $ | 1,524,544 |
____________________________________________________________________
See
accompanying notes to consolidated financial statements.
60
MEDLINK
INTERNATIONAL INC.
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
___________________________________________________________________________________
For
the years ended
|
||||||||
December
31,
|
||||||||
2009
(Audited)
|
2008
(Audited)
|
|||||||
Sales
|
$ | 520,473 | 94,467 | |||||
Cost
of Revenues
|
- | - | ||||||
Gross
Profit
|
520,473 | 94,467 | ||||||
Operating
expenses
|
||||||||
General
and administrative
|
334,883 | 1,223,716 | ||||||
Consulting
expense
|
1,030,488 | 1,300,427 | ||||||
Compensation
expense
|
1,843,974 | 1,723,598 | ||||||
Loss
on impairment of intangible asset
|
904,396 | - | ||||||
Depreciation
and amortization
|
66,290 | 22,443 | ||||||
Total
Operating expenses
|
4,180,031 | 4,270,184 | ||||||
Income
(loss) from continuing operations
|
(3,659,558 | ) | (4,175,717 | ) | ||||
Discontinued
operations
|
||||||||
Income
(loss) from discontinued operations
|
47,361 | (190,053 | ) | |||||
Loss
from disposal of discontinued operations
|
(181,607 | ) | ||||||
Loss
from discontinued operations
|
(134,246 | ) | (190,053 | ) | ||||
Net
Loss
|
$ | (3,793,804 | ) | (4,365,769 | ) | |||
Basic
and diluted loss per share (Class A)
|
$ | (.12 | ) | (.15 | ) | |||
Basic
and diluted loss per share (Class B)
|
$ | (.67 | ) | (.81 | ) | |||
Weighted
average number of basic shares outstanding (Class A)
|
31,567,236 | 29,863,620 | ||||||
Weighted
average number of basic shares outstanding (Class B)
|
5,361,876 | 5,361,876 | ||||||
____________________________________________________________________
See
accompanying notes to consolidated financial statements.
61
MEDLINK
INTERNATIONAL INC.
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008 (Audited)
Common Stock
|
Additional
|
||||||||||||
Number
of
|
Paid-in
|
Surplus
|
Deferred
|
Treasury
|
|||||||||
Shares
|
Amount
|
Capital
(Audited)
|
(Deficit)
|
Receivables
|
Charges
|
Stock
|
Total
(Audited)
|
||||||
Balance
at Dec 31, 2007
|
25,733,698
|
$25,734
|
$13,349,010
|
$(13,287,471)
|
$(100,000)
|
$(40,138)
|
$(130,551)
|
$(183,416)
|
|||||
Share
issued for employment services
|
2,879,999
|
2,880
|
388,800
|
0
|
0
|
0
|
0
|
391,680
|
|||||
Shares
issued for consultants services
|
2,407,000
|
2,407
|
2,426,813
|
0
|
0
|
0
|
0
|
2,429,220
|
|||||
Shares
issued for payables
|
43,930
|
44
|
43,886
|
0
|
0
|
0
|
0
|
43,930
|
|||||
Shares
issued to settle loan payable
|
560,000
|
560
|
279,440
|
0
|
0
|
0
|
0
|
280,000
|
|||||
Stock
based compensation
|
0
|
0
|
533,345
|
0
|
0
|
0
|
0
|
533,345
|
|||||
Shares
issued in lieu of rent
|
55,000
|
55
|
28,652
|
0
|
0
|
0
|
0
|
28,707
|
|||||
Shares
issued for legal fee’s
|
100,000
|
100
|
112,083
|
0
|
0
|
0
|
0
|
112,183
|
|||||
Shares
issued in connection with the exercise of shareholders’
options
|
117,989
|
118
|
(118)
|
0
|
0
|
0
|
0
|
0
|
|||||
Shares
sold in 2008
|
411,593
|
411
|
209,589
|
0
|
(200,000)
|
0
|
0
|
10,000
|
|||||
Net
deficit acquired in Anywhere MD
|
0
|
0
|
0
|
0
|
0
|
40,138
|
0
|
40,138
|
|||||
Net
loss for the year ended
Dec
31, 2008
|
0
|
0
|
0
|
(4,365,769)
|
0
|
0
|
0
|
(4,365,769)
|
|||||
Balance
at December 31, 2008
|
32,309,209
|
$32,310
|
$17,371,500
|
$(17,653,240)
|
$(300,000)
|
-
|
$(130,551)
|
$(679,982)
|
|||||
Cancellation
of subscription receivable
|
-
|
(300,000)
|
300,000
|
-
|
|||||||||
Stock
Option based compensation
|
-
|
728,091
|
728,091
|
||||||||||
Exercise
of stock options
|
207,036
|
207
|
61,904
|
62,111
|
|||||||||
Shares
issued for consulting services
|
2,346,281
|
2,346
|
1,016,351
|
1,018,697
|
|||||||||
Shares
issued for employment services
|
2,000,000
|
2,000
|
1,018,000
|
1,020,000
|
|||||||||
Shares
sold in 2009
|
186,586
|
187
|
104,813
|
105,000
|
|||||||||
Cancellation
of related party liabilities
|
-
|
-
|
227,563
|
227,563
|
|||||||||
Reduction
of paid in capital from subsidiary
|
-
|
-
|
(135,000)
|
(135,000)
|
|||||||||
Cancellation
of shares
|
(120,000)
|
(120)
|
120
|
-
|
|||||||||
Net
loss for the year ended
Dec
31, 2008
|
0
|
0
|
0
|
(3,793,804)
|
0
|
0
|
(3,793,804)
|
||||||
Balance
at December 31, 2009
|
36,929,112
|
$36,929
|
$20,093,342
|
$(21,447,044)
|
-
|
-
|
$(130,551)
|
$(1,447,324)
|
See
accompanying notes to consolidated financial statements.
62
MEDLINK
INTERNATIONAL INC.
