Attached files
| file | filename |
|---|---|
| EX-31.1 - CERTIFICATION - PHOENIX MEDICAL SOFTWARE, INC. | ex31one.htm |
| EX-31.2 - CERTIFICATION - PHOENIX MEDICAL SOFTWARE, INC. | ex31two.htm |
| EX-32.1 - CERTIFICATION - PHOENIX MEDICAL SOFTWARE, INC. | ex32one.htm |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ 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
OR
[ ]TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934
From the transition period from ___________ to ____________.
Commission File Number 333-142979
PHOENIX MEDICAL SOFTWARE, INC.
(Exact name of small business issuer as specified in its charter)
| Nevada | 20-4846807 |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
604 Creekview, Ovilla, Texas 75154
(Address of principal executive offices)
(800) 843-8179
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (s229.405 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. [ ]
Indicate by check mark whether the registrant (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 [ X ] No [ ].
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o (do not check if a smaller reporting company)
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Smaller reporting company x
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Indicate by a check mark whether the company is a shell company (as defined by Rule 12b-2 of the Exchange Act: Yes [ ] No [X].
As of March 31, 2011, there were 9,513,667 shares of Common Stock of the issuer outstanding.
2
TABLE OF CONTENTS
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PART I
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ITEM 1
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Description of Business
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4
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ITEM 2
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Description of Property
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5
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ITEM 3
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Legal Proceedings
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5
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ITEM 4
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Submission of Matters to a Vote of Security Holders
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5
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PART II
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ITEM 5
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Market for Registrant’s Common Equity And Related Stockholders Matters
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6
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ITEM 6
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Selected Financial Data
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6
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ITEM 7
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Management’s Discussion and Analysis of Financial Condition and Results of Operation
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7
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ITEM 7A
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Quantitative and Qualitative Disclosures About Market Risk
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9
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ITEM 8
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Financial Statements and Supplementary Data
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F-1 to F-11
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ITEM 9
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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21 | |
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ITEM 9A
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Controls and Procedures
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21
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ITEM 9B
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Other Information
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22
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PART III
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ITEM 10
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Directors, Executive Officers and Corporate Governance
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ITEM 11
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Executive Compensation
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23
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ITEM 12
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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23
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ITEM 13
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Certain Relationships and Related Transactions, and Director Independence
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24
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ITEM 14
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Principal Accounting Fees and Services
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24
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PART IV
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ITEM 15
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Exhibits and Financial Statement Schedules
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26
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EXHIBIT INDEX
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Exhibit 31.1
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Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002
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Exhibit 31.2
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Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002
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Exhibit 32.1
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Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
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3
ITEM 1. DESCRIPTION OF BUSINESS
This report contains forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. The Company’s actual results could differ materially from those set forth on the forward looking statements as a result of the risks set forth in the Company’s filings with the Securities and Exchange Commission, general economic conditions, and changes in the assumptions used in making such forward looking statements.
General
The company was founded to create electronic healthcare software applications. The initial development is an Electronic Health Record (EHR), specifically designed to meet the needs of orthopedic physicians. For the past 4 years, our President has worked directly with dozens of orthopedic physicians in more than 40 states. He has reviewed orthopedic clinical research and extensively surveyed reference materials. Based upon the research, Mr. McCune created a database with a graphical interface to assist orthopedic physicians with the documentation of the patient encounter.
The Market
Phoenix Ortho is participating in an $18 billion market for Electronic Health Records (EHR). The Orthopedics market approaches $2 billion. There are more than 20,500 board certified orthopedists and over 12,800 orthopedic group practices. Research indicates that this market is less than 10% penetrated.
Keys to Success
Focus: We believe focus is the essential ingredient to successful EHR development and deployment. Phoenix Ortho is unique in our extensive experience and singular focus on orthopedics. By focusing on one specialty, we can avoid the wholesale generalities that have plagued EHR vendors and frustrated their orthopedic clients. Phoenix Ortho understands the unique requirements of orthopedic physicians. Focus promotes the creation of relevant content and specialty specific application functionality. Content relevance is a significant factor in physician adoption.
In early 2007, we began marketing a new orthopedic EHR. The new project was focused on resolving the key problems that have historically posed barriers to adoption, successful implementation and client satisfaction. These obstacles can be grouped together in four categories; Product Functionality, Product Implementation, Product Support, Product Acquisition Cost.
