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EX-31.2 - MEDLINK CERTIFICATION - MEDLINK INTERNATIONAL, INC.ex31-2.htm
EX-32.1 - MEDLINK CERTIFICATION - MEDLINK INTERNATIONAL, INC.ex32-1.htm
EX-31.1 - MEDLINK CERTIFICATION - MEDLINK INTERNATIONAL, INC.ex31-1.htm
EX-32.2 - MEDLINK CERTIFICATION - MEDLINK INTERNATIONAL, INC.ex32-2.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, 2010
 
     
[  ]
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, 2010 were $5,997,450

The aggregate market value of the voting and non-voting equity held by non-affiliates as of March 31, 2011 based upon the closing price of the Common Stock on the OTCQB for such date was $43,077,853 as of March 31, 2011.  There were a total of approximately 22,421,138 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, 2010
Class A Common Stock, $0.001 par value
42,233,190
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, 2010
 
 

 
       
Part I
     
Item 1.
4
Item 1A.
14
Item 1B.
45
Item 2.
45
Item 3.
45
Item 4.
45
 
Part II
   
Item 5
46
Item 6
49
Item 7
49
Item 7A.
62
Item 8.
-
Item 9
84
Item9AT.
85
 
Part III
   
Item 10.
87
Item 11.
89
Item 12.
89
Item 13.
91
Item 14.
91
 
PART IV
   
Item 15.
92
 
93
 
 
 
2

 
 
 
April 15, 2011
 
 
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 leading healthcare information technology company focused on clinical, information and connectivity solutions that are focused on improving the quality and efficiency of care.    MedLink sells and supports various clinical software applications for physician practices, laboratories, and other healthcare organizations including MedLink’s flagship ambulatory iSuite EHR.  MedLink’s iSuite EHR is a 2011/2012 compliant Complete EHR technology, achieving 5 star usability rating, and has been certified by the Certification Commission for Healthcare Information Technology (“CCHIT”), in accordance with the applicable ONC-ATCB certification criteria.  MedLink’s iSuite EHR is priced below competing products with similar comprehensive services and is only one of four EHR’s to be “Qualified” by CMS for direct reporting.  MedLink also provide various clinical software applications for physician practices, hospitals and laboratories and radiology centers, including practice management, revenue cycle management services, electronic prescribing (e-prescribing), document management, interfacing, and a variety of lab outreach solutions for laboratories and hospitals. We also offer a broad range of services, including integration and interfacing services of 3rd party lab and hospitals systems, implementation and training, revenue cycle management services, and support and maintenance.
 
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.   MedLink’s business strategy is to build critical mass and develop a national presence among small to medium sized physician practices by increasing market penetration of the MedLink iSuite EHR, through direct sales and strategic alliances.  The small physician practice market segment remains largely un-penetrated for EHRs, with less than 20% of practices in the market having yet to adopt EHR technology. With more than $30 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 iSuite 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.
 

 
OUR SOLUTIONS
 
 
MedLink has designed a product offering that encompasses innovative thinking with practical solutions. MedLink’s suite of healthcare offerings range from EHR, revenue cycle management, hospital and laboratory outreach, interoperability and connectivity solutions, and a Health Information Network platform.
 
 
MedLink iSuite EHR
 
 
iSuite is an integrated solution designed to enhance physician productivity while combining both EHR and practice management into one unified database. iSuite automates the most common physician activities, including prescribing, dictating, ordering lab tests and viewing results, documenting clinical encounters and capturing charges, among others.  iSuite was designed specifically for the small to medium sized specialty and multi-specialty practices, allowing physicians to improve the way they capture, manage, exchange and store patient information.  ISuite also provides a practice management system that streamlines administrative aspects of physician practices, such as patient scheduling, electronic remittances, electronic claims submission, claims management, appointment reminders, electronic statement production and reporting.
 
 
 
4

 
 
 
This iSuite EHR 4.0 is 2011/2012 compliant and has been certified by the CCHIT®, an ONC-ATCB, in accordance with the applicable certification criteria for eligible providers adopted by the Secretary of Health and Human Services.  iSuite EHR 4.0 is also a CCHIT Certified® 2011 Ambulatory EHR that not only meets the currently established requirements for ARRA IFR Stage1 but also CCHIT's rigorous standards. During the inspection process, iSuite 4.0 EHR received a 5 star usability rating out of 5 stars. This rating further demonstrates the ease of use that our customers have become accustomed to.
 
 
By providing iSuite as a cloud based application available on-demand over the Internet using a web browser we believe that we have significantly increased the ease of adoption of our solutions. This capability is especially important for physicians in independent practice and small groups who make up nearly half the U.S. physician population that lack the IT resources and know-how to manage an on-premise software application.   Physicians can instantly access our web-based clinical solutions from a variety of locations, such as exam rooms, at the hospital or even remotely from some smart phones.  Our solutions run on tablet PCs, a wide variety of smartphones, desktop workstations and other wireless devices, as well as over the Internet in a hosted or “cloud” secure environment.
 
 
MedLink IX
 
MedLink IX (Information eXchange) is an enterprise connectivity solution that links providers and healthcare services to achieve interoperability, deployed in commercial and hospital laboratories as an interoperability solution to connect the laboratory and hospital information systems with disparate systems.  MedLink IX is a flexible HL7 interface engine and gives commercial labs and hospitals a low cost, user-friendly, cloud-based solution  that acts as a central hub for hospitals and clinical labs to deploy and manage the sharing of clinical information across the care continuum.  IX eliminates the burden on hospital and lab IT staff to build and maintain multiple interfaces, and provides an advanced interoperability foundation allowing healthcare facilities to support physicians with the interoperability and connectivity requirements of the HITECH Act and the meaningful use of health information technology.  MedLink IX enables the bi-directional sharing of clinical information such as lab results, radiology reports, and discharge summaries allowing for providers to make real time informed decisions at the point of care.  Deployed as a web based solution, MedLink IX takes a hub and spoke approach to allow for the rapid deployment and on demand scalability required to meet the increasing interoperability demands of physicians while maintaining current IT infrastructure and all but eliminating costly and labor intensive point-to-point interfaces, and technical support demands.
 
MedLink Lab
 
 
MedLink Lab is a web browser based lab ordering and results portal hosted on MedLink's virtual cloud platform.  Clinical Labs, Hospitals Labs, Pathology Labs, and Radiology Centers can offer this robust product to obtain clean requisitions and dynamic reporting features. MedLink Lab is entirely web-based so physician offices can use existing hardware already in place. Results and requisitions can be easily found in the system so no more searching for missing papers. One page order entry makes creating requisitions fast and easy. ABN checking is done upfront letting the physician know before the order is placed. Result reports can easily be viewed online and stored in the patients chart for cumulative trending. Result filtering options make finding specific reports quickly.
 
 
MedLink CONNECT
 
 
MedLink Connect allows for current laboratory services to utilize MedLink IX to deliver laboratory results to multiple HIS, EMR as well as Health Information networks. MedLink IX will convert HL7 results from the LIS, AP, or Radiology system to the required format of the physician's EMR. Orders placed from the physician's EMR system will be picked up and delivered to the Lab so the order can be processed. MedLink Connect allows for EHR users to export to other Practice Management systems for billing purposes. MedLink Connect also interfaces the physician's Practice Management System to the MedLink Lab portal. The patient's demographic and insurance information is bridged over into the system to complete an order with the most current information. This reduces billing errors and saves process time when claims are submitted to the insurance company.
 
 
 
 
5

 
 
 

 
 
SALES AND MARKETING
 
 
We have developed sales and marketing capabilities aimed at expanding our network of physician clients. We expect to expand our network by selling our services to new clients and leveraging strategic partnerships to market our products and services to their client base. We have a direct sales force, which we augment through our channel partners and marketing initiatives.
 
 
Marketing Initiatives
 
 
 
 
 
 Our marketing initiatives are generally targeted towards specific segments of the physician practice market. These marketing programs primarily consist of: traditional print advertising; search advertising and other Internet-focused awareness; campaigns to engage hospitals in discussions about their approach to the affiliated physician market; participation in industry-focused trade shows; targeted mail, e-mail, and phone calls to physician practices.
 
 
 
 
 
Direct Sales
 
 
 
 
 
We sell our services primarily through our direct sales force. Our sales force is supported by personnel in our marketing organization, who provide specialized support for demonstration and sales support. Due to our ongoing service relationship with clients, we conduct a consultative sales process. This process includes understanding the needs of prospective clients, developing service proposals, and negotiating contracts to enable the commencement of services.
 
 
 
 
 
 
6

 

 
 
Channel Partners
 
 
In addition to our direct sales force, we maintain business relationships with third parties that promote or support our sales or services within specific industries or geographic regions. 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 from providing the Company introductions to other Channel Partners that have fully established sales, implementation and support infrastructure to support their respective clients white labeling the MedLink iSuite EHR.  The involvement of channel partners in the sales process varies from providing us with leads that we use to develop new business through our direct sales force to other channel partners that act as an independent sales representative.  Our channel relationships include Revenue Cycle Management companies, clinical laboratories, Imaging Centers, healthcare product distribution companies, consulting firms, group purchasing organizations, and regional health information organizations (RHIO’s).
 
 
 
 
 
HEALTHCARE INFORMATION TECHNOLOGY MARKET
 
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.  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.  Recent and existing government programs provide funds that represent significant income opportunities for existing EHR users and new EHR adopters.
 
While healthcare is not immune to recent economic turbulence, we believe it is more resilient than most segments of the economy and fundamental drivers for healthcare IT demand and adoption remain intact. A positive factor for U.S. healthcare is the fact that the Obama Administration is pursuing broad healthcare reform aimed at improving issues surrounding healthcare. The American Recovery and Reinvestment Act (“ARRA”), which became law on February 17, 2009, includes more than $20 billion to help healthcare organizations modernize operations through the acquisition of health care information technology. The Certification Commission for Health Information Technology (“CCHIT®”), a non-profit organization recognized by the Office of the National Coordinator for Health Information Technology as an approved Authorized Testing and Certification Body, announced that our EHR solution was certified as a Complete EHR and 2011/2012 compliant in January of 2011, which comes off the heels of the Stage 1 Meaningful Use definition criteria under the ARRA. With the lifting of the many Meaningful Use definition uncertainties, which has impacted software revenue, we believe we are well positioned to aid physicians and hospitals with their EHR decisions as they prepare to make incentive-based purchases.
 
We believe there are several factors that are favorable for the HIT industry over the next decade as HIT solutions play an important role in healthcare by improving safety, efficiency and reducing cost, they are often viewed as more strategic than other capital purchases. Most United States healthcare providers also recognize that they must invest in HIT to meet regulatory, compliance and government reimbursement requirements and incentive opportunities.  In addition, with the Centers for Medicare and Medicaid Services estimating United States healthcare spending at $2.6 trillion or 17.5 percent of 2010 Gross Domestic Product, politicians and policymakers agree that the growing cost of our healthcare system is unsustainable.  Leaders of both political parties recognize that the intelligent use of information systems will improve health outcomes and, correspondingly, drive down costs.  This belief is supported by a study by RAND Corp., which estimated that the widespread adoption of HIT in the United States could cut healthcare costs by $162 billion annually.
 
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.
 
 
 
 
7

 
 
MedLink believes that it offers as comprehensive of an EHR application as its competitors, and in many cases at a fraction of the cost.  MedLink’s 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.
 
 
Competition
The market for Ambulatory EHR solutions and services is competitive, however, is limited with few Vendors that offer a full solution that will meet the clinical, financial, interoperability and adhere to the federal incentive requirements. The market for our products and services is characterized by rapidly evolving technology and product 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. 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.
We believe that we compete favorably with our competitors on the basis of these factors. However, many of our competitors and potential competitors have significantly greater financial, technological, and other resources and name recognition than we do, as well as more established distribution networks and relationships with healthcare providers. As a result, many of these companies may respond more quickly to new or emerging technologies and standards and changes in customer requirements. These companies may be able to invest more resources than we can in research and development, strategic acquisitions, sales and marketing, and patent prosecution and litigation and to finance capital equipment acquisitions for their customers.
Software and service companies that sell practice management and EHR software services include GE Healthcare; Sage Software Healthcare, Inc.; Allscripts-Misys Healthcare Solutions, Inc.; Athena Health, Inc.; eClinicalWorks, LLC; and Quality Systems, Inc. As a service company that provides medical billing revenue cycle management services, we also compete against regional billing companies.

 
MARKET DRIVERS
 
 
Economic Stimulus Package Provides Incentives for Physicians to Adopt EHRs
 
 
MedLink’s iSuite 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.  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, and 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.
 
 
 
8

 
 
 
Pay for Performance
 
 
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.
 
 
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.
 

FUTURE CAPITAL REQUIREMENTS
 
 
On November 26, 2010, MedLink and several institutional investors entered into a Subscription Agreement, pursuant to which Investors purchased from the Company a senior secured convertible debenture, in the principal amount of $1,250,000 with an original issue discount of 10% to the principal amount (“Debenture”).  The Debenture bears interest at a rate of 10% per annum and is convertible into shares of the Company’s class A common stock at any time commencing nine months from the date of the Debenture at a conversion price of $0.83 per shares, subject to adjustment.  The Debenture is due and payable on May 26, 2012.   The net proceeds were used by MedLink to finance a portion of the MedAppz Asset Purchase and to finance general working capital needs.
 
The obligations of MedLink under the Debenture are secured, subject to permitted liens and other agreed upon exceptions, by a perfected first priority security interest in all of the tangible and intangible assets (including, without limitation, intellectual property) of the Company until such time as the Debentures are repaid or converted in full. 
 
