People here may be unable to evaluate mdtk.com so that is probably why no one answered your question.
Or maybe they *can. Here's the latest SEC filing. Unlike MDTK's PR on their latest quarter, the filing indicates an acute shortage of capital and interesting debt relationships.
I think Lynn got it right with "Spam me silly you bad bad performance artist!". That fellow's posts (he posted the same kinda junk on MDTK elsewhere on SI) are probably not a coincidence.
-JCJ
Edit: The MARKET however for Java based Healthcare information services such as this appears terrific and I'm going to seriously consider the NEXT public company that goes into this space.
biz.yahoo.com
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November 18, 1999
E-MEDSOFT COM (MDTK)
Quarterly Report (SEC form 10QSB)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS
GENERAL HISTORY
e-MedSoft.com (the "Company") was initially organized in Nevada on August 25, 1986, in order to evaluate, structure and complete a merger with, or acquisition of, prospects consisting of private companies, partnerships or sole proprietorships.
On January 7, 1999, the Company acquired from Sanga e-Health, LLC ("SEH"), the rights to a JAVA-based, on-line health care management system in exchange for 41,417,176 restricted shares (post-split) of the Company's common stock. In connection with this transaction, the
Company completed a 5 for 1 forward stock split having a record date of January 4, 1999. In addition, as consideration for finder's fees and services, the Company issued 2,553,144 restricted shares of the Company's common stock and 1,035,429 warrants to purchase restricted
shares of the Company's common stock exercisable at $.25 per share over five years.
On March 19, 1999, the Company acquired all of the issued and outstanding stock of e-Net Technology Ltd. ("e-Net", formerly Palm Technology Holdings Ltd.), a UK based company.
e-Net is a diversified Web Technology company, providing consulting services, training, technical support, computer software and computer hardware to a broad range of customers. This acquisition was accounted for under the purchase method.
The results of operations presented herein reflect the net sales and expenses of e-Net and the costs of development and marketing the Company's Software product acquired on January 7, 1999 (see above). Prior to the acquisition of the on-line health care management system on January 7, 1999, and the acquisition of e-Net on March 19, 1999, the Company's operating expenses, interest income and expense were minimal. Therefore, the financial statements included herein only present the historical information for the three months and six months ended September 30, 1999. The following analysis compares the operating results for the three and six months ended September 30, 1999 to pro forma information for the three and six months ended September 30, 1998, which gives effect to the acquisition of e-Net as if such transaction had occurred at the beginning of that period (in thousands)(unaudited):
9/30/99 9/30/98
Pro forma
3 months 6 months 3 months 6 months
-------- -------- -------- --------
Net Sales $8,869 $13,312 $5,295 $10,102
Cost of Sales 6,779 10,408 3,911 7,819
Gross Margin 2,090 2,904 1,384 2,283
Operating Expenses 3,897 6,507 1,425 2,682
Operating loss (1,807) (3,603) (41) (399)
NET SALES
Net sales for the three and six months ended September 30, 1999 were $8.9 million and $13.3 million, respectively, compared to pro forma revenues for the three and six months ended September 30, 1998 of $5.3 million and $10.1 million. Orders in process (backlog) at September 30, 1999 and 1998 were approximately $2.7 million and $1.1 million, respectively. The increase in backlog for the six months ended September 30, 1999 was a direct result of delayed product delivery from the Company's major hardware supplier, Sun Microsystems ("Sun"). The increase in reported net sales was approximately $3.6 million and $3.2 million for the three and six months ended September 30, 1999. This increase is mainly the result of the Company's U.K. subsidiary, e-Net, obtaining a higher preferred vendor status with Sun during the beginning of the year and thereby increasing its market share for the sale and distribution of Sun hardware. In addition, during the quarter ended September 30, 1999, e-Net successfully launched its new enterprise java beans e-commerce software product ("esparto"). e-Net has now implemented esparto in several customer sites and has a strong prospect list with a significant number of these
expected to close in the current quarter. In addition, e-Net has undertaken several other software product campaigns (including Healthcare) with Oracle that is now beginning to reach a more diversified market.
COST OF SALES
Cost of sales for the three and six months ended September 30, 1999 were $6.8 million and $10.4 million compared to pro forma cost of sales of $3.9 and $7.8 million for the comparable prior year periods. The increase in cost of sales was mainly due to the higher sales and distribution of SMS hardware. Cost of sales as a percent of revenues increased slightly from 77.4% for the pro forma six month period ended September 30, 1998 to 78.2% for the six months ended September 30, 1999. This slight increase reflects the decrease in hardware margins, as the Company has increased its market via its teaming with SMS and Oracle to compete with other major hardware and software distributors such as MicroSoft.