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
________________________________________________________________________
For
the years ended
|
||||||||
December
31,
|
||||||||
|
2009
(audited)
|
2008
(audited)
|
||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (3,793,804 | ) | $ | (4,365,769 | ) | ||
Income
(loss) from discontinued operations
|
47,361 | (190,053 | ) | |||||
Loss
from continuing operations
|
$ | (3,841,165 | ) | $ | (4,175,716 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
used
in operating activities:
|
||||||||
Impairment
of goodwill
|
904,396 | - | ||||||
Depreciation
|
65,202 | 22,443 | ||||||
Increase
in deferred charges
|
40,138 | |||||||
Amortization
|
1,088 | 1,088 | ||||||
Amortization
of deferred charges
|
- | |||||||
Issuance
of common stock
|
||||||||
Share
based compensation
|
728,091 | 533,345 | ||||||
Issuance
of common stock for salary
|
1,020,000 | 391,680 | ||||||
Issuance
of common shares for consulting and other services
rendered
|
1,018,697 | 2,639,220 | ||||||
Issuance
of common stock for relief of loans
|
323,930 | |||||||
Issuance
of common stock for rent
|
28,707 | |||||||
Issuance
of common stock for legal fees
|
112,183 | |||||||
Conversion
of options in lieu of payment of related party loan
|
62,111 | |||||||
Related
party payables reclassified to additional paid in capital
|
227,563 | |||||||
Changes
in operating assets and liabilities
|
||||||||
Accounts
receivables
|
(268,615 | ) | (20,731 | ) | ||||
Security
deposit
|
(7,550 | ) | - | |||||
Other
assets
|
- | (20,438 | ) | |||||
Accounts
Payable
|
(258,234 | ) | (24,406 | ) | ||||
Net
cash used in continuing operating activities
|
(301,055 | ) | (338,610 | ) | ||||
Net
cash provided by discontinued operations
|
301,778 | (6,483 | ) | |||||
Net
cash used in operating activities
|
723 | (345,093 | ) | |||||
Cash
flows from investing activities:
|
||||||||
Purchase
of fixed assets
|
(73,470 | ) | (67,909 | ) | ||||
Net
cash used in investing activities
|
(73,470 | ) | (67,909 | ) |
____________________________________________________________________
See
accompanying notes to consolidated financial statements.
MEDLINK
INTERNATIONAL INC.
63
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
________________________________________________________________________
For
the years ended
|
||||||||
December
31,
|
||||||||
|
2009
(Audited)
|
2008
(Audited)
|
||||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from sale of stock
|
105,000 | - | ||||||
Increase
in lease payable
|
- | (2,750 | ) | |||||
Proceeds
from loan payable
|
- | 77,708 | ||||||
Proceeds
from subscription receivable
|
- | (200,000 | ) | |||||
Advances
from (to) officer/shareholders
|
(576 | ) | 508,448 | |||||
Net
cash provided by financing activities
|
104,424 | 383,406 | ||||||
NET
INCREASE (DECREASE) IN CASH
|
31,677 | (29,596 | ) | |||||
CASH
AT BEGINNING OF YEAR
|
(26,834 | ) | 2,762 | |||||
CASH
AT END OF PERIOD
|
$ | 4,843 | $ | (26,834 | ) | |||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid during the year for interest
|
$ | - | $ | - | ||||
Cash
paid for taxes
|
$ | - | $ | - | ||||
Supplemental
disclosure of non-cash financing activities
|
||||||||
Share
based compensation
|
$ | 728,091 | $ | 533,345 | ||||
Issuance
of common stock for salary
|
$ | 1,020,000 | $ | 391,680 | ||||
Issuance
of common shares for consulting and other services
rendered
|
$ | 1,018,697 | $ | 2,639,220 | ||||
Conversion
of options in lieu of payment of related party loan
|
$ | 62,111 | ||||||
Issuance
of common stock for relief of loans
|
- | $ | 323,930 | |||||
Issuance
of common stock for rent
|
- | $ | 28,707 | |||||
Issuance
of common stock for legal fees
|
- | $ | 112,183 | |||||
Related
party accounts payable reclassified to additional paid in
capital
|
$ | 227,563 | - | |||||
____________________________________________________________________
See
accompanying notes to consolidated financial statements.
64
MEDLINK
INTERNATIONAL, INC.
FOR THE
YEARS ENDED DECEMBER 31, 2009 AND 2008
________________________________________________________________________
For the years ended
|
||
December 31,
|
||
|
2009
(Audited)
|
2008
(Audited)
|
Supplemental
disclosures of cash
flows
information:
|
||
Cash
paid during the year for:
|
||
Interest
|
$0
|
$0
|
Income
Taxes
|
$0
|
$1,700
|
____________________________________________________________________
NOTE
1 –ORGANIZATION AND NATURE OF BUSINESS
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.
On
January 1, 2002, the Western Media Group Corporation acquired Med-Link, a
privately held New York corporation, pursuant to a share exchange agreement
dated December 28, 2001. During 2005, Western Media Group
Corporation’s Board of Directors approved a merger agreement whereby Western
Media Group Corporation changed the state of its incorporation from Minnesota to
Delaware by merging with and into a newly formed Delaware corporation named
MedLink International, Inc. In addition, the name of the company was changed
from Western Media Group Corporation to MedLink International, Inc. (the
“Company”) upon the completion of the merger.
The
business of the Company is largely carried out by the parent company, but has
twooperating subsidiaries, Anywhere MD and KRAD Konsulting (KRAD) that have
limited operations. The Company also has four inactive subsidiaries, Med-Link
USA, Inc., Med-Link VPN, Inc., Western Media Acquisition Corp. (formerly Western
Media Sports Holdings, Inc.), and Western Media Publishing Corp.
65
In 2006,
the Company received final approval from Deutsche Borse AG and its shares
started trading through the Frankfurt Stock Exchange.
NOTE
2 – SUMMARY OF SIGNIFICANT POLICIES
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
and Presentation
The
accompanying consolidated financial statements include the accounts of the
Company and all of its wholly-owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
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.
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.
NOTE
2 – SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
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 unspecifiedfuture software
within the suite purchased and/or unspecified platform transfer rights that do
not qualify for exchange accounting.
66
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.
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.
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 December 31, 2009
and 2008, the provision for doubtful accounts was $0 and $0,
respectively.
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.
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
NOTE
2 – SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
Company
recognizes an impairment loss when the estimated fair value of the
indefinite-lived purchased intangible assets is less than the carrying
value.
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.
67
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.
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.
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 December 31, 2009 had available approximately $21,447,044 of net
operating loss carry forwards to reduce future Federal income
taxes. The Company has operating loss carry forwards which are due
to
NOTE
2 – SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
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.
68
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 is 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 years
ended December 31, 2009and 2008, the weighted average number of shares
outstanding for the Company’s Class A Common Stock used in the per share
computation was 29,863,620 and 21,268,394 and respectively. For the
years ended December 31, 2009and 2008, 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 and respectively.
Fair Value of Financial
Instruments
At
December 31, 2009, the carrying amounts of the Company's assets and liabilities
approximate fair value.
Going
Concern
The
accompanying 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 December 31, 2009, the
Company had incurred cumulative losses of $21,447,044. As of December
31, 2009, the Company has negative working capital of $1,657,418.
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.
Goodwill
The
Company conducts an impairment analysis on the last day of each calendar
year. The first step in our annual goodwill impairment analysis is to
compare the estimated fair value with the carrying value of the reporting unit’s
assets. The process of estimating the fair value of our
reporting units requires significant judgment to conduct the
analysis. To determine fair value, we use the income approach
under which we calculate the fair value based on the estimated discounted future
cash flows of that unit. We evaluate the reasonableness of this approach with
the market approach, which involves a review of the carrying value of our assets
relative to our market capitalization.
