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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
 
Item 1.                      Business
 

 
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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
 
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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.
 

 
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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.

 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 

 
 
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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.

 
Item 1A.                       Risk Factors
 
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.
 
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.
 

 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
 
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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
 
 
 
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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.
 
 
 
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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.
 

 
 
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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.
 
 
 
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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.
 
 
 
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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.

Item 1B.                       Unresolved Staff Comments

Not Applicable

 
 
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Item 2. Properties

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.

Item 3.  Legal Proceedings

In the normal course of business, we are involved in various claims and legal proceedings. While the ultimate resolution of these currently pending matters has yet to be determined, we do not presently believe that their outcome will adversely affect our financial position, results of operations or liquidity.


Item 4. Submission of Matters to a Vote of Security Holders

During the Calendar year of 2009 there was no submission of matter to a vote by the Company’s shareholders

Part II

Item 5.  Market for Registrants Common Equity and Related Stockholder Matters.

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

 

 
 
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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.
 
 
 
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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.
 
 
 
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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.
 
 
 
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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.


Item 6. Selected Financial Data

The financial statements of the Company appear under Item 8. of this report.



Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operation

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.
 
 
 
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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.
 
 
 
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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”).
 
 
 
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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.”
 
 
 
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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.
 

 
 
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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.

 

 
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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.
 
 
 
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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. 
 
 
 
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      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.
 
 
 
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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.
 
 
 
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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.
 
 

 
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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.


Item 7A. Quantitative and Qualitative Disclosures about Market Risk

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.


Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


MEDLINK INTERNATIONAL INC.

CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 and 2008

_________________________________________________________________________________

  Part I:  Financial Statements






 
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.

CONSOLIDATED BALANCE SHEETS

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.

CONSOLIDATED STATEMENTS OF OPERATIONS

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.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
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.

CONSOLIDATED STATEMENTS OF CASH FLOWS
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

 
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
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.

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
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. AS