The Debenture will mature with 1/18 monthly installments of $69,444.44 commencing on September 1, 2011, and quarterly interest payments commencing on March 1, 2011, with the  remaining principal balance and interest be due and payable on May 26, 2012.
 
 
 
9

 

 
 
       
Quarterly Interest Payments
 
Quarterly Interest Amount
 
March 1, 2011
  $ 33,218.86  
June 1, 2011
  $ 31,164.09  
September 1, 2011
  $ 31,164.09  
December 1, 2011
  $ 30,821.63  
March 1, 2012
  $ 30,821.63  
May 26, 2012
  $ 28,766.85  
Total Interest Payments
  $ 185,957.14  
 

 
Subject to certain exceptions, the Convertible Debt Agreement allows MedLink to voluntarily prepay outstanding Notes, in whole or in part, at MedLink’s option at any time upon prior notice. The facilities also contain certain customary events of default, including relating to non-payment, breach of covenants, cross-default, bankruptcy and change of control.
 
 We believe that our future cash flows will provide adequate resources to fund ongoing operating cash requirements for the next twelve months, funding interest and principal payments on our debt instruments obligations, contractual obligations, and investment needs of our current business. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of this report. We will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies, which might impact our liquidity requirements or cause us to issue additional equity or debt securities.
 
If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we might be required to obtain additional sources of funds through additional operating improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.

 
Contractual Obligations
We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as operating lease contract obligations are not recognized as liabilities in our consolidated financial statements but are required to be disclosed.

Convertible Debt Obligations
Payment Due Date
 
Interest Payment
   
Principal Payment
 
3/1/2011
  $ 33,218.86        
6/1/2011
  $ 31,164.09        
9/1/2011
  $ 31,164.09     $ 69,444.44  
10/1/2011
          $ 69,444.44  
11/1/2011
          $ 69,444.44  
12/1/2011
  $ 30,821.63     $ 69,444.44  
1/1/2012
          $ 69,444.44  
2/1/2012
          $ 69,444.44  
3/1/2012
  $ 30,821.63     $ 69,444.44  
4/1/2012
          $ 69,444.44  
5/1/2012
          $ 69,444.44  
5/24/2012
  $ 28,766.85       625,000.00  
 
2011 Total
  $ 126,368.66     $ 277,778.78  
2012 Total
  $ 59,588.48     $ 972,222.22  
Total
  $ 185,957.14     $ 1,250,000  
 
 
 
 
10

 

 
Operating Leases
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, 2010:

         
Less than
         
 
Total
 
1 year
 
1-3 years
     Operating lease obligations
  $ 651,608     $ 145,697     $ 474,118  

The commitments under our operating leases shown above consist primarily of lease payments for our Ronkonkoma, New York corporate headquarters and our Naples, Florida and Hyderabad, India locations.
 
Off-Balance Sheet Arrangements
 
 
As of December 31, 2010 and December 31, 2009, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
 
 
Customer Dependence
 
 
MedLink believes that its future success will be dependent on it developing strategic relationships with established healthcare organizations and leveraging their existing footprint of clients and marketing initiatives.  Without these relationships, MedLink’s business is unlikely to succeed.
 
 
Intellectual Property
 
 
We use trademarks, trade names and service marks for healthcare information services and technology solutions, including: MedLink iSuite EHR, MedLink EHR, MedLink IX.  We also use other registered and unregistered trademarks and service marks for our various services. We have registered the domain names that either are or may be relevant to conducting our business, including:

 
www.medlinkus.com
www.isuiteehr.com
www.medlinkpacs.com
www.medappz.com
www.medlinkvpn.com
www.medlinkix.com
www.medlinkphr.com
www.medlinktv.com
www.krad.com
www.mymedlinkchart.com
www.petmedchart.com
www.medlinkchart.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, service marks 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.
 
 
 
 
11

 
 
Research & Development
 
 
MedLink in 2010 committed heavily towards research and development, the majority of which was spent on development of MedLink IX, MedLink Lab and the continued development of MedLink’s ambulatory EHR applications.  The Company intends to increase its research and development activities in 2011 to continue enhancements on the MedLink EHR to keep up with the ever changing HIT market by expanding its R&D in Hyderabad, India.
 
 
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.
 
 
 
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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.
 
 
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.
 
 
 
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Item 1A.                      Risk Factors
Our operating results and financial condition have varied in the past and may in the future vary significantly depending on a number of factors. Except for the historical information in this report, the matters contained in this report include forward-looking statements that involve risks and uncertainties. The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this report and presented elsewhere by management from time to time. Such factors, among others, may have a material adverse effect upon our business, results of operations, and financial condition.
 
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.
 
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.
 
We may incur substantial costs related to product-related liabilities.
 
Many of our software solutions, healthcare devices or services are intended for use in collecting, storing and displaying clinical and healthcare-related information used in the diagnosis and treatment of patients and in related healthcare settings such as admissions, billing, etc. We attempt to limit by contract our liability; however, the limitations of liability set forth in the contracts may not be enforceable or may not otherwise protect us from liability for damages. We may also be subject to claims that are not covered by contract, such as a claim directly by a patient. Although we maintain liability insurance coverage in an amount that we believe is sufficient for our business, there can be no assurance that such coverage will cover any particular claim that has been brought or 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. A successful material claim or series of claims brought against us, if uninsured or under-insured, could materially harm our business, results of operations and financial condition. Product-related claims, even if not successful, could damage our reputation, cause us to lose existing clients, limit our ability to obtain new clients, divert management’s attention from operations, result in significant revenues loss, create potential liabilities for our clients and us and increase insurance and other operational costs.
 
We may be subject to claims for system errors and warranties.
 
Our software solutions and healthcare devices are very complex and may contain design, coding or other errors, especially when first introduced. It is not uncommon for HCIT providers to discover errors in software solutions and/or healthcare devices after their introduction. Our software solutions and healthcare devices are intended for use in collecting, storing, and displaying clinical and healthcare-related information used in the diagnosis and treatment of patients and in related healthcare settings such as admissions, billing, etc. Therefore, users of our software solutions and healthcare devices have a greater sensitivity to errors than the market for software products and devices generally. Our client agreements typically provide warranties concerning material errors and other matters. Should a client’s software solution and/or healthcare device fail to meet these warranties or lead to faulty clinical decisions or injury to patients, it could i) constitute a material breach under the client agreement, allowing the client to terminate the agreement and possibly obtain a refund and/or damages, or might require us to incur additional expense in order to make the software solution or healthcare device meet these criteria or ii) subject us to claims or litigation by our clients or clinicians or directly by the patient. Our client agreements generally limit our liability arising from such claims but such limits may not be enforceable in certain jurisdictions or circumstances. Although we maintain liability insurance coverage in an amount that we believe is sufficient for our business, there can be no assurance that such coverage will cover any particular claim that has been brought or 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. A successful material claim or series of claims brought against us, if uninsured or under-insured, could materially harm our business, results of operations and financial condition.
 
 
 
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We may experience interruption at our data centers or client support facilities.
 
We perform data center and/or hosting services for certain clients, including the storage of critical patient and administrative data. In addition, we provide support services to our clients through various client support facilities. We have invested in reliability features such as multiple power feeds, multiple backup generators and redundant telecommunications lines, as well as technical (such as multiple overlapping security applications and countermeasures) and physical security safeguards, and structured our operations to reduce the likelihood of disruptions. Periodic risk assessments are conducted to ensure additional risks are identified and appropriately mitigated. However, complete failure of all local public power and backup generators, impairment of all telecommunications lines, a “concerted denial of service cyber-attack”, damage (environmental, accidental, intentional or pandemic) to the buildings, the equipment inside the buildings housing our data centers, the client data contained therein and/or the personnel trained to operate such facilities could cause a disruption in operations and negatively impact clients who depend on us for data center and system support services. Any interruption in operations at our data centers and/or client support facilities could damage our reputation, cause us to lose existing clients, hurt our ability to obtain new clients, result in significant revenue loss, create potential liabilities for our clients and us and increase insurance and other operating costs.
 
Our proprietary technology may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others.
 
We rely upon a combination of license agreements, confidentiality policies and procedures, employee nondisclosure agreements, confidentiality agreements with third parties and technical security measures to maintain the confidentiality, exclusivity and trade secrecy of our proprietary information. We also rely on trademark and copyright laws to protect our intellectual property rights in the United States and abroad.  Patents do not provide comprehensive protection for the wide range of solutions and services offered by us. Despite our protective measures and intellectual property rights, we may not be able to adequately protect against theft, copying, reverse-engineering, misappropriation, infringement or unauthorized use or disclosure of our intellectual property.
 
If we become liable to third parties for infringing or misappropriating their intellectual property rights, we could be required to pay a substantial damage award, develop alternative technology, obtain a license and/or cease using, selling, offering for sale, licensing, importing, implementing and supporting the solutions, devices and services that violate the intellectual property rights.
 
If our content and service providers fail to perform adequately, or to comply with laws, regulations or contractual covenants, our reputation and our business, financial condition and results of operations could be adversely affected.
 
We depend on independent content and service providers for communications and information services and for many of the benefits we provide through our software applications and services, including the maintenance of managed care pharmacy guidelines, drug interaction reviews, the routing of transaction data to third-party payers and the hosting of our applications. Our ability to rely on these services could be impaired as a result of the failure of such providers to comply with applicable laws, regulations and contractual covenants, or as a result of events affecting such providers, such as power loss, telecommunication failures, software or hardware errors, computer viruses and similar disruptive problems, fire, flood and natural disasters. Any such failure or event could adversely affect our relationships with our customers and damage our reputation. This would adversely affect our business, financial condition and results of operations. In addition, we may have no means of replacing content or services on a timely basis or at all if they are inadequate or in the event of a service interruption or failure.
 
We also rely on independent content providers for the majority of the clinical, educational and other healthcare information that we provide. In addition, we depend on our content providers to deliver high quality content from reliable sources and to continually upgrade their content in response to demand and evolving healthcare industry trends. If these parties fail to develop and maintain high quality, attractive content, the value of our brand and our business, financial condition and results of operations could be impaired.
 
We may be liable for use of content we provide.
 
We provide content for use by healthcare providers in treating patients. Third-party contractors provide us with most of this content. If this content 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 our security is breached, we could be subject to liability, and customers could be deterred from using our services.
 
Our business relies on electronic transmission of confidential patient and other information. We believe that any well-publicized compromise of our network security or a misappropriation of patient information or other data would adversely affect our reputation and would require us to devote significant financial and other resources to alleviate such problems. In addition, our existing or potential customers could be deterred from using our products and services, and we could be subject to liability and regulatory action. We could face financial loss, litigation and other liabilities to the extent that our activities or the activities of third-party contractors involve the storage and transmission of confidential information, such as patient records or credit information.
 
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.
 
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.
 
 
 
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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
 
If physicians do not accept our products and services, or delay in deciding whether to purchase our products and services, our business, financial condition and results of operations will be adversely affected.
 
Our business model depends on our ability to sell our products and services. Acceptance of our products and services requires physicians to adopt different behavior patterns and new methods of conducting business and exchanging information. We cannot assure you that physicians and hospitals will integrate our products and services into their workflow or, that participants in the healthcare market will accept our products and services as a replacement for traditional methods of conducting healthcare transactions. Achieving market acceptance for our products and services will require substantial sales and marketing efforts and the expenditure of significant financial and other resources to create awareness and demand by participants in the healthcare industry. If we fail to achieve broad acceptance of our products and services by physicians and other healthcare industry participants or if we fail to position our services as a preferred method, our business, financial condition and results of operations will be adversely affected.
 
We may not see the benefits of government programs initiated to accelerate the adoption and utilization of health information technology and to counter the effects of the current economic situation.
 
While government programs have been initiated to improve the efficiency and quality of the healthcare sector and also counter the effects of the current economic situation, including expenditures to stimulate business and accelerate the adoption and utilization of health care technology, we cannot assure you that we will receive any of those funds. For example, the passage of the Health Information Technology for Economic and Clinical Health Act, or HITECH, under the American Recovery and Reinvestment Act of 2009 (ARRA) authorizes what is expected to be up to almost $30 billion in expenditures, including discretionary funding, to further adoption of electronic health records. Although we believe that our service offerings will meet the requirements of the HITECH Act in order for our clients to qualify for financial incentives for implementing and using our services, there can be no certainty that any of the planned financial incentives, if made, will be made in regard to our services. We also cannot predict the speed at which physicians will adopt electronic health record systems in response to such government incentives, whether physicians will select our products and services or whether physicians will implement an electronic health record system at all. Any delay in the purchase and implementation of electronic health records systems by physicians in response to government programs, or the failure of physicians to purchase an electronic health record system, could have an adverse effect on our business, financial condition and results of operations. It is also possible that Congress will repeal or not fund HITECH or otherwise amend it in a manner that would be unfavorable to our business.
 
Our failure to compete successfully could cause our revenue or market share to decline.
 
The market for our products and services is intensely competitive and is characterized by rapidly evolving technology and product 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 potential incentives provided by the Stimulus and 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 another 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.
 
 
 
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Our principal existing competitors in the physician healthcare information systems and services market include AllScripts Healthcare Solutions, Athenahealth Inc., Cerner Corporation, eClinicalWorks Inc., Emdeon Business Services LLC, Epic Systems Corporation, General Electric Company, McKesson Corporation, Quality Systems, Inc., and Sage Software, Inc.
 
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.
 
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.
 
The market for our services is relatively immature and volatile, and if it does not develop further or if it develops more slowly than we expect, the growth of our business will be harmed.
 