Goodwill
and intangible assets were tested at the end of the last quarter, December 31,
2009 and it was found that the carrying value of goodwill and intangible assets
were impaired based on a discounted cash flow model using
69
NOTE
2 – SUMMARY OF SIGNIFICANT POLICIES (CONTINUED)
management’s
business plan projected for expected cash flows due to the discontinued
operations as described in Note 4. Based on the computation of the
discounted cash flows, it was determined that the fair value of goodwill and
intangible assets exceeded their carrying value.
A charge
of $904,396 was recorded for the year ended December 31, 2009 after the
impairment testing was completed. Management does not believe that
any further impairment exists at December 31, 2009.
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS
In
December 2008, the FASB issued authoritative guidance requiring additional
disclosures for employers’ pension and other postretirement benefit plan assets.
This guidance requires employers to disclose information about fair value
measurements of plan assets, the investment policies and strategies for the
major categories of plan assets, and significant concentrations of risk within
plan assets. This guidance became effective as of December 31, 2009. As
this guidance provides only disclosure requirements, the adoption of this
standard did not impact the Company’s results of operations, cash flows or
financial positions.
Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 260, Earnings per Share
(formerly FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”)
03-6-1, Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities). The new guidance clarifies that non-vested share-based
payment awards that entitle their holders to receive nonforfeitable dividends or
dividend equivalents before vesting should be considered participating
securities and included in basic earnings per share. The Company’s adoption of
the new accounting standard did not have a material effect on previously issued
or current earnings per share.
Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 805, Business Combinations
(formerly SFAS No. 141(R), Business Combinations). The
new standard applies to all transactions or other events in which an entity
obtains control of one or more businesses. Additionally, the new standard
requires the acquiring entity in a business combination to recognize all (and
only) the assets acquired and liabilities assumed in the transaction;
establishes the acquisition-date fair value as the measurement date for all
assets acquired and liabilities assumed; and requires the acquirer to disclose
additional information needed to evaluate and understand the nature and
financial effect of the business combination. The Company’s adoption of the new
accounting standard did not have a material effect on the Company’s consolidated
financial statements.
Effective
January 1, 2009, the Company adopted a new accounting standard included in
ASC 810, Consolidations
(formerly SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements). The new accounting standard
establishes accounting and reporting standards for the noncontrolling interest
(or minority interests) in a subsidiary and for the deconsolidation of a
subsidiary by requiring all noncontrolling interests in subsidiaries be reported
in the same way, as equity in the consolidated financial statements. As such,
this guidance has eliminated the diversity in accounting for transactions
between an entity and noncontrolling interests by requiring they be treated as
equity transactions. The Company’s adoption of this new accounting standard did
not have a material effect on the Company’s consolidated financial
statements.
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.
70
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS (continued)
In May
2009, the FASB issued ASC 855, Subsequent Events, which
provides guidance on events that occur after the balance sheet date but prior to
the issuance of the financial statements. ASC 855 distinguishes events requiring
recognition in the financial statements and those that may require disclosure in
the financial statements. Furthermore, ASC 855 requires disclosure of the date
through which subsequent events were evaluated. These requirements are effective
for interim and annual periods after June 15, 2009. We adopted these
requirements for the year ended December 31, 2009, and have evaluated subsequent
events through April 15, 2010.
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
CodificationTMand
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 nongrandfathered non-SEC
accounting literature not included in the Codification became nonauthoritative.
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 new guidance is effective for interim and annual periods
beginning after August 27, 2009. The Company’s adoption of the new guidance
did not have a material effect on the Company’s consolidated financial
statements.
71
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS (continued)
In
October 2009, the FASB issued Accounting Standards Update No. 2009-13,
"Multiple-Deliverable Revenue Arrangements" ("ASU No. 2009-13").
ASU No. 2009-13 amends guidance included within ASC Topic 605-25 to require an entity to
use an estimated selling price when vendor specific objective evidence or
acceptable third party evidence does not exist for any products or services
included in a multiple element arrangement. The arrangement consideration should
be allocated among the products and services based upon their relative selling
prices, thus eliminating the use of the residual method of allocation. ASU No.
2009-13 also requires expanded qualitative and quantitative disclosures
regarding significant judgments made and changes in applying this guidance. ASU
No. 2009-13 is effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after June 15,
2010. Early adoption and retrospective application are also
permitted. The company is currently evaluating the impact of adopting
the provisions of ASU No. 2009-13.
In
October 2009, the FASB issued Accounting Standards Update No. 2009-14,
"Certain Revenue Arrangements That Include Software Elements" ("ASU No. 2009-14").
ASU No. 2009-14 amends guidance included within ASC Topic 985-605 to exclude
tangible products containing software components and non-software components
that function together to deliver the product’s essential
functionality. Entities that sell joint hardware and software
products that meet this scope exception will be required to follow the guidance
of ASU No. 2009-13. ASU No. 2009-14 is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption and
retrospective application are also permitted. The company is
currently evaluating the impact of adopting the provisions of ASU No.
2009-14.
In
January 2010, the FASB issued Accounting Standards Update No. 2010-06
applicable to FASB ASC 820-10, Improving Disclosures about Fair
Value Measurements. The guidance requires entities to disclose
significant transfers in and out of fair value hierarchy levels and 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). This guidance is
effective for interim and annual periods beginning after December 15, 2009
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. As this guidance provides only
disclosure requirements, the adoption of this standard will not impact the
Company’s consolidated results of operations, cash flows or financial
positions.
On
January 6, 2010, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update 2010-3 (ASU 2010-3), which aligns the oil and gas
reserve estimation and disclosure requirements of Extractive Industries – Oil
and Gas (Topic 932) with the oil and gas reporting requirements of the U.S.
Securities and Exchange Commission’s (SEC) Final Rule, Modernization of Oil and
Gas Reporting Requirements. The SEC Final Rule, which was issued in December
2008, revised and expanded several disclosure requirements for public entities
engaged in oil and gas producing activities. As stated in the adopting release
of the SEC Final Rule, application was contingent on the FASB conforming its
standards to the requirements of the SEC Final Rule. ASU 2010-3 is effective for
annual periods ending on or after December 31, 2009 and is applied prospectively
as a change in estimate. However, entities that became subject to the disclosure
requirements of Topic 932 solely due to the change to the definition of
significant oil and gas producing activities are permitted to apply the
disclosure provisions of Topic 932 in annual periods beginning after December
31, 2009. The company is currently evaluating the impact of adopting the
provisions of ASU No. 2010-3.