Product Functionality: The software will establish new standards for ease of use, efficiency, stability and availability facilitating end user adoption. The software is designed and scaled specifically for the pen tablet environment. We believe the pen tablet is the device of choice for EHR end users. Our development will utilize input tools such as sliders, combo boxes, role over images and other custom designed tools to provide a truly keyboard free interface. Other tablet input options such as “Pen and Ink” and “Voice to Text” will be available as needed to capture representative content. The OD Client ill improve stability, performance and availability by utilizing .NET automatic versioning and auto recovery from deadlock errors and memory leaks. Advanced compilation and caching techniques substantially lower CPU utilization. The ODClient (smart client) will support both disconnected and low bandwidth clients supporting end user mobility and minimizing the frustration of “Systems down”.
4
Product Implementation: We have developed an orthopedic, client focused implementation methodology we call the “AAA” implementation plan. This plan focuses on the three critical aspects of implementation; Assessment, Adoption and Adaptation. All implementations will begin with Assessment. During the assessment phase the unique needs of the end users are identified. Each user is profiled to determine their needs and potential road blocks to success. The physicians are identified as Champions, Contenders or Challengers. An implementation strategy is designed around these “Adoption Profiles”. The Champions are the eager adopters and should be the first users. The Contenders are frequently indifferent but, usually agreeable adopters. The Challengers represent approximately 30% of the physicians who will resist implementation for a variety of reasons. Sometimes they feel they are too technology challenged and fearful, some are too busy and may fear loss of revenue by adoption, while others are just resistant to anything new. When these objections are clearly understood, “Adaptation” can take place and in most cases mitigate the Challengers objection(s). Adaptation is the process of introducing (training) the end users to the application “Best Practices”. It also takes into account the “Profile” of the end user to create a “Best Practices” by provider (See Challengers above).
Product Support: The ODClient on the .NET framework makes it easier than ever to update and deploy new applications. Thanks to intelligent, one touch updates and intelligent support client PCs can be updated by copying the application to the target directory. Client PCs may be updated automatically with no interruption or they may be updated on demand.
ITEM 2. DESCRIPTION OF PROPERTY
Our corporate facilities are located in a 1,200 sf office facility at 604 Creekview, Ovilla, Texas 75154. The space is being leased on a month to month basis for $5,000 per month.
ITEM 3. LEGAL PROCEEDINGS
We are not involved in any legal proceedings at this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
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On August 10, 2010 the Company announced a merger with Grand Silver, Inc., a Cayman Islands company. Grand Silver, Inc. then changed its name to Phoenix Medical Software, Inc. The Prospectus stated that 9,513,667 shares of Grand Silver, Inc. common stock at $0.001 par value, would be exchanged for all the outstanding stock of Triple A Medical, Inc., (14,270,500), in effect a two-for-three reverse stock split. The merger would be effective upon Triple A Medical ,Inc., changing its corporate domicile from Nevada to the Caymans Islands. This was effective on January 28, 2011.
The common stock is currently quoted on the NASDAQ bulletin board under the symbol “PHXMF.OB” and has been quoted since March of 2008.
The following table sets forth the quarterly high and low prices paid (or if no activity, the last sale price) for the Common Stock for 2010 and 2009.
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Fiscal 2010 and 2009
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High
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Low
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First Quarter 2010
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$0.50
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$0.50
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Second Quarter
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$0.50
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$0.50
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Third Quarter
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$0.50
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$0.50
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Fourth Quarter
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$0.50
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$0.50
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First Quarter 2009
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$0.50
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$0.50
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Second Quarter
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$0.50
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$0.50
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Third Quarter
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$0.50
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$0.50
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Fourth Quarter
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$0.50
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$0.50
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Shareholders
As of December 31, 2010, there were approximately 102 record holders of the Common Stock. This number excludes any estimate by the Company of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.
Dividends
The Company has not paid dividends on any class of common equity since formation and the Company does not anticipate paying any dividends on its outstanding common stock in the foreseeable future.
Warrants
The Company has no warrants outstanding.
ITEM 6. SELECTED FINANCIAL DATA
Not required
6
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
EXECUTIVE OVERVIEW
At the end of the first quarter of 2007, our software became operational and we started marketing it by attending trade shows, print advertising and brochures and personal contacts. In August we had our first sale and installation of the software which took us out of the development stage and into the operating phase of our business. Our sales leads continue to be followed up on as we receive them from our own efforts by attendance at trade shows and from referrals from our industry cross marketing agreements.
2010 was our third full year of selling our proprietary software (it became operational in early 2007). Our marketing efforts and selling strategies continue to pay dividends as sales increased in 2010 over 2009 by 99% to $2,216,237. This followed an increased in 2009 versus 2008 of 106% to $1,116,241. Our software is being very well received in the market place and with the market less than 10% penetrated we feel that we are well positioned, both technically and cost wise, to continue to gain market share.