OPERATING COSTS
RESEARCH AND DEVELOPMENT
Research and development costs of approximately $639,000 and $887,000 for the three and six months ended September 30, 1999 consist of salaries, professional fees and equipment costs of the internal development of new e-commerce software products in the UK and the continuing development of new internet products in the U.S. During the three and six months ended September 30, 1999 e-Net incurred approximately $324,000 and $572,000, respectively, in development costs. In addition, the Company's U.S. operations incurred approximately $315,000 in the three months ended September 1999 for the development of new Internet products to be
integrated with its existing Internet based health care management system.
SALES AND MARKETING
Sales and marketing costs of approximately $1,036,000 and $1,647,000 for the three and six months ended September 30, 1999, mainly consist of costs for salaries, travel, advertising, marketing literature and seminars. These costs reflect the Company's business plan to increase
markets and customers throughout the United States and United Kingdom. Sales and marketing costs
for the six months ended September 30, 1999 increased approximately $600,000 in the U.K. compared to September 30, 1998 pro forma amounts. This is the result of increasing its sales force to implement e-Net's planned market penetration for the sale of hardware and software. In addition, the U.S. operations incurred approximately $140,000 in sales and marketing costs for the six month period ended September 1999 as a result of the marketing of its web based health
care management system and related sales force.
GENERAL AND ADMINISTRATIVE
General and administrative costs of approximately $1,861,000 and $3,267,000 for the three and six months ended September 30, 1999 mainly consist of salaries, facility costs and professional fees. These expenses include approximtely $253,000 of non cash compensation paid to employees and consultants through the issuance of shares, warrants and options. Approximately $2.1 million of these costs for the six months ended September 30, 1999 related to the Company's
reorganization and infrastructure development of its U.S. operations in accordance with its business plans. These costs, which include legal fees, accountancy fees and other consulting fees, also represent the efforts of the Company to broaden its financial and investment market visibility
and obtain funding for its operations and planned expansion.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of approximately $362,000 and $707,000 for the three and six months ended September 30, 1999 include amortization of goodwill of $202,000 and $405,000 for the respective periods. The Company is amortizing goodwill over a five- to ten-year period.
FINANCE COSTS
Finance costs of approximately $1,502,000 for the six months ended September 30, 1999 include approximately $1,243,000 of amortization of deferred financing costs incurred as a result of the bridge financing obtained for the acquisition of e-Net. As of June 30, 1999 all deferred financing
costs had been amortized. In addition, finance costs include approximately $167,000 and $259,000 of interest expense on the Company's bridge debt and e-Net's credit facility for the three and six-month periods ended September 1999, respectively.
EXTRAORDINARY GAIN
The extraordinary gain of approximately $357,000 is due to the recognition of the gain associated with the exchange of bridge debt and its related origination fees and interest payable for the issuance of warrants.
INCOME TAXES
Income tax benefit of approximately $62,000 and $305,000 for the three and six months ended September 30, 1999 reflect an estimated tax benefit for the U.K. operations that the Company projects will be used by the end of the year. The Company estimated the effective U.K. tax rate at
31%.
LIQUIDITY
The operating costs of the Company have been funded by its operations, sale of equity, its credit facility, and through loans from private investors. As of September 30, 1999, the Company had negative working capital of approximately $5.9 million, including cash of $159,000 and restricted cash of $141,000. The negative working capital includes approximately $2.0 million and $4.0 million for the Company's credit facility and bridge financing, respectively. It is anticipated that the credit facility will continue to renew and not be payable within a year.
During the quarter ended June 30, 1999, the Company renegotiated the financing terms on the debt obtained in connection with the e-Net acquisition. As a result, $750,000 of the debt was exchanged for warrants to acquire 150,000 shares of the Company's common stock at $.01, and the remaining debt was extended 24 months to May 19, 2001. The Company had agreed to make a principal payment of $300,000 in September 1999 to obtain this extension. As of September 30, 1999, the Company had not made this principal payment, as the lender agreed to extend this payment contingent upon the Company entering into certain funding arrangements with NTP (discussed below).
During the six month period ended September 30, 1999 the Company received approximately $1,181,000 from National Trust Properties, Inc. ("NTP"), a related party as described below, as interim funding of its operations. On August 1, 1999, in consideration for approximately $848,000 of the funding by NTP and for other fiscal consideration provided or to be provided by NTP to the Company in the form of advances from time to time, the Company agreed to issue
1,500,000 shares of its common stock to NTP. Subsequently, NTP and the Company amended the agreement to issue the shares based on the trading price of the stock at the dates the funds were received. As of September 30, 1999, the Company has an obligation to issue 272,475 shares to
NTP. The remaining balance of the funds received through September 30, 1999, of $333,000, has been reflected in related party debt. This debt bears interest at prime plus 1% and is due within one year from the funding date.