Other-Than-Temporary
Impairments
In
April 2009, the FASB issued new guidance for the accounting for
other-than-temporary impairments. Under the new guidance, which is part of ASC
320, Investments — Debt and
Equity Securities (formerly FSP 115-2 and 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments), an other-than-temporary impairment is
recognized when an entity has the intent to sell a debt security or when it is
more likely than not that an entity will be required to sell the debt security
before its anticipated recovery in value. The new guidance does not
amend
72
NOTE
3 – RECENT ACCOUNTING PRONOUNCEMENTS (continued)
existing
recognition and measurement guidance related to other-than-temporary impairments
of equity securities and is effective for interim and annual reporting periods
ending after June 15, 2009. The Company’s adoption of the new guidance did
not have a material effect on the Company’s consolidated financial
statements.
NOTE
4 – DISCONTINUED OPERATIONS
On
December 11, 2009, the Company adopted a plan to discontinue the operations,
sales and support of AutoDoc after determining that the time and
financial commitment required to
expand its operations and to make it
profitable would be too great to pursue
with. Accordingly, the AutoDoc division is being
reported as
a discontinued operation under GAAP
for all periods presented in these
financial statements which requires the income statement and cash
flow information be reformatted to separate the divested business from the
Company’s continuing operations. Net assets of the discontinued
operation at December 31, 2009, were written off and consisted primarily of
inventory, property, plant and equipment, and intangible assets.
The
Company has included the entire amount of a note payable of $514,480 due to the
original owners of the discontinued operation relating to the asset purchase of
AutoDoc in 2007 under liabilities from discontinued operations on its balance
sheet. The Company is commencing legal action to dissolve the note
and recoup its investment in AutoDoc against the bearer of the note for failing
to meet fiduciary responsibilities and for providing material misrepresentations
to the Company during the Asset Purchase.
The
following amounts represent the operations of the discontinued unit and have
been segregated from continuing operations and reported as discontinued
operations as of December 31, 2009 and 2008.
2009
|
2008
|
|||||||
Revenue
|
47,361 | 386,142 | ||||||
Cost
of Revenue
|
- | 18,935 | ||||||
Gross
Profit
|
47,361 | 367,207 | ||||||
Operating
Expenses
|
206,677 | 557,260 | ||||||
Net
Loss
|
(134,246 | ) | (190,053 | ) |
The
following is a summary of assets and liabilities of the discontinued operations
as of December 31, 2008 and 2007.
2009
|
2009
|
|||||||
Assets
|
||||||||
Cash
|
- | - | ||||||
Inventory
|
9,165 | |||||||
Property
and Equipment, net
|
||||||||
Total
Assets
|
- | 40,867 | ||||||
Liabilities
|
||||||||
Accounts
Payable and Accrued Expenses
|
804,141 | 335,712 | ||||||
Total
Liabilities
|
804,141 | 335,712 |
73
NOTE
5 - PROPERTY AND EQUIPMENT
As of
December 31, 2009 and December 31, 2008, a summary of property and equipment and
the estimated useful lives used in the computation of depreciation is as
follows:
Estimated
Useful
|
2009
|
2008
|
|
life
(years)
|
Amount
|
Amount
|
|
Furniture
and fixtures
|
5
|
85,128
|
$32,174
|
Leasehold
improvements
|
3
|
11,073
|
10,423
|
Equipment
|
5
|
270,042
|
245,955
|
366,243
|
288,552
|
||
Less
accumulated depreciation
|
180,038
|
118,215
|
|
$186,205
|
$170,337
|
Depreciation
expense for the years ended December 31, 2009 and 2008 was $66,290 and $22,443,
respectively. Amounts include amortization expense associated with
equipment under capital leases.
NOTE
6- ACCOUNTS RECEIVABLE
As of December 31, 2009, accounts
receivable totaled $289,346.
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
7 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
As of December 31, 2009, accounts
payable and accrued expenses totaled $145,044.
During
the year ended December 31, 2009, the Company determined and analyzed that
certain balances in accounts payable were older than seven years, with no direct
contact with respective vendors to whom the Company owed
$227,563. For the year ended December 31, 2009, the Company had
written back $227,563 as additional paid in capital towards old liabilities no
longer payable, through a resolution of the board of directors. This
adjustment to accounts payable has been reflected in the accompanying statements
of shareholders’ equity as additional paid in capital for the year ended
December 31, 2009.
74
NOTE
8 - LOAN PAYABLE - RELATED PARTIES
The Company, as of December 31, 2009,
has loans due to three of its employees/shareholders in the amount of
$1,002,420. These loans are payable on demand and are non-interest
bearing.
NOTE
9 – NOTE PAYABLE
The Company purchased 130,000,000
shares of Anywhere MD, Inc.’s stock from the majority shareholder of Anywhere
MD., Inc. 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
10 - STOCKHOLDERS' EQUITY
a)
|
Share
Based Employment Compensation
|
For the
year ended December 31, 2009, the Company has employment agreements with three
individuals. The individuals serve as the Company’s Chief Executive
Officer, Chief Financial Officer/Executive Vice President and Chief Technical
Officer. The term of the agreements are for five years and provides
for cash compensation for a total of $1,020,000, however, the three employees
have agreed to accept 2,000,000 shares of the company’s restricted common stock
in lieu of cash compensation. The compensation for 2009 resulted in a
compensation expense of $1,020,000 as an increase in additional paid in
capital.
For the year ended December 31, 2008,
the Company has employment agreements with three individuals. The
individuals serve as the Company’s Chief Executive Officer, Chief Financial
Officer/Executive Vice President and Chief Technical Officer. The
term of the agreements are for five years and provides for cash compensation, ,
however, the three employees have agreed to accept 2,000,000 shares of the
company’s restricted common stock in lieu of cash compensation. The
compensation for 2008, resulting in compensation of $388,800as an increase in
additional paid in capital.
For the
year ended December 31, 2009 and 2008, $1,020,000 and $388,800, were charged to
payroll expense operations for the above mentioned employment
agreement.
Stock-based
compensation:
|
2009
|
2008
|
|
MedLink
Employee, officers and directors stock-based compensation
expense
|
$
|
1,020,000
|
388,800
|
Total
stock-based compensation
|
2,000,000
|
2,000,000
|
b) Share
Based Consultant Services
For the year ended December 31, 2009,
the Company issued 2,300,000 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 $0.43 on the respective
measurement dates of approximately $989,000 as an increase in additional paid-in
capital. Stock-based compensation expense is recognized over the
requisite service periods, all of which expired in 2009.
For the year ended December 31, 2009,
the Company issued 31,281 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 $0.70 on the respective measurement dates of
approximately $21,866.00 as an increase in additional paid-in
capital. Stock-based compensation expense is recognized over the
requisite service periods, all of which expired in 2009.