            The market for is still relatively new and narrowly based, and it is uncertain whether these services will achieve and sustain high levels of demand and market acceptance. Our success will depend to a substantial extent on the willingness of enterprises, large and small, to increase their use of on-demand business services in general, and for their revenue, clinical and patient cycles in particular. Many enterprises have invested substantial personnel and financial resources to integrate established enterprise software into their businesses, and therefore may be reluctant or unwilling to switch to an on-demand application service. Furthermore, some enterprises may be reluctant or unwilling to use on-demand application services, because they have concerns regarding the risks associated with security capabilities, among other things, of the technology delivery model associated with these services. If enterprises do not perceive the benefits of our services, then the market for these services may not expand as much or develop as quickly as we expect, either of which would significantly adversely affect our operating results. In addition, as a relatively new company in the healthcare business services market, we have limited insight into trends that may develop and affect our business. We may make errors in predicting and reacting to relevant business trends, which could harm our business. If any of these risks occur, it could materially adversely affect our business, financial condition, or results of operations.
 
If we do not continue to innovate and provide services that are useful to users, we may not remain competitive, and our revenues and operating results could suffer.
 
            Our success depends on providing services that the medical community uses to improve business performance and quality of service to patients. Our competitors are constantly developing products and services that may become more efficient or appealing to our clients. As a result, we must continue to invest significant resources in research and development in order to enhance our existing services and introduce new high-quality services that clients will want. If we are unable to predict user preferences or industry changes, or if we are unable to modify our services on a timely basis, we may lose clients. Our operating results would also suffer if our innovations are not responsive to the needs of our clients, are not appropriately timed with market opportunity, or are not effectively brought to market. As technology continues to develop, our competitors may be able to offer results that are, or that are perceived to be, substantially similar to or better than those generated by our services. This may force us to compete on additional service attributes and to expend significant resources in order to remain competitive.
 
As a result of our variable sales and implementation cycles, we may be unable to recognize revenue to offset expenditures, which could result in fluctuations in our quarterly results of operations or otherwise harm our future operating results.
 
            The sales cycle for our services can be variable, typically ranging from one to four months from initial contact to contract execution. During the sales cycle, we expend time and resources, and we do not recognize any revenue to offset such expenditures. Our implementation cycle is also variable, typically ranging from two to five months from contract execution to completion of implementation. Some of our new-client set-up projects are complex and require a lengthy delay and significant implementation work. Each client’s situation is different, and unanticipated difficulties and delays may arise as a result of failure by us or by the client to meet our respective implementation responsibilities. In some cases, especially those involving larger clients, the sales cycle and the implementation cycle may exceed the typical ranges by substantial margins. During the implementation cycle, we expend substantial time, effort, and financial resources implementing our services, but accounting principles require us to defer revenue until the service has been implemented, at which time we begin recognition of implementation revenue over an expected attribution period of the longer of the estimated expected customer life, currently twelve years, or the contract term. This could harm our future operating results.
 
 
 
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After a client contract is signed, we provide an implementation process for the client during which appropriate connections and registrations are established and checked, data is loaded into our system, data tables are set up, and practice personnel are given initial training. The length and details of this implementation process vary widely from client to client. Typically, implementation of larger clients takes longer than implementation for smaller clients. Implementation for a given client may be cancelled. Our contracts typically provide that they can be terminated for any reason or for no reason in 90 days. Despite the fact that we typically require a deposit in advance of implementation, some clients have cancelled before our services have been started. In addition, implementation may be delayed or the target dates for completion may be extended into the future for a variety of reasons, including the needs and requirements of the client, delays with payer processing, and the volume and complexity of the implementations awaiting our work. If implementation periods are extended, our provision of the revenue cycle, clinical cycle, or patient cycle services upon which we realize most of our revenues will be delayed, and our financial condition may be adversely affected. In addition, cancellation of any implementation after it has begun may involve loss to us of time, effort, and expenses invested in the cancelled implementation process and lost opportunity for implementing paying clients in that same period of time.
 
            These factors may contribute to substantial fluctuations in our quarterly operating results, particularly in the near term and during any period in which our sales volume is relatively low. As a result, in future quarters our operating results could fall below the expectations of securities analysts or investors, in which event our stock price would likely decrease.
 
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.
 
It is difficult to predict the sales cycle and implementation schedule for our software solutions.
 
The duration of the sales cycle and implementation schedule for our software solutions depends on a number of factors, including the nature and size of the potential customer and the extent of the commitment being made by the potential customer, which is difficult to predict. Our sales and marketing efforts with respect to hospitals and large health organizations generally involve a lengthy sales cycle due to these organizations’ complex decision-making processes. Additionally, in light of increased government involvement in healthcare, and related changes in the operating environment for healthcare organizations, our current and potential customers may react by curtailing or deferring investments, including those for our services. If potential customers take longer than we expect to decide whether to purchase our solutions, our selling expenses could increase and our revenues could decrease, which could harm our business, financial condition and results of operations. If customers take longer than we expect to implement our solutions, our recognition of related revenue would be delayed, which would adversely affect our business, financial condition and results of operations.
 
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.
 
 
 
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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 2010, and if these conditions and client reactions continue in 2011, 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.
 
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.
 

 
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RISKS RELATED TO THE HEALTHCARE IT INDUSTRY AND MARKET
 
The Healthcare Industry is subject to changing political, economic and regulatory influences.
 
For example, the Health Insurance Portability and Accountability Act of 1996 (as modified by The Health Information Technology for Economic and Clinical Health Act (HITECH) provisions of the American Recovery and Reinvestment Act of 2009) (HIPAA) continues to have a direct impact on the healthcare industry by requiring national provider identifiers and standardized transactions/code sets and necessary security and privacy measures in order to ensure the appropriate level of privacy of protected health information. These regulatory factors affect the purchasing practices and operation of healthcare organizations.
 
Many healthcare providers are consolidating to create integrated healthcare delivery systems with greater market power. These providers may try to use their market power to negotiate price reductions for our solutions and services. As the healthcare industry consolidates, our client base could be eroded, competition for clients could become more intense and the importance of landing new client relationships becomes greater.
 
In 2010, the Patient Protection and Affordable Care Act became law. This comprehensive healthcare reform legislation included provisions to control healthcare costs, improve healthcare quality, and expand access to affordable health insurance. This healthcare reform legislation could include changes in Medicare and Medicaid payment policies and other healthcare delivery administrative reforms that could potentially negatively impact our business and the business of our clients. Because the administrative rules implementing healthcare reform under the legislation have not yet been finalized, the impact of the healthcare reform legislation on our business is unknown, but there can be no assurances that healthcare reform legislation will not adversely impact either our operational results or the manner in which we operate our business. Healthcare industry participants may respond by reducing their investments or postponing investment decisions, including investments in our solutions and services.
 
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, especially in response to recent government subsidies. 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.
 
Changes in interoperability standards applicable to our software could require us to incur substantial additional development costs.
 
Our clients and the industry leaders enacting regulatory requirements are concerned with and often require that our software solutions and healthcare devices be interoperable with other third party health IT suppliers. Market forces or governmental/regulatory authorities could create software interoperability standards that would apply to our solutions, and if our software solutions and/or healthcare devices are not consistent with those standards, we could be forced to incur substantial additional development costs. The CCHIT has developed a comprehensive set of criteria for the functionality, interoperability and security of various software modules in the health IT industry. CCHIT, however, continues to modify and refine those standards. Achieving CCHIT certification is becoming a competitive requirement, resulting in increased software development and administrative expense to conform to these requirements. These standards and specifications, once finalized, will be subject to interpretation by the entities designated to certify such technology. We will incur increased development costs in delivering solutions if we need to upgrade our software and healthcare devices to be in compliance with these varying and evolving standards, and delays may result in connection therewith. If our software solutions and healthcare devices are not consistent with these evolving standards, our market position and sales could be impaired and we may have to invest significantly in changes to our software solutions and healthcare devices, although we do not expect such costs to be significant in relation to the overall development costs for our solutions.
 
 
 
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HITECH is resulting in new business imperatives, and failure to provide our clients with health information technology systems that are “certified” under HITECH could result in breach of some client obligations and put us at a competitive disadvantage.
 
HITECH, which is part of ARRA, provides financial incentives for hospitals and doctors that demonstrate that they are “meaningful electronic health record users,” and mandates use of health information technology systems that are “certified” according to technical standards developed under the supervision of the Secretary of the Department of Health and Human Services. HITECH also imposes certain requirements upon governmental agencies to use, and requires health care providers, health plans, and insurers contracting with such agencies to use, systems that are certified according to such standards. HITECH can adversely affect our business in at least three ways. First, we have invested and continue to invest in conforming our applicable clinical software to these standards and further significant investment will be required as certification standards evolve (the full Stage 2 requirements, for instance, are still in their early stages). Second, recently signed customers and new client prospects are requiring us to agree that our software will be certified according to applicable HITECH technical standards so that, assuming clients properly use the electronic health record software and satisfy the “meaningful use” and other requirements of HITECH, they will qualify for available incentive payments. We plan to meet these requirements as part of our normal software maintenance obligations, and failure to comply could result in costly contract breach and jeopardize our relationships with clients who are relying upon us to provide certified software. Third, if for some reason we are not able to comply with these HITECH standards in a timely fashion after their issuance, our offerings will be at a severe competitive disadvantage in the market to the offerings of other electronic health record vendors who have complied.
 
We are subject to a number of existing laws, regulations and industry initiatives, non-compliance with certain of which could materially adversely affect 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 regulation 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 under the 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, and laws related to distribution and marketing, including off-label promotion of prescription drugs that may be directly or indirectly applicable to our operations and relationships or the business practices of our customers. 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.
 
Healthcare Fraud
 
 Federal and state governments continue to enhance regulation of and increase their scrutiny over practices involving healthcare fraud affecting healthcare providers whose services are reimbursed by Medicare, Medicaid and other government healthcare programs. Our healthcare provider clients are subject to laws and regulations on fraud and abuse which, among other things, prohibit the direct or indirect payment or receipt of any remuneration for patient referrals, or arranging for or recommending referrals or other business paid for in whole or in part by these federal or state healthcare programs. Federal enforcement personnel have substantial funding, powers and remedies to pursue suspected or perceived fraud and abuse. The effect of this government regulation on our clients is difficult to predict. Many of the regulations applicable to our clients and that may be applicable to us; including those relating to marketing incentives offered in connection with medical device sales, is vague or indefinite and has not been interpreted by the courts. They may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could broaden their applicability to us or require our clients to make changes in their operations or the way in which they deal with us. If such laws and regulations are determined to be applicable to us and if we fail to comply with any applicable laws and regulations, we could be subject to civil and criminal penalties, sanctions or other liability, including exclusion from government health programs, which could have a material adverse effect on our business, results of operations and financial condition.
 
 
 
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E-Prescribing
 
The use of our solutions by physicians for electronic prescribing, electronic routing of prescriptions to pharmacies and dispensing is governed by federal and state laws. States have differing prescription format requirements, which we have programmed into our solutions. In addition, in November 2005, the Department of Health and Human Services announced regulations by Centers for Medicare and Medicaid Services (CMS) related to “E-Prescribing and the Prescription Drug Program” (E-Prescribing Regulations). These E-Prescribing Regulations were mandated by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The E-Prescribing Regulations set forth standards for the transmission of electronic prescriptions. These standards are detailed and significant, and cover not only transactions between prescribers and dispensers for prescriptions but also electronic eligibility, benefits inquiries, drug formulary and benefit coverage information. Our efforts to provide solutions that enable our clients to comply with these regulations could be time-consuming and expensive.
 
Claims Transmissions
 
Our solutions are capable of electronically transmitting claims for services and items rendered by a physician to many patients’ payers for approval and reimbursement, which claims are governed by federal and state laws. Federal law provides civil liability to any person that knowingly submits a claim to a payer, including Medicare, Medicaid and private health plans, seeking payment for any services or items that have not been provided to the patient. Federal law may also impose criminal penalties for intentionally submitting such false claims. We have policies and procedures in place that we believe result in the accurate and complete transmission of claims, provided that the information given to us by our clients is also accurate and complete. The HIPAA security, privacy and transaction standards, as discussed below, also have a potentially significant effect on our claims transmission services, since those services must be structured and provided in a way that supports our clients’ HIPAA compliance obligations. In connection with these laws, we may be subjected to federal or state government investigations and possible penalties may be imposed upon us, false claims actions may have to be defended, private payers may file claims against us and we may be excluded from Medicare, Medicaid or other government-funded healthcare programs. Any investigation or proceeding related to these laws may have a material adverse impact on our results of operations.
 
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 HIPAA, HITECH 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 certain patient identifiable health information (called Protected Health Information). The Privacy Standards grant a number of rights to individuals as to their Protected Health Information and restrict the use and disclosure of Protected Health Information by Covered Entities, defined as “health plans,” “health care providers, “and “health care clearinghouses.” 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. We have taken steps we believe to be appropriate and required to bring our group health plan into compliance with HIPAA and HITECH. For our operating functions, we believe that we are a hybrid entity, with both covered and non-covered functions under HIPAA. In addition, certain provisions of the Privacy and Security Standards apply to 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 and HITECH and its implementing regulations, that the third party will safeguard Protected Health Information that it creates or accesses and will fulfill other material obligations. 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 and HIPAA and HITECH if we do not comply with our Business Associate obligations and applicable provisions of the Privacy and Security Standards and HITECH and its implementing regulations. The penalties for a violation of HIPAA or HITECH 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 that are providers are required to adopt a unique standard National Provider Identifier, or 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 us and 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 was May 23, 2007, for all but small health plans, and May 23, 2008 for small health plans. We have policies and procedures that we believe comply with 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 or for our customers in compliance with the Transaction Standards and Security Standards and are capable of being used by or for 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 civil and/or criminal liability, fines and lawsuits, termination of our customer contracts or our operations could be shut down. Moreover, because all HIPAA Standards and HITECH implementing regulations and guidance are subject to change or interpretation, we cannot predict the full future impact of HIPAA or HITECH on our business and operations. In the event that the HIPAA or HITECH 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 HITECH 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 the state level. 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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Evolving HIPAA and HITECH
 
Related laws or regulations and regulations in non-U.S. jurisdictions could restrict the ability of our clients to obtain, use or disseminate patient information. This could adversely affect demand for our solutions if they are not re-designed in a timely manner in order to meet the requirements of any new interpretations or regulations that seek to protect the privacy and security of patient data or enable our clients to execute new or modified healthcare transactions. We may need to expend additional capital, software development and other resources to modify our solutions and devices to address these evolving data security and privacy issues. Furthermore, our failure to maintain confidentiality of sensitive personal information in accordance with the applicable regulatory requirements could damage our reputation and expose us to breach of contract claims (although we contractually limit liability, when possible and where permitted), fines and penalties.
 