Results for the fiscal year ended December 31, 2010 compared to the fiscal year ended December 31, 2009
REVENUE. Revenue for the year ended December 31, 2010 was $2,216,237 compared to $1,116,241 for the year ended December 31, 2009.
The fluctuation in sales is due to the timing of closing sales contracts. Please reference the table below to view the Installation Contracts year-to-date (YTD) for 2010 versus 2009.
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Revenue
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Average Contract Price
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2010
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2009
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2010
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2009
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Installation Contracts
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$ | 1,697,582 | $ | 901,365 | $ | 115,398 | $ | 81,942 | ||||||||
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Maintenance/Other
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518,655 | 214,876 | ||||||||||||||
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TOTAL
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$ | 2,216,237 | $ | 1,116,241 | ||||||||||||
Revenue for the year ended December 31, 2010 was impacted by 15 new implementation contracts that averaged $115,398 per contract versus an average of $81,942 in 2009 to 11 customers. The price of an installation contract can vary anywhere from $40,000 to $240,000 depending on features and installation requirements. The difference in the income is related to maintenance/service on new and existing installations. During year ended December31, 2010 and 2009 there were a total of 25 and 12 customers making up the service/maintenance revenue of $214,876 and $214,876, respectively. Monthly service agreements can vary from $500 to over $2,000 depending on the installation and support contracted. Monthly maintenance revenue is important to establishing consistent cash flow and profitability once the Company reaches the right level of critical mass.
EXPENSES. Total general and administrative expenses for the twelve months ended December 31, 2010 was $2,170,973 compared to $1,316,299 for 2009. The increase of $854,674 is attributable to:
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·
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Increases of approximately $861,000 due to:
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o
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Travel of $240,000 due to the doubling of sales and visiting prospective customers.
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o
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Agent commissions of $141,000 due to the increase in installment sales.
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o
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Bad debt expense of $160,000 due to disputes with customers on deliverables.
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Increased payroll and contract services of $177,000 related to the growth of the Company.
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Insurance of $57,000
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General Admin of $86,000
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·
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Decreases of $6,000 due to small reductions in office expenses.
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7
Depreciation and amortization was $83,358 and $84,727 in 2010 and 2009, respectively.
OTHER INCOME . We had interest income of $105 in 2010 and $21 in 2009. In 2010 we had interest expense of $0 compared to $2,043 in 2009.
NET LOSS. Net loss for the year ended December 31, 2010 was $37,989 compared with a loss of $286,807 for 2009. Fiscal year 2010 saw improvement over 2009 (see explanations above).
LIQUIDITY AND CAPITAL RESOURCES. Our cash balance at December 31, 2010 was $222,348 compared to $132,993 at December 31, 2009. As discussed in Note 2 to the financial statements, from inception, the Company has suffered losses from operations and has deficits in cash flows from operating activities, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company plans for liquidity needs on a short term and long term basis as follows:
Short Term Liquidity:
Prior to 2010 the company relied on short-term financing of working capital from individual investors and also shareholder advances, to fund operations. In 2010 cash flow from operations are positive $94,456 and this enabled the Company to fund operations internally and not have to solicit additional investment.
Long Term Liquidity:
The long term liquidity needs of the Company are projected to be met primarily through the cash flow provided by operations. Operating cash flow from operations is about $94,456 for the year ended December 31, 2010. Perpetuating maintenance revenue increased about 160% to $557,500 in 2010 versus 2009 helping generate positive cash flows. Going forward we expect this to continue to grow and fund operations.
Capital Resources
During the year ended December 31, 2010, the Company received an advance of $39,891 from a shareholder. This is a decrease from 2009 of $22,726 when the balance was $62,617. $34,691 of the advance is a line-of-credit with an annual interest rate of 5.85% There is no interest associated with the general shareholder advances totaling $5,200 and is payable on demand.
Over the past few years we have noticed that our business does not have a seasonal trend. We do see trends based on lead generation and follow-up after trade show events or targeted advertising. Trade shows are typically early in the year and therefore we experience increased implementation revenue in the latter part of the fiscal year. Currently our revenue stream is geared toward installation contracts and as we grow we expect to see a more balanced revenue line between installation and maintenance sales.
We do not expect any significant change to our equity or debt structure and do not anticipate entering into any off-balance sheet arrangements.
8
Critical Accounting Policies
The Company’s critical accounting policies and estimates are depreciation (fixed assets) and amortization (capitalized software) expense, reserve for doubtful accounts and commissions on agent installment sales.