75
For the
year ended December 31, 2009, the Company issued 15,000 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 $0.52 on the
respective measurement dates of approximately $7,785 as an increase in
additional paid-in capital. Stock-based compensation expense is
recognized over the requisite service periods, all of which expired in
2009.
For the
year ended December 31, 2009 and 2008, $1,018,697 and $2,639,220, were charged
to consulting expense operations for the above mentioned employment
agreement.
Consultant
stock-based compensation:
|
2009
|
2008
|
|
Consultant
stock-based compensation expense
|
$
|
1,018,697
|
2,639,220
|
Total
stock-based compensation
|
2,346,281
|
2,407,000
|
NOTE 10 - STOCKHOLDERS' EQUITY
(continued)
c) Private
Placements
For the year ended December 31, 2009,
the Company entered into subscription agreement for a private placements in the
amount of $60,000 to purchase 100,000 shares of the Company’s Class A Common
stock at a purchase price of $0.60 per share.
For the year ended December 31, 2009,
the Company entered into subscription agreement for a private placements in the
amount of $30,000 to purchase 50,000 shares of the Company’s Class A Common
stock at a purchase price of $0.60 per share.
For the year ended December 31, 2009,
the Company entered into subscription agreement for a private placements in the
amount of $15,000 to purchase 36,586 shares of the Company’s Class A Common
stock at a purchase price of $0.41 per share.
d) Stock
Options
The following is a summary of the stock
options outstanding during the year ended December 31, 2009 and
2008.
The
Company maintains a non-qualified stock option plan. Upon termination of
an employee’s employment with the Company, any unvested restricted stock units
will be forfeited unless otherwise provided in an employee’s employment
agreement. All options expire within 10 years from the date they are
issued or 90 days after termination of employment. MedLink settles
stock option exercises with newly issued common shares.
For the
year ended December 31, 2009, one employee exercised options with an exercise
price of $0.30 utilizing a cashless option to purchase 207,036 shares of the
Company’s stock for $62,111 which was paid in lieu of debt owed to the
employee.
During
2009, 4,000,000 stock options issued to executive officers and board members
that are set to expire in 2016. The options had an exercise price of
$0.51.
During
2009, 200,000 stock options issued to employees that are set to expire in
2013. The options had an exercise price of $0.51.
76
A summary
of the activity in the Company’s Plan for the period of January 1, 2008 through
December 31, 2009 is presented below.
Weighted
Average
|
Weighted
Average
Remaining
|
Aggregate
Intrinsic
|
||
Shares
|
Exercise
Price
|
Contractual
life
in years
|
Value
|
|
Options
outstanding at December 31, 2007
|
1,360,000
|
$0.31
|
4.2
|
$197,110
|
Granted
|
1,000,000
|
$0.85
|
8.2
|
$399,370
|
Canceled/Forfeited
|
(87,011)
|
$0.31
|
||
Exercised
|
(117,989)
|
$0.31
|
(36,577)
|
|
Option
outstanding at December 31, 2008
|
2,155,000
|
$0.55
|
5.9
|
$1,031,150
|
Granted
|
4,200,000
|
$0.51
|
5
|
$2,142,000
|
Canceled/Forfeited
|
-
|
-
|
-
|
-
|
Exercised
|
207,036
|
$0.30
|
$(62,111)
|
|
Option
outstanding at December 31, 2009
|
6,147,,964
|
$0.53
|
$3,111,039
|
NOTE
10 - STOCKHOLDERS' EQUITY (continued)
The
aggregate intrinsic value of stock options outstanding and vested as of December
31, 2008 was $1,031,150, which is based on MedLink’s closing stock price of
$1.50 as of December 31, 2008. The intrinsic value of stock options outstanding
represents the amount that would have been received by the option holders had
all option holders exercised their stock options as of that date.
The
aggregate intrinsic value of stock options outstanding and vested as of December
31, 2009 was $3,111,039 which is based on MedLink’s closing stock price of $0.51
as of December 31, 2009. The intrinsic value of stock options outstanding
represents the amount that would have been received by the option holders had
all option holders exercised their stock options as of that date.
Additional
information regarding all options outstanding as of December 31, 2009, is as
follows:
Outstanding
Options
|
Exercisable
Options
|
||||
Number
of
|
Average
|
Average
|
Number
of
|
Average
|
|
Options
|
Remaining
|
Exercise
|
Options
|
Exercise
|
|
Exercise
Price
|
Outstanding
|
Contractual
Life
|
Price
|
Outstanding
|
Price
|
$0.30
|
1,360,000
|
4.2
|
$0.30
|
1,360,000
|
$0.30
|
$0.85
|
1,000,000
|
8.2
|
$0.85
|
$1,000,000
|
$0.85
|
$.51
|
4,200,000
|
5
|
$0.51
|
0
|
-
|
k) Deferred charges represent
commission and consulting services to be rendered, which was paid for by the
issuances of the Company’s common shares. Such charges were being shown as a
reduction of the Company’s stockholders’ equity in the accompanying Consolidated
Statement of Stockholders’ Equity and were amortized over the period of the
services rendered.
77
NOTE
11 – INCOME TAXES
The
provision (benefit) for income taxes from continued operations for the years
ended December 31, 2009 and 2008 consist of the following:
2009
|
2008
|
|||||||
Current:
|
||||||||
Federal
and state
|
$ | 0 | $ | 0 | ||||
Deferred:
|
||||||||
Federal
and state
|
$ | $ | (1,746,308 | ) | ||||
Benefit
from the operating loss carry forward
|
$ | $ | 1,746,308 | |||||
Benefit
for income taxes, net
|
$ | 0 | $ | 0 |
The
difference between income tax expense computed by applying the federal statutory
corporate tax rate and actual income tax expense is as follows:
2009
|
2008
|
|||||||
Statutory
federal income tax rate
|
34.0 | % | 34.0 | % | ||||
State
income taxes
|
6.0 | % | 6.0 | % | ||||
Valuation
allowance
|
(40.0 | )% | (40.0 | )% | ||||
Effective
tax rate
|
(0.0 | )% | (0.0 | )% |
Deferred
income taxes result from temporary differences in the recognition of income and
expenses for the financial reporting purposes and for tax
purposes. The net deferred tax assets and liabilities are comprised
of the following:
The
Company has a net operating loss carry forward of approximately $17,094,371
available to offset future taxable income through 2020. The Company
made a 100% valuation allowance at December 31, 2009.
NOTE
12 - COMMITMENTS AND CONTINGENCIES
The
Company’s rental lease in Ronkonkoma, New York expires on February 28,
2014.