Interoperability Standards
 
Our clients are concerned with and often require that our software solutions and healthcare devices be interoperable with other third party HIT suppliers. Market forces or governmental/regulatory authorities could create software interoperability standards that would apply to our solutions, and if our software solutions and/or healthcare devices are not consistent with those standards, we could be forced to incur substantial additional development costs to conform. The Certification Commission for Healthcare Information Technology (CCHIT) has developed a comprehensive set of criteria for the functionality, interoperability and security of various software modules in the HIT industry. CCHIT, however, continues to modify and refine those standards. Achieving CCHIT certification is becoming a competitive requirement, resulting in increased software development and administrative expense to conform to these requirements. Additionally, various federal, state and non-U.S. government agencies are also developing standards that could become mandatory for systems purchased by these agencies. For example, ARRA requires “meaningful use of certified electronic health record technology” by healthcare providers in order to receive incentive payments. Regulations have been issued that identify initial standards and implementation specifications and establish the certification standards for qualifying electronic health record technology. Nevertheless, these standards and specifications are subject to interpretation by the entities designated to certify such technology. While a combination of our solutions have been certified as meeting the initial standards for certified health record technology, the regulatory standards to achieve certification will continue to evolve over time. We may incur increased development costs and delays in delivering solutions if we need to upgrade our software and healthcare devices to be in compliance with these varying and evolving standards. In addition, delays in interpreting these standards may result in postponement or cancellation of our clients’ decisions to purchase our solutions. If our software solutions and healthcare devices are not consistent with these evolving standards, our market position and sales could be impaired and we may have to invest significantly in changes to our software solutions and healthcare devices, although we do not expect such costs to be significant in relation to the overall development costs for our solutions.

 
Anti-Referral Laws
 
There are federal and state laws that forbid payment for patient referrals, patient brokering, remuneration of patients, or billing based on referrals between individuals and/or entities that have various financial, ownership, or other business relationships with health care providers. In many cases, billing for care arising from such actions is illegal. These vary widely from state to state, and one of the federal laws — called the Stark Law — is very complex in its application. Any determination by a state or federal regulatory agency that any of our clients violate or have violated any of these laws may result in allegations that claims that we have processed or forwarded are improper. This could subject us to civil or criminal penalties, require us to change or terminate some portions of our business, require us to refund portions of our services fees, and have an adverse effect on our business. Even an unsuccessful challenge by regulatory authorities of our activities could result in adverse publicity and could require a costly response from us.
 
Corporate Practice of Medicine Laws and Fee-Splitting Laws
 
Many states have laws forbidding physicians from practicing medicine in partnership with non-physicians, such as business corporations. In some states, including New York, these take the form of laws or regulations forbidding splitting of physician fees with non-physicians or others. In some cases, these laws have been interpreted to prevent business service providers from charging their physician clients on the basis of a percentage of collections or charges. We have varied our charge structure in some states to comply with these laws, which may make our services less desirable to potential clients. Any determination by a state court or regulatory agency that our service contracts with our clients violate these laws could subject us to civil or criminal penalties, invalidate all or portions of some of our client contracts, require us to change or terminate some portions of our business, require us to refund portions of our services fees, and have an adverse effect on our business. Even an unsuccessful challenge by regulatory authorities of our activities could result in adverse publicity and could require a costly response from us.
 
 
 
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Anti-Assignment Laws
 
There are federal and state laws that prohibit or limit assignment of claims for reimbursement from government-funded programs. In some cases, these laws have been interpreted in regulations or policy statements to limit the manner in which business service companies may handle checks or other payments for such claims and to limit or prevent such companies from charging their physician clients on the basis of a percentage of collections or charges. Any determination by a state court or regulatory agency that our service contracts with our clients violate these laws could subject us to civil or criminal penalties, invalidate all or portions of some of our client contracts, require us to change or terminate some portions of our business, require us to refund portions of our services fees, and have an adverse effect on our business. Even an unsuccessful challenge by regulatory authorities of our activities could result in adverse publicity and could require a costly response from us.
 
Claims Transmission Laws
 
Our services include the manual and electronic transmission of our client’s claims for reimbursement from payers. Federal and various state laws provide for civil and criminal penalties for any person who submits, or causes to be submitted, a claim to any payer (including, without limitation, Medicare, Medicaid, and any private health plans and managed care plans) that is false or that overbills or bills for items that have not been provided to the patient. Although we do not determine what is billed to a payer, to the extent that such laws apply to a service that merely transmits claims on behalf of others, we could be subject to the same civil and criminal penalties as our clients.
 
Prompt Pay Laws
 
Laws in many states govern prompt payment obligations for healthcare services. These laws generally define claims payment processes and set specific time frames for submission, payment, and appeal steps. They frequently also define and require clean claims. Failure to meet these requirements and timeframes may result in rejection or delay of claims. Failure of our services to comply may adversely affect our business results and give rise to liability claims by clients.
 
Medical Device Laws
 
The U.S. Food and Drug Administration (FDA) has promulgated a draft policy for the regulation of computer software products as medical devices under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. To the extent that computer software is a medical device under the policy, we, as a provider of application functionality., could be required, depending on the functionality, to: register and list our products with the FDA; notify the FDA and demonstrate substantial equivalence to other products on the market before marketing our functionality; or obtain FDA approval by demonstrating safety and effectiveness before marketing our functionality.  The FDA can impose extensive requirements governing pre- and post-market conditions such as service investigation and others relating to approval, labeling, and manufacturing. In addition, the FDA can impose extensive requirements governing development controls and quality assurance processes.
 
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.
 
 
 
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Potential healthcare reform and new regulatory requirements placed on our software, services, and content could impose increased costs on us, delay or prevent our introduction of new services types, and impair the function or value of our existing service types.
 
Our services may be significantly impacted by healthcare reform initiatives and are subject to increasing regulatory requirements, either of which could affect our business in a multitude of ways. If substantive healthcare reform or applicable regulatory requirements are adopted, we may have to change or adapt our services and software to comply. Reform or changing regulatory requirements may render our services obsolete or may block us from accomplishing our work or from developing new services. This may in turn impose additional costs upon us to adapt to the new operating environment or to further develop services or software. It may also make introduction of new service types more costly or more time consuming than we currently anticipate. Such changes may even prevent introduction by us of new services or make the continuation of our existing services unprofitable or impossible.
 
Potential additional regulation of the disclosure of health information outside the United States may adversely affect our operations and may increase our costs.
 
            Federal or state governmental authorities may impose additional data security standards or additional privacy or other restrictions on the collection, use, transmission, and other disclosures of health information. Legislation has been proposed at various times at both the federal and the state level that would limit, forbid, or regulate the use or transmission of medical information outside of the United States. Such legislation, if adopted, may render our use of our off-shore partners, such as our data-entry and customer service providers for work related to such data impracticable or substantially more expensive. Alternative processing of such information within the United States may involve substantial delay in implementation and increased cost.
 
Changes in the healthcare industry could affect the demand for our services, cause our existing contracts to terminate, and negatively impact the process of negotiating future contracts.
 
            As the healthcare industry evolves, changes in our client and vendor bases may reduce the demand for our services, result in the termination of existing contracts, and make it more difficult to negotiate new contracts on terms that are acceptable to us. For example, the current trend toward consolidation of healthcare providers within hospital systems may cause our existing client contracts to terminate as independent practices are merged into hospital systems. Such larger healthcare organizations may also have their own practice management services and health IT systems, reducing demand for our services. Similarly, client and vendor consolidation results in fewer, larger entities with increased bargaining power and the ability to demand terms that are unfavorable to us. If these trends continue, we cannot assure you that we will be able to continue to maintain or expand our client base, negotiate contracts with acceptable terms, or maintain our current pricing structure, and our revenues may decrease.
 
 Errors or illegal activity on the part of our clients may result in claims against us.
 
            We require our clients to provide us with accurate and appropriate data and directives for our actions. We also rely upon our clients as users of our system to perform key activities in order to produce proper claims for reimbursement. Failure of our clients to provide these data and directives or to perform these activities may result in claims against us alleging that our reliance was misplaced or unreasonable or that we have facilitated or otherwise participated in submission of false claims.
 
 Potential subsidy of services similar to ours may reduce client demand.
 
            Recently, entities such as the Massachusetts Healthcare Consortium have offered to subsidize adoption by physicians of EHR technology. In addition, federal regulations have been changed to permit such subsidy from additional sources subject to certain limitations, and the current administration has passed the HITECH Act, which will provide federal support for EHR initiatives. To the extent that we do not qualify or participate in such subsidy programs, demand for our services may be reduced, which may decrease our revenues.
 
 
 
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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.
 
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.
 
 
 
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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.
 
We intend to continue strategic business acquisitions, which are subject to inherent risks.
 
In order to expand our solutions, device offerings and services and grow our market and client base, we may continue to seek and complete strategic business acquisitions that we believe are complementary to our business. Acquisitions have inherent risks which may have a material adverse effect on our business, financial condition, operating results or prospects, including, but not limited to: 1) failure to successfully integrate the business and financial operations, services, intellectual property, solutions or personnel of an acquired business and to maintain uniform standard controls, policies and procedures; 2) diversion of management’s attention from other business concerns; 3) entry into markets in which we have little or no direct prior experience; 4) failure to achieve projected synergies and performance targets; 5) loss of clients or key personnel; 6) incurrence of debt and/or assumption of known and unknown liabilities; 7) write-off of software development costs, goodwill, client lists and amortization of expenses related to intangible assets; 8) dilutive issuances of equity securities; and, 9) accounting deficiencies that could arise in connection with, or as a result of, the acquisition of an acquired company, including issues related to internal control over financial reporting and the time and cost associated with remedying such deficiencies. 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.
 
If we acquire companies or technologies in the future, they could prove difficult to integrate, disrupt our business, dilute stockholder value, and adversely affect our operating results and the value of our common stock.
 
            As part of our business strategy, we may acquire, enter into joint ventures with, or make investments in complementary companies, services, and technologies in the future. Acquisitions and investments involve numerous risks, including:
 
 
• 
difficulties in identifying and acquiring products, technologies, or businesses that will help our business;
 
• 
difficulties in integrating operations, technologies, services, and personnel;
 
• 
diversion of financial and managerial resources from existing operations;
 
• 
the risk of entering new markets in which we have little to no experience;
 
• 
risks related to the assumption of known and unknown liabilities;
 
• 
the risk of write-offs and the amortization of expenses related intangible assets and
 
• 
delays in client purchases due to uncertainty and the inability to maintain relationships with clients of the acquired businesses.
 
 As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, we may incur costs in excess of what we anticipate, and management resources and attention may be diverted from other necessary or valuable activities.
 
 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.

 
 
 
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We may require additional capital to support business growth, and this capital might not be available.
 
We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges or opportunities, including the need to develop new services or enhance our existing service, enhance our operating infrastructure, or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our common stock. Any debt financing secured by us in the future could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. In addition, we may not be able to obtain additional financing on terms favorable to us or as a result of the current condition of the equity and debt markets limited financing may be available, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly limited.
 
Our success depends upon the recruitment and retention of key personnel.
 
To remain competitive in our industries, we must attract, motivate and retain highly skilled managerial, sales, marketing, consulting and technical personnel, including executives, consultants, programmers and systems architects skilled in the HIT, healthcare devices, healthcare transactions and life sciences industries and the technical environments in which our solutions, devices and services are needed. Competition for such personnel in our industries is intense in both the United States and abroad. Our failure to attract additional qualified personnel to meet our non-U.S. personnel needs could have a material adverse effect on our prospects for long-term growth. Our success is dependent to a significant degree on the continued contributions of key management, sales, marketing, consulting and technical personnel. The unexpected loss of key personnel could have a material adverse impact on our business and results of operations, and could potentially inhibit development and delivery of our solutions, devices and services and market share advances.
 
We operate in intensely competitive and dynamic industries, and our ability to successfully compete and continue to grow our business depends on our ability to respond quickly to market changes and changing technologies and to bring competitive new solutions, devices, features and services to market in a timely fashion.
 
The market for healthcare information systems and services to the healthcare industry is intensely competitive, dynamically evolving and subject to rapid technological and innovative changes. Development of new proprietary technology or services is complex, entails significant time and expense and may not be successful. We cannot guarantee that we will be able to introduce new solutions, devices or services on schedule, or at all, nor can we guarantee that errors will not be found in our new solution releases, devices or services before or after commercial release, which could result in solution, device or service delivery redevelopment costs and loss of, or delay in, market acceptance. Certain of our competitors have greater financial, technical, product development, marketing and other resources than us and some of our competitors offer software solutions that we do not offer. In addition, we expect that major software information systems companies, large information technology consulting service providers and system integrators, start-up companies and others specializing in the healthcare industry may offer competitive software solutions, devices or services. We face strong competitors and often face downward price pressure, which could adversely affect our results of operations or liquidity. Additionally, the pace of change in the healthcare information systems market is rapid and there are frequent new software solution introductions, software solution enhancements, device introductions, device enhancements and evolving industry standards and requirements. There are a limited number of hospitals and other healthcare providers in the United States HIT market and in recent years, the healthcare industry has been subject to increasing consolidation. As the industry consolidates, costs fall, technology improves, and market factors continue to compel investment by healthcare organizations in solutions and services like ours, market saturation in the United States may change the competitive landscape in favor of larger, more diversified competitors with greater scale. If we are unable to recognize these changes in a timely manner, or we are too inflexible to rapidly adjust our business models, growth ambitions and financial results could be affected materially.
 