During the quarter ended September 30, 1999, the Company entered into a financing arrangement with a strategic partner to fund the Company's operations and acquisition of managed care computer software technology in an amount not to exceed $5,500,000. The obligation bears interest at prime plus 1%, is secured by the Company's assets and is due one year from the draw date or if the Company successfully obtains refinancing for the amounts loaned under the
financing arrangement, whichever is the earlier date. The Company has borrowed $3,500,000 through November 8, 1999, of which $2,000,000 was used to fund the purchase of managed care software technology.
Also during the quarter ended September 30, 1999, e-Net's management advanced the subsidiary approximately 260,000 pounds to provide working capital. The advance was repaid in
September 1999. The credit facility for 900,000 pounds expired on July 31, 1999, and was extended to September 30, 1999 and increased to 1,300,000 pounds. The Company has reached an interim agreement with the bank to renew the line for 900,000 pounds through July 31, 2000.
The Company is currently in negotiations to increase the limit on the renewed line to 1,300,000 pounds.
The Company entered into agreements with two investment banking firms to provide numerous services to the Company including, among other things, assistance on corporate developments and financing strategies, identifying prospective investors and acquisition targets, performing due diligence and valuation analyses of targets.
The Company believes that the funds available on the $5,500,000 financing agreement are sufficient to meet the working capital needs of its U.S. and U.K. operations through at least fiscal 2000. It is management's belief that the long range operations (post fiscal year 2000) of the
Company are dependent upon the ability of the Company to obtain additional debt or equity funding to support the 1) implementation and roll-out of its newly acquired healthcare
management system to customers under contract, 2) to expand its customer base and 3) develop, acquire or enhance new applications and services. The Company is actively pursuing additional financing and equity arrangements to accomplish these goals, however, there can be no assurance that funding will be available on terms acceptable to the Company, or at all.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in existing computer systems as the year 2000 approaches. The Company has reviewed its proprietary health care management software systems that were acquired in January 1999 and which the Company has started marketing to customers. The Company believes that these systems and applications, which the Company has continued to develop, are designed to be Year 2000 compliant. In addition, the
Company has reviewed the software system acquired from University Affiliates in September 1999. University Affiliates provided documentation certifying the year 2000 compliance of the acquired systems. Accordingly, the Company did not incur any costs or reflect any expenses
during the period for implementation of Year 2000 programming code corrections and does not
anticipate any such costs in the future.
e-Net has implemented programs to identify and correct year 2000 problems. This program was initiated in the early part of 1997 and a company-wide program was carried out and steps were taken to re-write software and take other actions necessary to ensure that the Company's software
and hardware is year 2000 compliant. The risk analysis also considered the impact on the business of year 2000 related failures by the Company's significant suppliers and customers. The predominant supplier, Sun Microsystems provided the Company with a formal confirmation that
they are fully year 2000 compliant. The Company has been in communication with its other significant suppliers and customers to ensure that any potential problems are rectified. However,given the complexity of the issue, it is the Company's belief that they cannot guarantee that no
year 2000 problems will remain. e-Net's management believes that it has achieved an acceptable state of readiness and it also has the appropriate resources available to deal promptly with significant subsequent failures or issues that might arise.
The Company is just starting to work with some of its customers of the health care management system and one of the items, which will be addressed, is whether the customers' existing computer systems are year 2000 compliant. Management expects that many of the companies it
will be selling to in the health care industry are not year 2000 compliant. Until the Company learns more about the specific facts of its customers, it is not able to determine what the impact will be on the Company if these customers are not year 2000 compliant. However, the Company shall have no liability for any failure of customers' or third
party's software, hardware, applications, databases or other systems to be year 2000 compliant or any year 2000 issues not solely caused by the Company's system.
The Company may be vulnerable to the failure of various third party vendors and suppliers to be
year 2000 compliant. Its business will be dependent on the operation of numerous systems that could potentially be impacted by year 2000 related problems. Those systems include hardware and software systems used by the Company to deliver services to its customers; communications
networks such as the Internet and private intranets, which the Company will depend on to provide electronic transactions to its customers; the internal systems of the customers; and non-information technology systems and services used by the Company in its business, such as
telephone systems and building systems. The Company has completed an assessment of all third-party hardware and software that it uses to provide service of any kind to its customers, and management has concluded that all aspects are Year 2000 compliant. In addition, the Company has requested and received Year 2000 compliance documentation from vendors of third-party products on which it is reliant, including Sun Microsystems and IBM. The Company has a formal
contingency plan that includes, but is not limited to, resetting the system date on the service systems and rerouting all of its network traffic through dedicated lease lines in the event of an outage at its telecommunications provider.
Although the Company cannot guarantee that no 2000 problems will occur, management believes that it has the appropriate resources to mitigate the risk to the Company of any year 2000 problems. |