Minimum
annual lease commitments are as follows:
Year
ended December 31,
|
|
2010
|
$80,780
|
2011
|
$84,486
|
2012
|
$88,184
|
2013
|
$91,880
|
2014
|
$15,416
|
78
MedLink
is delinquent in filing their sales tax and payroll tax returns.
NOTE
13- 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.
During
the two most recent fiscal years and the interim periods through December 31,
2009, there were no disagreements with Jewett Schwartz, Wolfe & Associates
("JSWA"), the independent auditor of the Company, on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of "JSWA"
would have caused them to make reference to this subject matter of the
disagreements in connection with their report, nor were there any "reportable
events" as such term is described in Item 304(a)(1)(iv) of Regulation
S-B.
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 annual report on Form
10-K, 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, 2009: (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.
79
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-K fairly present, in
all material respects, the Company’s financial position, results of operations
and cash flows for the periods and dates presented.
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over
financial reporting is a process designed under the supervision of our principal
executive and principal financial officers to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with GAAP.
Under the
supervision and with the participation of our management, including our chief
executive officer and chief financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting as of December
31, 2009.
Consequently,
we lack the controls and procedures that would be appropriate for a public
reporting company of our size and stature.
As a
result of the material weaknesses described below, our management concluded that
as of December 31, 2009 we did not maintain effective internal control over
financial reporting based on the criteria established in Internal
Control—Integrated Framework, issued by COSO.
As of
December 31, 2009, the Company had yet to become compliant with SOX 404 and
maintain effective internal controls; however, the progress of the Company’s
remedial measures is detailed below. The Company expects to be
compliant by the end of 2009.
A
“material weakness” is a significant deficiency, or combination of significant
deficiencies that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements presented will not be
prevented or detected. A “significant deficiency” is a control deficiency, or
combination of control deficiencies, that adversely affects a company’s ability
to initiate, authorize, record, process or report external financial data
reliably in accordance with GAAP such that there is more than a remote
likelihood that a misstatement of the annual or interim financial statements
presented that is more than inconsequential will not be prevented or
detected.
At
December 31, 2009, and as of that date, management has identified the following
material weaknesses in our internal control over financial reporting, and has
proposed the following plan of implementation with respect to each material
weakness:
·
|
Weakness: The Company’s
board of directors has yet to pass a formal resolution to put in place a
strategic plan and framework in order to comply with the regulations
placed on issuers concerning internal
controls.
|
Implementation Plan: The
board of directors intends to pass a resolution to adopt the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) Framework which
provides for a structure to establish a control environment, risk assessment,
control activities, information and communication, and monitoring of effective
internal controls. The board also intends that the Chief Executive Officer shall
be made to take ultimate ownership of establishing an effective internal control
system.
As of
December 31, 2009, the Company had not yet passed a formal resolution, however,
Board has instructed the Company’s Chief Financial Officer, to take charge of
the implementation of a system of an internal control system that will
ultimately meet the goal of compliance with SOX 404 Act. The Company
notes that, Board Members and Senior Financial Officers, their expertise in US
financial reporting standards and related internal controls that, has never been
evaluated. The Company anticipates hiring more
professionals/consultants with experience in SOX 404 to enable the Company to
effectively address this issue.
80
·
|
Weakness: The Company
lacks a comprehensive Code of Ethics that is applicable to the entire
Company including officers, employees, and
directors.
|
Implementation Plan: The
Company intends to adopt a formal Code of Ethics that will communicated to all
personnel at all levels of the organization, and that senior management will be
held to a standard that they will be responsible to encourage an environment
that promotes ethical behavior and discourages both the necessity of, and the
opportunities to act unethically.
As of
December 31, 2009, the Company has not adopted a formal code of
ethics. The Company intends to adopt and distribute this Code
of Ethics to relevant employees, and to hold discussions with such employees as
to how it applies.
·
|
Weakness: The Company
lacks a guideline that specifically states the objective and core
functions of the Company so that there is no ambiguity to all members of
the organization as to what type of business transactions the Company
should be conducting. This guideline should also be reviewed on regular
basis by management and the Board of Directors in order to address the
ever changing business environment and the demands of the
market.
|
Implementation Plan:
Management intends to prepare a guideline that the board of directors
will review and adopt.
As of
December 31, 2009 the Board of Directors and management have written and adopted
a formal guideline that defines the Company’s core business lines and how to
grow within these lines of business on a five year basis. The
Company, however, has yet to provide evidence that the Company has complied with
such guideline.
|
Weakness: The Company
accounting department is currently understaffed and lacks personnel with
expertise in US GAAP and SEC reporting
standards.
|
Implementation Plan: The
Company is currently in the hiring process for staff accountants to fulfill the
demands and rigors of being a US public reporting company. The Company will also
provide training to existing employees on the requirements of US GAAP and SEC
Reporting standards.
As of
December 31, 2009 the Company has a Chief Financial Officer, however as of the
date of this report, the Company continues to be in pursuit of a senior
financial reporting officer knowledgeable in US GAAP and SEC Reporting
standards. The Company’s previous attempts to fill this role have not
resulted in long term fit for the Company and its needs. Upon hiring
of a senior financial reporting officer, that individual could further hire and
train personnel as needed. The Company intends to retain a recruiting
firm to help with filling this role.
|
Weakness: The Company
does not have an internal audit function and
department.
|
Implementation Plan: The
Company will establish an internal audit department.
As of
December 31, 2009 the Company has not yet created an internal audit
department. The planning of this new department is currently under
evaluation, and has yet to be determined.
|
Weakness: The Company
does not have a standardized and unified Enterprise Resource Planning
Software (ERP). The Company’s accounting systems are disparate and
sometimes manual in nature which makes them neither scalable nor efficient
for financial reporting purposes and management decision making
needs.
|
Implementation Plan: The
Company will review its current ERP systems and consider the need to either
purchase a new package or revise the functionality and deployment of its current
systems.
81
As of
December 31, 2009, the Company had issued requests for proposals for ERP systems
that will meet the growing needs of the Company. Upon receipt and
acceptance of the appropriate bid, the Company expects that a system will be
fully implemented by the end of 2009.
This
report does not specifically detail all possible material weaknesses of the
Company that may lead to material misstatements in the Company’s financial
statements. However, we believe the foregoing report serves as a valuable
evaluation of the current status of the Company’s internal
controls.
Any one
of the material weaknesses described above could result in a misstatement of the
aforementioned accounts or disclosures that would result in a material
misstatement to the annual or interim Consolidated Financial Statements that
might not be prevented or detected. As a result, management has determined that
each of the control deficiencies discussed above constitutes a material
weakness.
This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.
Changes
in Internal Control over Financial Reporting
There
were no changes in internal control over financial reporting (as defined in Rule
13a-15f under the Exchange Act) that occurred during the fourth quarter of 2009
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Part III
|
Item 10. Directors, Executive
Officers, and Corporate
Governance
|
Directors,
Executive Officers, Promoters and Control Persons
The following table sets forth the
name, age, and position of each executive officer and director and the term of
office of each director of the Company.