If the revenue of our clients decreases, or if our clients cancel or elect not to renew their contracts, our revenue will decrease.
 
            Under most of our client contracts, we base our charges on a percentage of the revenue that the client realizes while using our services. Many factors may lead to decreases in client revenue, including:
 
 
• 
interruption of client access to our system for any reason;
 
• 
our failure to provide services in a timely or high-quality manner;
 
• 
failure of our clients to adopt or maintain effective business practices;
 
• 
actions by third-party payers of medical claims to reduce reimbursement;
  
• 
government regulations and government or other payer actions reducing or delaying reimbursement; and
 
• 
reduction of client revenue resulting from increased competition or other changes in the marketplace for physician services.

 
 
 
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The current economic situation may give rise to several of these factors. For example, patients who have lost health insurance coverage due to unemployment or who face increased deductibles imposed by financially struggling employers or insurers could reduce the number of visits those patients make to our physician clients. Patients without health insurance or with reduced coverage may also default on their payment obligations at a higher rate than patients with coverage. Added financial stress on our clients could lead to their acquisition or bankruptcy, which could cause the termination of some of our service relationships. Further, despite the cost benefits that we believe our services provide, prospective clients may wish to delay contract decisions due to implementation costs or be reluctant to make any material changes in their established business methods in the current economic climate. With a reduction in tax revenue, state and federal government health care programs, including reimbursement programs such as Medicaid, may be reduced or eliminated, which could negatively impact the payments that our clients receive. In addition, both public and private payers may introduce payment reform initiatives, such as capitation or risk-sharing models, as a cost-control measure that would limit the amounts paid to our clients. Also, although we currently estimate our expected customer life to be twelve years, this is only an estimate and there can be no assurance that our clients will elect to renew their contracts for this period of time. If our clients’ revenue decreases for any of the above or other reasons, or if our clients cancel or elect not to renew their contracts, our revenue will decrease.
 

 
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 2009. 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.
 
 
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.
 
 
 
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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.
 
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.
 
 
 
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If we are required to collect sales and use taxes on the services we sell in additional jurisdictions, we may be subject to liability for past sales and incur additional related costs and expenses, and our future sales may decrease.
 
            We may lose sales or incur significant expenses should states be successful in imposing state sales and use taxes on our services. A successful assertion by one or more states that we should collect sales or other taxes on the sale of our services could result in substantial tax liabilities for past sales, decrease our ability to compete with traditional retailers, and otherwise harm our business. Each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that may change over time. We review these rules and regulations periodically and, when we believe our services are subject to sales and use taxes in a particular state, voluntarily engage state tax authorities in order to determine how to comply with their rules and regulations. We cannot assure you that we will not be subject to sales and use taxes or related penalties for past sales in states where we believe no compliance is necessary.
 
            Vendors of services, like us, are typically held responsible by taxing authorities for the collection and payment of any applicable sales and similar taxes. If one or more taxing authorities determines that taxes should have, but have not, been paid with respect to our services, we may be liable for past taxes in addition to taxes going forward. Liability for past taxes may also include very substantial interest and penalty charges. Our client contracts provide that our clients must pay all applicable sales and similar taxes. Nevertheless, clients may be reluctant to pay back taxes and may refuse responsibility for interest or penalties associated with those taxes. If we are required to collect and pay back taxes and the associated interest and penalties, and if our clients fail or refuse to reimburse us for all or a portion of these amounts, we will have incurred unplanned expenses that may be substantial. Moreover, imposition of such taxes on our services going forward will effectively increase the cost of such services to our clients and may adversely affect our ability to retain existing clients or to gain new clients in the areas in which such taxes are imposed.
 
            We may also become subject to tax audits or similar procedures in states where we already pay sales and use taxes. The incurrence of additional accounting and legal costs and related expenses in connection with, and the assessment of taxes, interest, and penalties as a result of, audits, litigation, or otherwise could be materially adverse to our current and future results of operations and financial condition.
 
From time to time we may become subject to income tax audits or similar proceedings, and as a result we may incur additional costs and expenses or owe additional taxes, interest, and penalties in amounts that may be material.
 
We are subject to income taxes in the United States at both the federal and state levels. In determining our provision for income taxes, we are required to exercise judgment and make estimates where the ultimate tax determination is uncertain. While we believe that our estimates are reasonable, we cannot assure you that the final determination of any tax audit or tax-related litigation will not be materially different from that reflected in our income tax provisions and accruals. The incurrence of additional accounting and legal costs and related expenses in connection with, and the assessment of taxes, interest, and penalties as a result of,
 

 
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.
 
 
 
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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.
 

 
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.
 
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.
 
 
 
 
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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.
 
Our loan and capital lease agreements contain operating and financial covenants that may restrict our business and financing activities.
 
We have loans outstanding and such borrowings are secured by substantially all of our assets, including our intellectual property. Our loan agreements restrict our ability to:
 
 
• 
incur additional indebtedness;
 
• 
create liens;
 
• 
make investments;
 
• 
sell assets;
 
• 
pay dividends or make distributions on and, in certain cases, repurchase our stock; or
 
• 
consolidate or merge with other entities.
 
 
In addition, our credit facilities require us to meet specified minimum financial measurements. The operating and financial restrictions and covenants in these credit facilities, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities, or expand or fully pursue our business strategies. Our loan agreements also contain certain financial and nonfinancial covenants, including limitations on our consolidated leverage ratio and capital expenditures, as well as defaults relating to non-payment, breach of covenants, inaccuracy of representations and warranties, default under other indebtedness (including a cross-default with our interest rate swap), bankruptcy and insolvency, inability to pay debts, attachment of assets, adverse judgments, ERISA violations, invalidity of loan and collateral documents, and change of control. Our ability to comply with these covenants may be affected by events beyond our control, and we may not be able to meet those covenants. A breach of any of these covenants could result in a default under either or both of the loan agreements, which could cause all of the outstanding indebtedness under both credit facilities to become immediately due and payable and terminate all commitments to extend further credit.
 
 We may incur additional costs as a result of continuing to operate as a public company, and our management may be required to devote substantial time to new compliance initiatives.
 
 As a public company, we incur significant legal, accounting, and other expenses that we did not incur as a private company, and greater expenditures may be necessary in the future with the advent of new laws and regulations pertaining to public companies. In addition, the Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the Securities and Exchange Commission, have imposed various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel continue to devote a substantial amount of time to these compliance initiatives, and additional laws and regulations may divert further management resources. Moreover, if we are not able to comply with the requirements of new compliance initiatives in a timely manner, the market price of our stock could decline, and we could be subject to sanctions or investigations by the Securities and Exchange Commission, or other regulatory authorities, which would require additional financial and management resources.
 
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies may adversely affect our financial statements.
 
Our financial statements are subject to the application of U.S. GAAP, which are periodically revised or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards issued by recognized authoritative bodies, including the FASB and the SEC. It is possible that future accounting standards we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and that such changes could have a material adverse impact on our results of operations and financial condition.
 
 
 
 
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RISKS RELATING TO THE ACQUISITION OD THE ASSETS OF MEDAPPZ
 
We may be unable to successfully integrate the assets of MedAppz with our business and realize the anticipated benefits of the Asset Purchase.
 
The success of the Asset purchase of MedAppz will depend, in part, on the ability to realize the anticipated synergies, growth opportunities and cost savings from integrating the assets with our business. The integration is a complex, costly and time-consuming process and involves numerous risks, including difficulties in the assimilation of operations, services, products and personnel, the diversion of management’s attention from other business concerns, the entry into markets in which we have little or no direct prior experience, the potential loss of key employees, and the potential inability to maintain the goodwill of existing clients. The difficulties include, among other factors:
 
  
 
managing a significantly larger company;
  
 
the possibility of faulty assumptions underlying expectations regarding the integration process;
         
  
 
creating uniform standards, controls, procedures, policies and information systems and minimizing the costs associated with such matters;
  
 
integrating information, purchasing, accounting, finance, sales, billing, payroll and regulatory compliance systems;
  
 
preserving customer, supplier, research and development, distribution, marketing, promotion and other important relationships;
  
 
commercializing products under development and increasing revenues from existing marketed products;
  
 
coordinating geographically separated organizations, systems and facilities, including complexities associated with managing the combined businesses with separate locations;
       
  
 
integrating personnel from different companies while maintaining focus on providing consistent, high-quality products and customer service and attractive to prospective customers;
  
 
integrating complex technologies, solutions and products from different companies in a manner that is seamless to customers; and
  
 
performance shortfalls as a result of the diversion of management’s attention to the transaction.
If management is unable to combine successfully the assets of MedAppz with our business in a manner that permits us to achieve the anticipated cost savings and operating synergies, such anticipated benefits may not be realized fully or at all or may take longer to realize than expected. Any of the above difficulties could adversely affect our ability to maintain relationships with customers, partners, suppliers and employees or our ability to achieve the anticipated benefits of the Asset Purchase, or could reduce our earnings or otherwise adversely affect our business and financial results.
 
If we are unable to manage our growth, our business and financial results could suffer.
 
Our future financial results will depend in part on our ability to profitably manage our core businesses, including any growth that we may be able to achieve. Over the past several years, we have engaged in the identification of and competition for, growth and expansion opportunities. In order to achieve those initiatives, we will need to, among other things, recruit, train, retain and effectively manage employees and expand our operations and financial control systems. If we are unable to manage our businesses effectively and profitably, our business and financial results could suffer.
 
As a result of the completion of the Asset Purchase, we will incur significant additional expenses in connection with the integration of the assets within our business.
 
As we work to integrate the assets within our business, we expect to incur significant additional expenses relating to the integration of personnel, geographically diverse operations, information technology systems, accounting systems, customers, and strategic partners and the implementation of consistent standards, policies, and procedures, and we may be subject to possibly material write downs in assets and charges to earnings. The integration process will be long-term and will continue to create significant expenses.
 
 
 
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We could suffer losses due to asset impairment charges.
 
We test our goodwill annually, and on an interim date should events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with provisions of ASC 350, Intangibles – Goodwill and Other. Declines in business performance or other factors could cause the fair value of a reporting unit to be revised downward and could result in a non-cash impairment charge. This could materially affect our reported net earnings.
 
We intend to continue strategic business acquisitions, which are subject to inherent risks.
 
In order to expand our solutions, device offerings and services and grow our market and client base, we may continue to seek and complete strategic business acquisitions that we believe are complementary to our business. Acquisitions have inherent risks which may have a material adverse effect on our business, financial condition, operating results or prospects, including, but not limited to: 1) failure to successfully integrate the business and financial operations, services, intellectual property, solutions or personnel of an acquired business and to maintain uniform standard controls, policies and procedures; 2) diversion of management’s attention from other business concerns; 3) entry into markets in which we have little or no direct prior experience; 4) failure to achieve projected synergies and performance targets; 5) loss of clients or key personnel; 6) incurrence of debt and/or assumption of known and unknown liabilities; 7) write-off of software development costs, goodwill, client lists and amortization of expenses related to intangible assets; 8) dilutive issuances of equity securities; and, 9) accounting deficiencies that could arise in connection with, or as a result of, the acquisition of an acquired company, including issues related to internal control over financial reporting and the time and cost associated with remedying such deficiencies. 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.
 
 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.  Two 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.
 
 
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.
 
 
 
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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 key man insurance for any of our key employees.
 
Current and future litigation against us could be costly and time-consuming to defend.
 
We may from time to time be subject to legal proceedings and claims that arise in the ordinary course of business, such as claims brought by our clients in connection with commercial disputes and employment claims made by our current or former employees. Claims may also be asserted by or on behalf of a variety of other parties, including patients of our physician clients, government agencies, or stockholders.
 
Any litigation involving us may result in substantial costs and may divert management’s attention and resources, which may seriously harm our business, overall financial condition, and operating results. Insurance may not cover existing or future claims, be sufficient to fully compensate us for one or more of such claims, or continue to be available on terms acceptable to us. A claim brought against us that is uninsured or underinsured could result in unanticipated costs, thereby reducing our operating results and leading analysts or potential investors to reduce their expectations of our performance resulting in a reduction in the trading price of our stock.
 

 
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.
 
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.
 
 
 
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INVESTMENT CONSIDERATIONS AND RISK FACTORS
 
The market price of our common stock has been and may continue to be volatile.
 
The market price of our common stock is volatile and could fluctuate significantly in response to the factors described above and other factors, many of which are beyond our control, including:
 
  
 
actual or anticipated variations in our quarterly operating results;
  
 
announcements of technological innovations or new services or products by our competitors or us;
  
 
changes in financial estimates by securities analysts;
  
 
conditions and trends in the electronic healthcare information, Internet, e-commerce and pharmaceutical markets; and
  
 
general market conditions and other factors.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected the market prices of equity securities of many technology companies and Internet-related companies in particular. These fluctuations have often been unrelated or disproportionate to operating performance. These broad market factors may materially affect the trading price of our common stock. General economic, political and market conditions such as recessions and interest rate fluctuations may also have an adverse effect on the market price of our common stock. Volatility in the market price for our common stock may result in the filing of securities class action litigation.
 
Our quarterly operating results may vary.
 
Our quarterly operating results have varied in the past, and we expect that our quarterly operating results will continue to vary in future periods depending on a number of factors, some of which we have no control over, including customers’ budgetary constraints and internal acceptance procedures, seasonal variances in demand for our products and services, the sales, service and implementation cycles for our software products, potential downturns in the healthcare market and in economic conditions generally, and other factors described in this “Risk Factors” section.
 
We base our expense levels in part upon our expectations concerning future revenue, and these expense levels are relatively fixed in the short term. If we have lower revenue than expected, we may not be able to reduce our spending in the short term in response. Any shortfall in revenue would have a direct impact on our results of operations. In addition, our product sales cycle for larger sales is lengthy and unpredictable, making it difficult to estimate our future bookings for any given period. If we do not achieve projected booking targets for a given period, securities analysts may change their recommendations on our common stock. For these and other reasons, we may not meet the earnings estimates of securities analysts or investors, and our stock price could suffer.
 
Our indebtedness will decrease business flexibility and increase borrowing costs.
 
The covenants in our debt agreements could have the effect, among other things, of:
 
 
 
requiring us to apply a substantial portion of our cash flow from operations to payments on our debt, reducing the availability of cash flow to fund working capital, capital expenditures and other general corporate purposes;
  
 
increasing our vulnerability to adverse general economic and industry conditions;
  
 
limiting our flexibility in planning for, or reacting to, changes in business and the industry in which we operate;
  
 
placing us at a competitive disadvantage compared to competitors that have less debt; and
  
 
limiting our ability to borrow additional funds on terms that are satisfactory or at all.

 
If we fail to comply with financial covenants under our credit facilities, our results of operation and financial condition could be adversely affected.
 
Our credit facilities contain certain financial covenants, including interest coverage and total leverage ratios. If we fail to comply with these covenants, an event of default may occur, resulting in, among other things, the requirement to immediately repay all outstanding amounts owed thereunder. Depending on borrowing levels in such an event, our liquid assets might not be sufficient to repay in full the debt outstanding under the credit facilities. Such acceleration also would expose us to the risk of liquidation of collateral assets at unfavorable prices.
 
 
 
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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.
 
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.
 
Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have an adverse effect on our business and the trading price of our common stock.
 
Section 404 of the Sarbanes-Oxley Act requires us to evaluate annually the effectiveness of our internal controls over financial reporting as of the end of each fiscal year and to include a management report assessing the effectiveness of our internal controls over financial reporting in our annual report. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented, or amended from time to time, we can make no assurance that we will be able to conclude in the future that we have effective internal controls over financial reporting in accordance with Section 404. Additionally, if our independent registered public accounting firm is not satisfied with our internal controls over financial reporting or the level at which these controls are documented, designed, operated, tested or assessed, or if our independent registered public accounting firm interprets the requirements, rules or regulations differently than we do, then it may issue an adverse opinion. If we fail to maintain a system of effective internal controls, it could have an adverse effect on our business and stock price and we could be subject to sanctions or investigations the SEC or other regulatory authorities, which would require additional financial and management resources.
 
The company expects that its accounting for stock options and share-based payments to employees will have a material adverse effect 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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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. 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.
 
            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. 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.
 
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
 
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.
 
 
 
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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.
 
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.
 
 
 
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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.
 
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, 2010 and December 31, 2009.  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 OTCQB
 
Trades and quotations on the OTCQB 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.
 
There are delays in order communication on the OTCQB
 
Electronic processing of orders is not available for securities traded on the OTCQB and high order volume and communication risks may prevent or delay the execution of one's OTCQB 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 OTCQB 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:
 
 
 
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control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
 
 
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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.
 
There is a risk of market fraud
 
OTCQB securities are frequent targets of fraud or market manipulation.  Not only because of their generally low price, but also because the OTCQB 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.
 
There is limited liquidity on the OTCQB
 
When fewer shares of a security are being traded on the OTCQB, 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 OTCQB at the time of one's order entry.
 
There is a limitation in connection with the editing and canceling of orders on the OTCQB
 
Orders for OTCQB 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 OTCQB. Due to the manual order processing involved in handling OTCQB 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 OTCQB 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 OTCQB may not have a bid price for shares of our common stock on the OTCQB.  Due to the foregoing, demand for shares of our common stock on the OTCQB 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.
 
 
 
 
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Item 1B.                      Unresolved Staff Comments
 
Not Applicable
 
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 and 5,000 square feet of office space in Naples, Florida under a lease that expires in December of 2015.
 
 
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 2010 there was no submission of matter to a vote by the Company’s shareholders
 
 
 
 
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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.  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 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 2010
  $ 1.67     $ 0.35  
2nd Quarter 2010
  $ 1.50     $ 1.05  
3rd Quarter 2010
  $ 1.26     $ 0.90  
4th Quarter 2010
  $ 1.37     $ 0.80  
1st Quarter 2011
  $ 1.05     $ 0.82  

 
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 OTC Markets Group, Inc.
 
 
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, 2010 there were 1,030 holders of record of our Class A commons stock in addition to those who hold shares in street name.
 
As of December 31, 2010 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.
 
 
 
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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
    0       0       0  
           
Equity compensation plans not
    1,152,964 (1,2)   $ .030          
approved by security holders (1)
    1,000,000 (1)   $ 0.85          
      8,000,000 (3)   $ 0.44       12,000,000 (3)
      800,000 (4)   $ 0.56          
Total
    10,952,964               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.  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.
 
 
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.  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.  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.
 
 
 
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(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.  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.  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.
 
 
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.  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:
 
Name
No. of Options
Ray Vuono
4,752,964
Jameson Rose
3,800,000
Konrad Kim
1,240,000
Total
9,792,964
 

 
 
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(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
 
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 2010, the Company entered into various subscription agreements for private placements in the amount of $1,000,000 to purchase 1,500,000 shares of the Company’s stock for an average purchase price per share of $0.66 a share.

In 2010, the Company issued 187,501 shares of the Company’s common stock in connection with the placement of a $1,250,000 convertible debt.

In 2010, the Company issued 4,995,000 shares of the Company’s stock in exchange for consulting, legal, advisory 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.

In 2010, the company issued 1,701 shares of Series A preferred, convertible into 1,701,333 of common stock for a purchase price of $765,600, for an average purchase price of $450 a share.


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

 
The following Management Discussion and Analysis (MD&A) is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes to the financial statements,  and the other financial information that appear elsewhere in this Annual Report on Form 10-K.  This discussion contains predictions, estimates, and other forward-looking statements that involve a number of risks and uncertainties, including those set forth in the section entitled “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
 

Introduction
For the year ended December 31, 2010, the Company delivered strong growth with revenues of $5,997,450 reflected through executed contracts for software and professional services.  The increase in revenue reflects improved economic conditions and demand driven by the stimulus incentives and other public and private EHR subsidy initiatives such as the Interboro RHIO which stimulated sales of the Company’s EHR application with physician subsidies of up to 85% or more than $16,000 per provider for New York based physicians.  Additionally, the launch of MedLink IX and MedLink Lab facilitated strong bookings of sales of software and interfacing contracts with more than 25 hospitals and labs that the Company expects to further support EHR sales, as the Company has seen an increase in demand by clinical laboratory market to support EHR adoption by their referring providers.  The Company continues to build momentum and execute on its business plan to enter into strategic relationships that management believes will continue to have a positive result on the Company’s operations in 2011 and beyond.
 
 
 
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Significant 2010 and recent Highlights include:
 
·  
Donation agreement with Baptist Health South Florida Hospital
·  
2011/2012 ONC/ATCB Certification of ISuite EHR 4.0
·  
CCHIT 2011 Ambulatory EHR Certification, with 5 star usability rating
·  
Selection by the New York Regional Extension Center
·  
One of only 4 vendors to become “Qualified” by CMS
·  
Launch of MedLink IX and MedLink Lab
·  
Purchase of MedAppz
·  
White label of Secure EMR, by Inmediata Health Group and penetration of Puerto Rican market.
·  
Expansion into Florida market with opening of Naples, FL sales and support office.

 
Business Overview
 
 
MedLink is a leading healthcare information technology company focused on clinical, information and connectivity solutions that are focused on improving the quality and efficiency of care.    MedLink sells and supports various clinical software applications for physician practices, laboratories, and other healthcare organizations including MedLink’s flagship ambulatory iSuite EHR.  MedLink’s iSuite EHR is a 2011/2012 compliant Complete EHR technology, achieving 5 star usability rating, and has been certified by the Certification Commission for Healthcare Information Technology (“CCHIT”), in accordance with the applicable ONC-ATCB certification criteria.  MedLink’s iSuite EHR is priced below competing products with similar comprehensive services and is only one of four EHR’s to be “Qualified” by CMS for direct reporting.  MedLink also provide various clinical software applications for physician practices, hospitals and laboratories and radiology centers, including practice management, revenue cycle management services, electronic prescribing (e-prescribing), document management, interfacing, and a variety of lab outreach solutions for laboratories and hospitals. We also offer a broad range of services, including integration and interfacing services of 3rd party lab and hospitals systems, implementation and training, revenue cycle management services, and support and maintenance.
 
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.   MedLink’s business strategy is to build critical mass and develop a national presence among small to medium sized physician practices by increasing market penetration of the MedLink iSuite EHR, through direct sales and strategic alliances.  The small physician practice market segment remains largely un-penetrated for EHRs, with less than 20% of practices in the market having yet to adopt EHR technology. With more than $30 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 iSuite 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.
 
We principally derive our revenue and cash flow from sales of our proprietary software and related hardware and professional services in the segments described above. These sales also are the basis for our complementary recurring service contracts for maintenance and transaction processing. See below for a discussion of our outlook for new orders and other factors that could have an impact on our revenue and cash flows.
 
We believe a combination of executive and legislative leadership at the federal level, industry standards, and federal incentives that exist today for e-prescribing and pay-for-quality initiatives, will quickly make electronic health records as common as practice management systems in all provider offices. We believe the stimulus and other provisions provided by the American Recovery and Reinvestment Act of 2009 (the “Stimulus”) will be the single biggest driver of healthcare IT adoption in our industry’s history since the requirement of electronic claims submissions. We believe that we are well positioned in the market to take advantage of the material opportunity presented by the Stimulus and have seen a positive impact on new orders for our EHR and interoperability products.
 
 
 
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Management has taken steps to position the Company to have what we believe will be adequate capacity to meet the significant additional demand that could result from new orders related to the Stimulus. These steps include supplementing our internal direct sales force with strategic channel partners with established sales forces. Further, we have taken steps to improve the efficiency of our approach to new system installations with the release of the iSuite EHR, a cloud based application that reduces capital investment on the part of the Company’s customers and streamlines the training and implementation process. Finally, the Company is exploring additional sources of potential capacity to complement its internal professional services organization through various third-party implementation alternatives in order to meet additional market demand.
 
In order for our customers to qualify for Stimulus funding, our products must meet various requirements for product certification under the Stimulus regulations, and must enable our customers to achieve “meaningful use,” as such term is currently defined under the July 28, 2010 CMS Final Rule and under any future Stimulus regulations and guidance that CMS may release. The CMS Final Rule provides for a phased approach to implementation of the meaningful use standards, with Stage 1 set forth in the proposed rule and Stages 2 and 3 reserved for future rulemaking based upon the experiences with Stage 1. Also, an interim final rule has been implemented by the Office of National Coordinator, U.S. Department of Health and Human Services, to adopt an initial set of standards, implementation specifications, and certification criteria to enhance the use of health information technology and support its meaningful use. Given that CMS will release future regulations related to electronic health records, our industry is presented with a challenge in preparing for compliance. Similarly, our ability to achieve product certification by CCHIT and/or other regulatory bodies, and the length, if any, of additional related development and other efforts required to meet meaningful use standards could materially impact our ability to maximize the market opportunity. Our iSuite EHR 4.0 was certified as 2011/2012 compliant and as a Complete EHR, with a 5 Star usability rating,  in January of 2011, by CCHIT in accordance with the applicable eligible provider certification criteria adopted by the Secretary of Health and Human Services (HHS). The 2011/2012 criteria support the Stage 1 meaningful use measures required to qualify eligible providers for funding under ARRA.
 
We believe through combination of the assets provided through the MedAppz transaction, will allow the Company to become a larger, more competitive “end-to-end” solutions provider within the healthcare information technology industry. Combining the companies’ respective solution sets will result in one of the most comprehensive solution offerings for healthcare organizations, offering a scalable cloud based platform of clinical, financial, connectivity and information solutions.
 
MedAppz Asset Purchase
 
In November 2010, we acquired specified assets and assumed specified liabilities of MedAppz, LLC., a Electronic Health Record (EHR) and practice management software provider. The purpose of the acquisition is to augment our core business service offering and gave us access to a developed technology that could speed the time to market versus internal development of our own similar products.  We believe the addition of MedAppz’ technology broadens MedLink’s offerings, enabling MedLink to provide a cutting edge web-based solution and leverage synergies and cost savings that will play a significant role in MedLink’s growth and meet the unique needs of each practice. In addition, we plan to leverage its existing customer base to increase revenues.  Consideration for this transaction was $3.5 million.
 
Our Solutions
 
 
MedLink has designed a product offering that encompasses innovative thinking with practical solutions. MedLink’s suite of healthcare offerings range from EHR, revenue cycle management, hospital and laboratory outreach, interoperability and connectivity solutions, and a Health Information Network platform.
 