Name
|
Age
|
Position
|
Director
or Officer Since
|
Ray
Vuono
|
44
|
Chief
Executive Officer, President and Chairman of the Board
|
January
1, 2004
|
Konrad
Kim
|
38
|
Chief
Technology Officer and Director
|
October
1, 2000
|
Dr.
Michael Carvo
|
57
|
Director
|
January
1, 2002
|
James
Rose
|
31
|
Chief
Financial Officer and Executive Vice President
|
January
1, 2004
|
All Directors hold their positions for
one year and until their successors are duly elected and
qualified. All officers hold their positions at the discretion of the
Board of Directors.
Set forth below is certain biographical
information regarding each of the Company's executive officers and
directors:
82
Ray
Vuono, Chief Executive Officer and Chairman
Mr. Vuono
has more than 20 years of leadership experience building global brands and
guiding top-tier companies. An accomplished corporate strategist and marketer,
his vision and expertise in business performance have driven notable enterprise
growth in the insurance, pharmaceutical, and finance sectors. Mr. Vuono has
served as the Company's President and Chief Executive Officer since 2004 and as
a consultant to the company since 2001. Offering a rare blend of creative and
operational strengths, Ray has achieved exciting company and product turnarounds
and is recognized for his success in growing sales and profits. His strategic
approach to building a business is reflected in his work as CEO of RayvonVC, a
private venture capital firm where his concept creations and focus on diverse
investment mix quickly delivered impressive bottom-line results. His turnaround
capability is highlighted by his accomplishments as President & CEO of the
National Support Systems, where he led a distressed company to record
profitability through brand revitalization that included major shifts in brand
strategy, operations, product design, packaging, marketing communications, and
sales techniques. Mr. Vuono's exceptional track record of business improvement
is based on his philosophy of total enterprise engagement in change. He is known
for his ability to quickly identify and diagnose sales and growth impediments
that go far beyond marketing, working with companies to refine their
organizational structure, product lines, sourcing, sales channels, market
position, as well as point-of-sale and general advertising. Mr. Vuono holds a
Bachelor of Science in Economics from the University of Calgary where he also
played football for the national champion University of Calgary Dinosaurs in
1985.
Jameson
Rose, Executive Vice President & Chief Financial Officer
As chief
financial officer and executive vice president of MedLink International, Inc.,
Rose holds management responsibilities for the company's finance, business
development, investor relations, and business service functions. Jameson has
served MedLink in various capacities since 2001 until being appointed as the
company's CFO in January of 2004. Mr. Rose's expertise in operations, finance,
and business development will help ensure continued growth and success for
MedLink International. Before his Career at MedLink, Mr. Rose served as VP of
Finance at Ambassador Capital Group and has served as an independent consultant
in various investment banking transactions and advising on inorganic growth
efforts, focusing on mergers and acquisitions, and strategic alliances. Mr. Rose
has a bachelor of science with honors in Financial Economics from Staffordshire
University in the U.K. and a Masters in Accounting and Financial Management the
Keller Graduate School of Management.
Konrad
Kim, Chief Technology Officer and Director
Appointed
Chief Technology Officer of MedLink International, Inc.
in 2004, Konrad Kim is responsible for all aspects of MedLink's
national IT infrastructure and line-of-business application development,
support and maintenance, including information service delivery and security.
Under Mr. Kim's direction, the IT department is dedicated to working with
business partners to accelerate MedLink's business by aligning MedLink's
technology deployment strategy with its business strategy. The IT department
takes a leadership role in the design of world-class, integrated strategies,
processes and architecture that ensure the integrity of MedLink's security
platforms and a more productive, efficient and valuable use of information
within the in hand information technology arena. Konrad is passionate about
technology and its possibilities on improving the in hand industry as a
whole. Prior to his appointment as MedLink's CTO, Konrad served various
roles at iClips.com, Gateway.com, Moody's Investor Services, Columbia House and
Sony. Mr. Kim holds a Bachelor of Science in Natural Sciences from the
University of Wisconsin.
Dr.
Michael Carvo, Director
Dr.
Michael Carvo has been a member of the Company’s board of directors since
January 1, 2002. Dr. Michael Carvo is a family physician, who has
been practicing out of Farmingdale, Long Island for over twenty years. Dr. Carvo
became involved with MedLink in 1995, when it was a medical answering service
called Communications 2001. Dr. Carvo brings the experience and expertise of a
functioning, private practitioner to MedLink USA, which allows the company to
meet the needs of a modern medical office.
83
Family
Relationships
There are no family relationships among
the Directors or Officers.
Compliance
with Section 16(a) of the Exchange Act
Not applicable.
Item
11.
|
Executive
Compensation
|
The following compensation was paid to
the Company’s Chief Executive Officer and other officers during the periods
indicated:
SUMMARY COMPENSATION
TABLE
|
||||||||||||||
Long
Term Compensation
|
||||||||||||||
Annual
Compensation
|
Awards
|
Payouts
|
||||||||||||
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compensation ($)
|
Restricted
Stock Award(s) (#)
|
Securities
Underlying Options/SARs (#)
|
LTIP
Payouts ($)
|
All
Other Compensation ($)
|
||||||
Ray
Vuono, CEO (1)
|
||||||||||||||
2009
|
$0
|
$0
|
$0
|
955,882
|
2,000,000
|
-
|
-
|
|||||||
2008
|
$4,290
|
$0
|
$0
|
1,376,471
|
480,000
|
-
|
-
|
|||||||
-
|
-
|
|||||||||||||
Jameson
Rose, CFO (2)
|
||||||||||||||
2009
|
$0
|
$0
|
$0
|
808,824
|
1,500,000
|
-
|
-
|
|||||||
2008
|
$4,290
|
$0
|
$0
|
1,164,705
|
400,000
|
-
|
-
|
|||||||
-
|
-
|
|||||||||||||
Konrad
Kim, CTO (3)
|
||||||||||||||
2009
|
$0
|
$0
|
$0
|
235,294
|
500,000
|
-
|
-
|
|||||||
2008
|
$4,290
|
$0
|
$0
|
338,823
|
120,000
|
-
|
-
|
84
|
(1)
|
Mr.
Vuono received minimal cash payments at the minimum wage rate to qualify
for the Company’s health benefits during the year ended December 31, 2008,
but did receive 2,332,353 shares of common stock for the years ended
December 31, 2008 and 2009, in lieu of
salary.
|
|
(2)
|
Mr.
Rose received minimal cash payments at the minimum wage rate to qualify
for the Company’s health benefits during the year ended December, 31,
2008, but did receive 1,973,529 shares of common stock as payment for the
years ended December 31, 2008 and 2009, in lieu of
salary.
|
|
(3)
|
Mr.