 
 
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MedLink iSuite EHR
 
 
iSuite is an integrated solution designed to enhance physician productivity while combining both EHR and practice management into one unified database. iSuite automates the most common physician activities, including prescribing, dictating, ordering lab tests and viewing results, documenting clinical encounters and capturing charges, among others.  iSuite was designed specifically for the small to medium sized specialty and multi-specialty practices, allowing physicians to improve the way they capture, manage, exchange and store patient information.  ISuite also provides a practice management system that streamlines administrative aspects of physician practices, such as patient scheduling, electronic remittances, electronic claims submission, claims management, appointment reminders, electronic statement production and reporting.
 
 
This iSuite EHR 4.0 is 2011/2012 compliant and has been certified by the CCHIT®, an ONC-ATCB, in accordance with the applicable certification criteria for eligible providers adopted by the Secretary of Health and Human Services.  iSuite EHR 4.0 is also a CCHIT Certified® 2011 Ambulatory EHR that not only meets the currently established requirements for ARRA IFR Stage1 but also CCHIT's rigorous standards. During the inspection process, iSuite 4.0 EHR received a 5 star usability rating out of 5 stars. This rating further demonstrates the ease of use that our customers have become accustomed to.
 
 
By providing iSuite as a cloud based application available on-demand over the Internet using a web browser we believe that we have significantly increased the ease of adoption of our solutions. This capability is especially important for physicians in independent practice and small groups who make up nearly half the U.S. physician population that lack the IT resources and know-how to manage an on-premise software application.   Physicians can instantly access our web-based clinical solutions from a variety of locations, such as exam rooms, at the hospital or even remotely from some smart phones.  Our solutions run on tablet PCs, a wide variety of smartphones, desktop workstations and other wireless devices, as well as over the Internet in a hosted or “cloud” secure environment.
 
 
MedLink IX
 
MedLink IX (Information eXchange) is an enterprise connectivity solution that links providers and healthcare services to achieve interoperability, deployed in commercial and hospital laboratories as an interoperability solution to connect the laboratory and hospital information systems with disparate systems.  MedLink IX is a flexible HL7 interface engine and gives commercial labs and hospitals a low cost, user-friendly, cloud-based solution that acts as a central hub for hospitals and clinical labs to deploy and manage the sharing of clinical information across the care continuum.  IX eliminates the burden on hospital and lab IT staff to build and maintain multiple interfaces, and provides an advanced interoperability foundation allowing healthcare facilities to support physicians with the interoperability and connectivity requirements of the HITECH Act and the meaningful use of health information technology.  MedLink IX enables the bi-directional sharing of clinical information such as lab results, radiology reports, and discharge summaries allowing for providers to make real time informed decisions at the point of care.  Deployed as a web based solution, MedLink IX takes a hub and spoke approach to allow for the rapid deployment and on demand scalability required to meet the increasing interoperability demands of physicians while maintaining current IT infrastructure and all but eliminating costly and labor intensive point-to-point interfaces, and technical support demands.
 
MedLink Lab
 
 
MedLink Lab is a web browser based lab ordering and results portal hosted on MedLink's virtual cloud platform. Clinical Labs, Hospitals Labs, Pathology Labs, and Radiology Centers can offer this robust product to obtain clean requisitions and dynamic reporting features. MedLink Lab is entirely web-based so physician offices can use existing hardware already in place. Results and requisitions can be easily found in the system so no more searching for missing papers. One page order entry makes creating requisitions fast and easy. ABN checking is done upfront letting the physician know before the order is placed. Result reports can easily be viewed online and stored in the patients chart for cumulative trending. Result filtering options make finding specific reports quickly.
 
 

 
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MedLink CONNECT
 
MedLink Connect allows for current laboratory services to utilize MedLink IX to deliver laboratory results to multiple HIS, EMR as well as Health Information networks. MedLink IX will convert HL7 results from the LIS, AP, or Radiology system to the required format of the physician's EMR. Orders placed from the physician's EMR system will be picked up and delivered to the Lab so the order can be processed. MedLink Connect allows for EHR users to export to other Practice Management systems for billing purposes. MedLink Connect also interfaces the physician's Practice Management System to the MedLink Lab portal. The patient's demographic and insurance information is bridged over into the system to complete an order with the most current information. This reduces billing errors and saves process time when claims are submitted to the insurance company.
 
 
SALES AND MARKETING
 
We have developed sales and marketing capabilities aimed at expanding our network of physician clients. We expect to expand our network by selling our services to new clients and leveraging strategic partnerships to market our products and services to their client base. We have a direct sales force, which we augment through our channel partners and marketing initiatives.
 
 
Marketing Initiatives
 
 Our marketing initiatives are generally targeted towards specific segments of the physician practice market. These marketing programs primarily consist of: traditional print advertising; search advertising and other Internet-focused awareness; campaigns to engage hospitals in discussions about their approach to the affiliated physician market; participation in industry-focused trade shows; targeted mail, e-mail, and phone calls to physician practices.
 
Direct Sales
 
We sell our services primarily through our direct sales force. Our sales force is supported by personnel in our marketing organization, who provide specialized support for demonstration and sales support. Due to our ongoing service relationship with clients, we conduct a consultative sales process. This process includes understanding the needs of prospective clients, developing service proposals, and negotiating contracts to enable the commencement of services.
 
 
Channel Partners
 
In addition to our direct sales force, we maintain business relationships with third parties that promote or support our sales or services within specific industries or geographic regions. 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 from providing the Company introductions to other Channel Partners that have fully established sales, implementation and support infrastructure to support their respective clients white labeling the MedLink iSuite EHR.  The involvement of channel partners in the sales process varies from providing us with leads that we use to develop new business through our direct sales force to other channel partners that act as an independent sales representative.  Our channel relationships include Revenue Cycle Management companies, clinical laboratories, Imaging Centers, healthcare product distribution companies, consulting firms, group purchasing organizations, and regional health information organizations (RHIO’s).
 
 
 
 
 
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HEALTHCARE INFORMATION TECHNOLOGY MARKET
 
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.  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.  Recent and existing government programs provide funds that represent significant income opportunities for existing EHR users and new EHR adopters.
 
While healthcare is not immune to recent economic turbulence, we believe it is more resilient than most segments of the economy and fundamental drivers for healthcare IT demand and adoption remain intact. A positive factor for U.S. healthcare is the fact that the Obama Administration is pursuing broad healthcare reform aimed at improving issues surrounding healthcare. The American Recovery and Reinvestment Act (“ARRA”), which became law on February 17, 2009, includes more than $20 billion to help healthcare organizations modernize operations through the acquisition of health care information technology. The Certification Commission for Health Information Technology (“CCHIT®”), a non-profit organization recognized by the Office of the National Coordinator for Health Information Technology as an approved Authorized Testing and Certification Body, announced that our EHR solution was certified as a Complete EHR and 2011/2012 compliant in January of 2011, which comes off the heels of the Stage 1 Meaningful Use definition criteria under the ARRA. With the lifting of the many Meaningful Use definition uncertainties, which has impacted software revenue, we believe we are well positioned to aid physicians and hospitals with their EHR decisions as they prepare to make incentive-based purchases.
 
We believe there are several factors that are favorable for the HIT industry over the next decade as HIT solutions play an important role in healthcare by improving safety, efficiency and reducing cost, they are often viewed as more strategic than other capital purchases. Most United States healthcare providers also recognize that they must invest in HIT to meet regulatory, compliance and government reimbursement requirements and incentive opportunities.  In addition, with the Centers for Medicare and Medicaid Services estimating United States healthcare spending at $2.6 trillion or 17.5 percent of 2010 Gross Domestic Product, politicians and policymakers agree that the growing cost of our healthcare system is unsustainable.  Leaders of both political parties recognize that the intelligent use of information systems will improve health outcomes and, correspondingly, drive down costs.  This belief is supported by a study by RAND Corp., which estimated that the widespread adoption of HIT in the United States could cut healthcare costs by $162 billion annually.
 

 
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.
 
 
MedLink believes that it offers as comprehensive of an EHR application as its competitors, and in many cases at a fraction of the cost.  MedLink’s 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.
 
 
 
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Competition
 
The market for Ambulatory EHR solutions and services is competitive, however, is limited with few Vendors that offer a full solution that will meet the clinical, financial, interoperability and adhere to the federal incentive requirements. The market for our products and services is characterized by rapidly evolving technology and product 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. 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.

We believe that we compete favorably with our competitors on the basis of these factors. However, many of our competitors and potential competitors have significantly greater financial, technological, and other resources and name recognition than we do, as well as more established distribution networks and relationships with healthcare providers. As a result, many of these companies may respond more quickly to new or emerging technologies and standards and changes in customer requirements. These companies may be able to invest more resources than we can in research and development, strategic acquisitions, sales and marketing, and patent prosecution and litigation and to finance capital equipment acquisitions for their customers.
 
Software and service companies that sell practice management and EHR software services include GE Healthcare; Sage Software Healthcare, Inc.; Allscripts-Misys Healthcare Solutions, Inc.; Athena Health, Inc.; eClinicalWorks, LLC; and Quality Systems, Inc. As a service company that provides medical billing revenue cycle management services, we also compete against regional billing companies.



 
Market Drivers
 
 
Economic Stimulus Package Provides Incentives for Physicians to Adopt EHRs
 
MedLink’s iSuite 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.  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, and 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.
 

 
MedAppz Asset Purchase
 
 
In November 2010, we acquired specified assets of MedAppz, LLC. MedAppz developed, sold and supported a web based EHR and practice management application and revenue cycle management services to select clients. The purpose of the acquisition is to augment our core business EHR service offering with MedAppz cloud based applications to speed the implementation time and reduce the financial hardware and networking burdens on MedLink’s clients and future clients. We believe the purchase of MedAppz gave us access to a developed technology that could speed the time to market versus internal development of our own EHR application on a web based platform. In addition, we plan to leverage its existing customer base to increase revenues of the MedAppz services. Consideration for this transaction was $3.5 million.
 
 
 
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Customer Dependence
 
 
MedLink believes that its future success will be dependent on it developing strategic relationships with established healthcare organizations and leveraging their existing footprint of clients and marketing initiatives.  Without these relationships, MedLink’s business is unlikely to succeed.
 
 
Intellectual Property
 
 
We use trademarks, trade names and service marks for healthcare information services and technology solutions, including: MedLink iSuite EHR, MedLink EHR, MedLink IX and MedLink Lab.  We also use other registered and unregistered trademarks and service marks for our various services. We have registered the domain names that either are or may be relevant to conducting our business, including:
 
www.medlinkus.com
www.isuiteehr.com
www.medlinkpacs.com
www.medappz.com
www.medlinkvpn.com
www.medlinkix.com
www.medlinkphr.com
www.medlinktv.com
www.krad.com
www.mymedlinkchart.com
www.petmedchart.com
www.medlinkchart.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, service marks 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 2010 committed heavily towards research and development, the majority of which was spent on development of MedLink IX, MedLink Lab and the continued development of MedLink’s ambulatory EHR applications.  The Company intends to increase its research and development activities in 2011 to continue enhancements on the MedLink EHR to keep up with the ever changing HIT market by expanding its R&D in Hyderabad, India.
 
 
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.
 
 
 
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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.
 
 
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.
 
 
 
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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.
 

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, 2010 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.

Management applies judgment to ensure appropriate accounting for multiple deliverables, including the allocation of arrangement consideration among multiple units of accounting, the determination of whether undelivered elements are essential to the functionality of delivered elements and the timing of revenue recognition, among others. For those arrangements where the deliverables do not qualify as separate units of accounting, revenue recognition is evaluated for the combined deliverables as a single unit of accounting and generally the recognition pattern of the final deliverable will dictate the revenue recognition pattern for the single, combined unit of accounting. Changes in circumstances and customer data may affect management’s analysis of separation criteria, which may cause the Company to adjust upward or downward the amount of revenue recognized under the arrangement.
 
 
 
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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.
 

 
Business Combinations
Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired, including intangible assets, and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
 
 
 
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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.
 

 

 
Software Capitalization
 
The carrying value of capitalized software is dependent upon the ability to recover its value through future revenue from the sale of the software. If we determine in the future that the value of the capitalized software could not be recovered, a write-down of the value of the capitalized software to its recoverable value may be required.
 
We estimate the useful life of our capitalized software and amortize the value over that estimated life. If the actual useful life is shorter than our estimated useful life, we will amortize the remaining book value over the remaining useful life or the asset may be deemed to be impaired and, accordingly, a write-down of the value of the asset may be required.

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 2010, the Company used the black-scholes option pricing model for estimating the fair value of the options granted under the company’s incentive plan.

Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding for the period as required by 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.

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.

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.
 
 
 
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RESULTS OF OPERATIONS
 

The Company's revenues from continuing operations for the year ended December 31, 2010 and 2009 were $5,997,450 and $520,473, respectively. This increase was primarily due to the growth in the number of physicians and other medical providers using our services, including sales, implementation and support of or EHR applications, license income from our Lab Portal solution, and interface income associated with integrations to labs, imaging center and hospitals through MedLink’s IX product.  Sales of the Company’s EHR increased significantly in 2010 as compared to the same period in 2009 with some of the Company’s larger contracts becoming fully implemented including the Interboro RHIO and United West Labs as well as industry recognition with CCHIT and ONC/ATCB certification.   The Company believes that with its continued focus on sales of its EHR, Lab, and IX software applications and services, spurred by the Stimulus incentives and through its strategic partnerships with labs and hospitals, the Company will continue to experience rapid revenue growth.
 
Expenses for the fiscal year ended December 31, 2010 and 2009 were $4,973,825 and $4,180,031, respectively.  As our revenues are predominately derived from business services that we provide on an ongoing basis. To provide these services, we incur expense in several categories, including direct operating, selling and marketing, research and development, general and administrative, and depreciation and amortization expense. In general, our direct operating expense increases as our volume of work increases, whereas our selling and marketing expense increases in proportion to our rate of adding new accounts to our network of physician clients. Our other expense categories are less directly related to growth of revenues and relate more to our planning for the future, our overall business management activities, and our infrastructure. As our revenues have grown, the difference between our revenue and our direct operating expense also has grown, which has afforded us the ability to spend more in other categories of expense and to experience an increase in operating margin.
 

The Company had net gain of $203,129 and a net loss of $(3,793,804) in the fiscal years ended December 31, 2010 and December 31, 2009, respectively. The net gain for 2010 was a result of the Company executing on it software and service related contracts with medical ambulatory practices, laboratories, imaging centers and hospitals, spurred by increased market demand driven by the HITECH Act stimulus incentives and other healthcare IT subsidy and incentive programs.

Liquidity and Capital Resources

Our liquidity is influenced by many factors, including the amount and timing of our revenues, our cash collections from our clients, and the amount we invest in software development, acquisitions and capital expenditures.

At December 31, 2010, the Company had a working capital balance of $231,906. While the Company believes revenue that will be earned from the sales of the EHR, IX and Lab outreach solutions 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.

Future Capital Requirements
On November 26, 2010, MedLink and several institutional investors entered into a Subscription Agreement, pursuant to which Investors purchased from the Company a senior secured convertible debenture, in the principal amount of $1,250,000with an original issue discount of 10% to the principal amount (“Debenture”).  The Debenture bears interest at a rate of 10% per annum and is convertible into shares of the Company’s class A common stock at any time commencing nine months from the date of the Debenture at a conversion price of $0.83 per shares, subject to adjustment.  The Debenture is due and payable on May 26, 2012.   The net proceeds were used by MedLink to finance a portion of the MedAppz Asset Purchase and to finance general working capital needs.
 
The obligations of MedLink under the Debenture are secured, subject to permitted liens and other agreed upon exceptions, by a perfected first priority security interest in all of the tangible and intangible assets (including, without limitation, intellectual property) of the Company until such time as the Debentures are repaid or converted in full. 
The Debenture will mature with 1/18 monthly installments of $69,444.44 commencing on September 1, 2011, and quarterly interest payments commencing on March 1, 2011, with the  remaining principal balance and interest be due and payable on May 26, 2012.
 
       
Quarterly Interest Payments
 
Quarterly Interest Amount
 
March 1, 2011
  $ 33,218.86  
June 1, 2011
  $ 31,164.09  
September 1, 2011
  $ 31,164.09  
December 1, 2011
  $ 30,821.63  
March 1, 2012
  $ 30,821.63  
May 26, 2012
  $ 28,766.85  
Total Interest Payments
  $ 185,957.14  
 
 
 
 
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Subject to certain exceptions, the Convertible Debt Agreement allows MedLink to voluntarily prepay outstanding Notes, in whole or in part, at MedLink’s option at any time upon prior notice. The facilities also contain certain customary events of default, including relating to non-payment, breach of covenants, cross-default, bankruptcy and change of control.
 
 
We believe that our future cash flows will provide adequate resources to fund ongoing operating cash requirements for the next twelve months, funding interest and principal payments on our debt instruments obligations, contractual obligations, and investment needs of our current business. We cannot provide assurance that our actual cash requirements will not be greater than we expect as of the date of this report. We will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies, which might impact our liquidity requirements or cause us to issue additional equity or debt securities.
 
If sources of liquidity are not available or if we cannot generate sufficient cash flow from operations during the next twelve months, we might be required to obtain additional sources of funds through additional operating improvements, capital market transactions, asset sales or financing from third parties, a combination thereof or otherwise. We cannot provide assurance that these additional sources of funds will be available or, if available, would have reasonable terms.

Contractual Obligations
We have various contractual obligations, which are recorded as liabilities in our consolidated financial statements. Other items, such as operating lease contract obligations are not recognized as liabilities in our consolidated financial statements but are required to be disclosed.

Convertible Debt Obligations
Payment Due Date
 
Interest Payment
   
Principal Payment
 
3/1/2011
  $ 33,218.86        
6/1/2011
  $ 31,164.09        
9/1/2011
  $ 31,164.09     $ 69,444.44  
10/1/2011
          $ 69,444.44  
11/1/2011
          $ 69,444.44  
12/1/2011
  $ 30,821.63     $ 69,444.44  
1/1/2012
          $ 69,444.44  
2/1/2012
          $ 69,444.44  
3/1/2012
  $ 30,821.63     $ 69,444.44  
4/1/2012
          $ 69,444.44  
5/1/2012
          $ 69,444.44  
5/24/2012
  $ 28,766.85       625,000.00  
 
2011 Total
  $ 126,368.66     $ 277,778.78  
2012 Total
  $ 59,588.48     $ 972,222.22  
Total
  $ 185,957.14     $ 1,250,000  
 
 

 
 
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Operating Leases
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, 2010:

         
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 Naples, Florida location.

Off-Balance Sheet Arrangements

As of December 31, 2010 and December 31, 2009, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.


Recent Accounting Pronouncements
 
 
From time to time, new accounting pronouncements are issued by FASB and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements will not have a material impact on consolidated financial position, results of operations, and cash flows, or do not apply to our operations.



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, 2010 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.

 
 
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MEDLINK INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2010 and 2009
 

 
 


 
 
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MEDLINK INTERNATIONAL INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
 

 
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, 2010 and 2009 and the related consolidated statements of operations, changes in stockholders' deficit, and cash flows for the years ended December 31, 2010 and 2009.  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, 2010 and 2009 and the results of its operations and its cash flows for the years then ended December 31, 2010 and 2009 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 1, 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/ RBSM, LLP
 
 
New York, NY
 
 
April 25, 2011
 
 

 
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MEDLINK INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
 
   
For the years ended
 
   
December 31,
 
   
2010
(Audited)
   
2009
(Audited)
 
ASSETS
           
Current assets:
           
Cash
    657,294       4,843  
Accounts Receivable
    4,367,286       289,346  
Assets from discontinued operations
            -  
Total Current Assets
    5,024,580       294,189  
 
Office equipment (at cost), net of accumulated depreciation
    41,107       186,205  
Intangible asset (at cost), net of accumulated amortization
    2,247,355       10,937  
Goodwill
    1,476,832       -  
Security deposit
    18,950       12,950  
Other assets
    1,756,292       -  
 
Total Assets:
  $ 10,565,116     $ 504,281  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Current liabilities:
               
Accounts payable and accrued expenses
    518,501       145,044  
Bank overdraft
            -  
Note payable
    2,609,022          
Due to related party
    861,463       1,002,430  
Liabilities from discontinued operations
    804,141       804,132  
Total Current Liabilities
    4,793,127       1,951,606  
                 
Stockholders' deficit:
               
Common stock Class A $.001 par value; authorized 150,000,000 shares; 42,223,190 and 31,567,236 shares issued, respectively
    42,223       31,567  
Common stock B Class B $.001 par value; authorized 50,000,000; 5,361,876 issued and outstanding
    5,362       5,362  
Subscription receivable
    -       -  
Additional paid-in capital
    27,099,323       20,093,341  
Accumulated deficit
    (21,244,369 )     (21,447,044 )
Treasury stock
    (130,551 )     (130,551 )
Total Stockholders' Equity
    5,771,989       (1,447,325 )
 
Total liabilities and stockholders’ equity
  $ 10,565,116     $ 504,281  


____________________________________________________________________
See accompanying notes to consolidated financial statements.
 
 
 
66

 
 

MEDLINK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009

   
For the years ended
 
   
December 31,
 
   
2010
(Audited)
   
2009
(Audited)
 
Sales
  $ 5,997,450       520,473  
Cost of Revenues
    (820,949 )     -  
Gross Profit
    5,176,500       520,473  
                 
Operating expenses
               
General and administrative
    972,843       334,883  
Consulting expense
    1,584,651       1,030,488  
Compensation expense
    1,725,145       904,396  
Loss on impairment of intangible asset
    -       1,843,974  
Interest Expense
    505,375       -  
Depreciation and amortization
    185,812       66,290  
Total Operating expenses
    4,973,825       4,180,031  
Income (loss) from continuing operations
  $ 202,675       (3,659,558 )
 
Discontinued operations:
               
Income (loss) from discontinued operations
    -       47,361  
Loss from disposal of discontinued operations
    -       (181,607 )
Loss from discontinued operations
    -       (134,246 )
 
Net Loss
  $ 202,675       (3,793,804 )
                 
Basic and diluted loss per share (Class A)
  $ 0.01       (.12 )
                 
Basic and diluted loss per share (Class B)
  $ 0.04       (.71 )
                 
Weighted average number of basic shares outstanding (Class A)
    36,991,765       31,567,236  
                 
Weighted average number of basic shares outstanding (Class B)
    5,361,876       5,361,876  
                 


 

____________________________________________________________________
See accompanying notes to consolidated financial statements.

 
67

 

 
MEDLINK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009 (Audited)

 
Common Stock
Additional
 
Surplus
Deferred
Treasury
Total
 
No. of Shares
Amount
Paid-in Capital
(Deficit)
Receivables
Charges
Stock
(Audited)
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, 2009
-
-
-
(3,793,804)
-
-
-
(3,793,804)
Balance at December 31, 2009
36,929,112
$36,929
$20,093,341
$(21,447,044)
-
-
$(130,551)
$(1,447,324)

Stock Option Based Compensation
   
380,435
       
380,435
 
Shares issued for consulting services
4,995,000
4,995
2,509,755
       
2,514,750
 
Preferred shares issued
1,701,333
1,701
763,999
       
765,600
 
Shares issued in connection with Acquisitions
2,252,120
2,252
2,078,725
       
2,080,977
 
Shares issued for employment services
20,000
20
21,980
       
22,000
 
Shares issued in financing activities
1,687,501
1,688
1,251,118
       
1,252,875
 
Net Gain for the year ended Dec 31, 2010
-
-
-
202,675
-
-
-
202,675
 
Balance at December 31, 2009
47,585,066
$47,585
$27,099,323
$(21,224,369)
-
-
$(130,551)
$5,771,987
 
                 

See accompanying notes to consolidated financial statements.

 
68

 

MEDLINK INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
 
 
For the years ended
 December 31,
 
2010 (audited)
2009 (audited)
Cash flows from operating activities:
   
Net gain/(loss)
$202,675
$(3,793,804)
Income (loss) from discontinued operations
-
47,361
Gain/(loss) from continuing operations
202,675
$(3,841,165)
Adjustments to reconcile net gain to net cash used in operating activities
   
     Impairment of goodwill
-
904,396
     Depreciation
185,812
65,202
     Increase in deferred charges
   
Amortization
 
1,088
Amortization of deferred charges
-
-
 Issuance of common stock
   
     Share based compensation
402,435
728,091
     Issuance of common stock for salary
22,000
1,020,000
         Issuance of common stock for acquisitions
1,640,977
-
     Issuance of common stock for financing
252,876
 
Issuance of common shares for consulting and other services
2,395,750
1,018,697
Issuance of common stock for legal fees
119,000
 
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
(4,077,940)
(268,615)
Security deposit
(6,000)
(7,550)
Other assets
(1,316,292)
-
Intangible assets
(1,871,762)
 
Accounts Payable and accrued liabilities
373,919
(258,234)
Net cash used in continuing operating activities
(6,898,075)
(301,055)
Net cash provided by discontinued operations
 
301,778
Net cash used in operating activities
(1,698,550)
723
 
Cash flows from investing activities:
   
Purchase of fixed assets
(137,340)
(73,470)
Purchase of intangible assets
(268,028)
 
Goodwill
(1,476,832)
 
Net cash used in investing activities
(1,882,200)
(73,470)
Cash flows from financing activities:
   
Proceeds from sale of stock
1,765,600
105,000
Proceeds from loan payable
2,609,022
-
Advances from (to) officer/shareholders
(141,121)
(576)
Net cash provided by financing activities
4,233,201
104,424
NET INCREASE (DECREASE) IN CASH
652,451
31,677
CASH AT BEGINNING OF YEAR
4,843
(26,834)
CASH AT END OF PERIOD
$657,294
$4,843
MEDLINK INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
 
 
For the years ended
   
 
December 31,
   
 
2010
(Audited)
2009
(Audited)
   
 
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
402,435
728,091
   
Issuance of common stock for salary
22,000
1,020,000
   
Issuance of common shares for consulting and other services
2,514,750
1,018,697
   
Conversion of options in lieu of payment of related party loan
-
62,111
   
Issuance of common stock for legal fees
119,000
-
   
Related party accounts payable reclassified to add. paid in capital
 
227,563
   

See accompanying notes to consolidated financial statements.



 
For the years ended
 
December 31,
 
2010
(Audited)
2009
(Audited)
Supplemental disclosures of cash flows information:
   
  Cash paid during the year for:
   
Interest
$0
$0
Income Taxes
$0
$1,700
     


 
 
69

 


MEDLINK INTERNATIONAL, INC.
NOTES TO CONSOLIDATED STATEMENTS
 
 
 
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 iSuite EHR.
 
Basis of Accounting
 
 
The financial statements are prepared using the accrual basis of accounting where revenues and expenses are recognized in the period in which they were incurred.  The basis of accounting principles conforms to accounting principles generally accepted in the United States of America.
 
 
Principles of Consolidation
 
 
The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
 
 
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.
 
 
Depreciation and Amortization
 
 
Property and equipment are recorded at cost.  Depreciation on equipment, furniture and fixtures and leasehold improvements is computed on the straight-line method over the estimated useful lives of such assets between 3-10 years.  Maintenance and repairs are charged to operations as incurred.