Kim received minimal cash payments at the minimum wage rate to qualify for
the Company’s health benefits during the year ended December, 31, 2008,
but did receive 574,117 shares of common stock as payment for the years
ended December 31, 2008 and 2009, in lieu of
salary.
|
Item
12.
|
Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters
|
Security
Ownership of Certain Beneficial Owners
The following table sets forth
information furnished to the Company with respect to the beneficial ownership of
our common stock by each executive officer and director named below, by all
directors and executive officers as a group and by anyone know to the Company to
beneficially own more than 5% of the Company’s securities, each as of March 31,
2010. Unless otherwise indicated, each of the persons listed has sole voting and
dispositive power with respect to the shares shown as beneficially
owned.
Title of
Class Name
and Address of Beneficial
Owner Amount
and Nature of Beneficial OwnershipPercent of Class
-----------------------------------------------------------------------------------------------------------------------------------------
$.001 par
(1)
Ray
Vuono 8,666,524
20.22%
value
per
1 Roebling Court
share
Ronkonkoma, New York 11779
common
$.001 par
(2) Jameson
Rose 6,742,941
15.58%
value
per 1
Roebling Court
share Ronkonkoma,
New York 11779
common
$.001
par Jerry
Bermensolo 4,169,778
9.63%
value
per 1087
W. River St, Suite 280
share Boise,
ID 83702
common
$.001 par
(3) Konrad
Kim 1,851,764 4.28%
value
per 1
Roebling Court
share Ronkonkoma,
New York 11779
common
$.001
par
Dr. Michael Carvo,
Director 472,676
1.09%
value
per 1 Roebling
Court
share
Ronkonkoma, New York 11779
common
85
All
officers and directors as a group (four persons)
(1)-(4) 17,773,905
41.17%
(1) Includes
2,752,964 shares issuable upon the exercise of options granted to Mr. Vuono
pursuant to Mr. Vuono’s employment agreement.
(2) Includes
2,300,000 shares issuable upon the exercise of options granted to Mr. Rose
pursuant to his employment agreement.
(3)
Includes 740,000 shares issuable upon the exercise of options granted to Mr. Kim
pursuant to his employment agreement.
On an
ongoing basis Ray Vuono and James Rose, our Chief Executive Officer and Chairman
of the Board and James Rose, our Chief Financial Officer, have provided the
Company with interim financing, which we repay when funds are available. We do
not pay any interest on the money loaned to us by Mr. Vuono or Mr.
Rose.
We
believe that the terms of all of the above transactions are commercially
reasonable and no less favorable to us than we could have obtained from an
unaffiliated third party on an arm’s length basis. Our policy requires that all
related parties recuse themselves from negotiating and voting on behalf of our
company in connection with related party transactions.
|
Board
Determination of Independence
|
|
|
Our board
of directors has determined that Dr. Michael Carvo is “independent” as that term
is defined by the National Association of Securities Dealers Automated
Quotations (“NASDAQ”), but that neither Ray Vuono nor Konrad Kim can be deemed
“independent” in light of their employment as executive officers of the
Company.
Audit
Fees
The
aggregate fees billed by our principal accountant for the audit of our annual
financial statements, review of financial statements included in the quarterly
reports and other fees that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for the fiscal
years ended December 31, 2009 and 2008 were $37,500 and $40,465,
respectively.
2009 2008
Audit
Related
Fees $36,000 $37,500
Tax
Fees $
1,500
$
2,965
All
Other Fees
Out-of-Pocket
Expenses
Total
$37,500 $
40,465
86
Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors
The
Company currently does not have a designated Audit Committee, and accordingly,
the Company’s Board of Directors’ policy is to pre-approve all audit and
permissible non-audit services provided by the independent auditors. These
services may include audit services, audit-related services, tax services and
other services. Pre-approval is generally provided for up to one year and any
pre-approval is detailed as to the particular service or category of services
and is generally subject to a specific budget. The independent auditors and
management are required to periodically report to the Company’s Board of
Directors regarding the extent of services provided by the independent auditors
in accordance with this pre-approval, and the fees for the services performed to
date. The Board of Directors may also pre-approve particular services on a
case-by-case basis.
PART
IV
SEC
Ref.
No. Title
of Document
--------- ----------------------
3.1 Amended
of Articles of Incorporation (1)
3.2 Bylaws
(1)
21.1 Subsidiaries
of the Registrant (Filed
herewith)
23.1 Consent
of Independent Auditor (Filed
herewith)
31.1 Certification
of Ray Vuono pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002; (Filed herewith)
31.2
|
Certification
of Jameson Rose pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002; (Filed
herewith)
|
32.1 Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
32.2 Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002. (Filed herewith)
(1) Incorporated
by this reference from the Annual Report on Form 10-KSB for the year ended
December 31, 2005, filed with the Securities and Exchange Commission on April
17, 2006.
87
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.
MEDLINK
INTERNATIONAL, INC.
By: /s/ Ray
Vuono
Dated: April 15,
2010
Ray Vuono, Chief Executive Officer and
President
By: /s/ Konrad
Kim
Dated: April 15,
2010
Konrad Kim, Director
By: /s/ Dr.
Michael
Carvo
Dated: April 15,
2010
Director
By: /s/ James
Rose
Dated:April 15,
2010
Executive Vice President and
Principal Financial Officer
SUPPLEMENTAL INFORMATION TO BE
FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE EXCHANGE ACT BY
NON-REPORTING ISSUERS*
There were no annual reports to
security holders covering the registrant's last fiscal year.
* The
proxy materials furnished to the Commission shall not be considered to be
“filed” or subject to the liabilities of Section 18 of the Exchange
Act.
88
Exhibit
21.1
List
of Subsidiaries
Name Percentage
Ownership
KRad
Konsulting,
LLC 100%
MedLink
USA,
Inc.
100%
Western
Media Acquisition
Corp.
100%
(Formerly
Western Media Sports Holdings, Inc.)
Western
Media Publishing
Corporation
100%
MedLink
VPN,
Inc. 100%
Norika
USA,
Inc. 100%
MedLink
FE,
Inc. 100%
MedLink
India Software,
Ltd.
100%
89
Exhibit
23.1
CONSENT
OF INDEPENDENT AUDITORS
--------------------------------------------------------
We hereby
consent to the inclusion in this Annual Report on Form 10-K, of our report
dated April 15, 2010 of MedLink International, Inc. relating to the financial
statements as of December 31, 2009 and 2008.
/s/
Jewett, Schwartz, Wolfe & Associates
Dated:
April 15, 2010
----------------------------------------------------
Jewett,
Schwartz, Wolfe & Associates
90