Material Changes in Financial Condition
WORKING CAPITAL: Working capital increased $162,994 to $136,413 as of December 31, 2010 from a deficit of $26,581 as of December 31, 2009. This improvement is due to three main items.
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Firstly: Cash increased $89,000
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Secondly: Accounts receivable increased $93,00 due to the high installment sales in December
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Thirdly: This was offset by an increase (net) in accounts payable and other current liabilities of $19,000 due to increased travel accruals
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Future Financial Condition
The Company’s future prospects look promising with residual income related to service maintenance agreements estimated to be about $350,000 per annum and increased sales growth on systems implementations, the Company believes that sales will achieve double digit percentage growth again in 2011 (2010 growth over 2009: 99%; 2009 growth over 2008: 106%).
Employees
As of December 31, 2010, the Company had seven employees which it pays through an employee leasing agreement. Four of the employees are support and/or technical personnel.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated in this filing are the following financial statements:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2010 and 2009
Consolidated Statements of Operations for the years ended December 31, 2010 and 2009
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2010 and 2009
Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009
Notes to the Consolidated Financial Statements
9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Phoenix Medical Software, Inc.
(formerly Triple A Medical, Inc.)
Ovilla, Texas
We have audited the accompanying consolidated balance sheets of Phoenix Medical Software, Inc. (formerly Triple A Medical, Inc.) (“the Company), as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the management of Phoenix Medical Software, Inc. Our responsibility is to express an opinion on these consolidated 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 an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Phoenix Medical Software, Inc is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Phoenix Medical Software, Inc’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Phoenix Medical Software, Inc. as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses from operations which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding these matters also are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ MALONE BAILEY, LLP
www.malonebailey.com
Houston, Texas
March 31, 2011
F-1
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PHOENIX MEDICAL SOFTWARE, INC.
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(FORMERLY TRIPLE A MEDICAL, INC.)
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CONSOLIDATED BALANCE SHEETS
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December 31,
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ASSETS
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2010
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2009
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Current Assets
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Cash and cash equivalents
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$ | 222,348 | $ | 132,993 | ||||
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Accounts receivable, net of allowance of $216,825 and $17,576,
respectively
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107,439 | 14,522 | ||||||
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Total Current Assets
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329,787 | 147,515 | ||||||
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Computer equipment, net of accumulated depreciation of $24,639 and
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$17,795, respectively
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- | 6,844 | ||||||
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Developed software, net of accumulated amortization of $249,562
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and $173,048, respectively
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133,007 | 209,521 | ||||||
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TOTAL ASSETS
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$ | 462,794 | $ | 363,880 | ||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current Liabilities
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Accounts payable and accrued expenses
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$ | 153,483 | $ | 96,479 | ||||
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Related party line of credit
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34,691 | 39,707 | ||||||
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Short-term debt
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- | 15,000 | ||||||
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Advanced from shareholder
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5,200 | 22,910 | ||||||
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Total Current Liabilities
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193,374 | 174,096 | ||||||
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Stockholders' Equity
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Preferred stock, $0.01 par value, 20,000,000 authorized,
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none issued and outstanding
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- | - | ||||||
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Common stock, $0.001 par value, 33,333,333 shares authorized,
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9,513,667 and 9,367,000 shares issued and outstanding, respectively
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9,514 | 14,051 | ||||||
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Additional paid-in capital
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2,016,234 | 1,896,697 | ||||||
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Subscription payable
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2,625 | |||||||
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Accumulated deficit
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(1,758,953 | ) | (1,720,964 | ) | ||||
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Total Stockholders' Equity
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269,420 | 189,784 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 462,794 | $ | 363,880 | ||||
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See accompanying summary of accounting policies and notes to consolidated financial statements.
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F-2
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PHOENIX MEDICAL SOFTWARE, INC.
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(FORMERLY TRIPLE A MEDICAL, INC.)
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CONSOLIDATED STATEMENTS OF OPERATIONS
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Years Ended
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December 31,
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2010
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2009
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REVENUE
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$ | 2,216,237 | $ | 1,116,241 | ||||
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OPERATING EXPENSES
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Depreciation and amortization
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83,358 | 84,727 | ||||||
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Selling, general & administrative
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2,170,973 | 1,316,299 | ||||||
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TOTAL OPERATING EXPENSES
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2,254,331 | 1,401,026 | ||||||
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LOSS FROM OPERATIONS
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(38,094 | ) | (284,785 | ) | ||||
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OTHER INCOME (EXPENSE)
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Interest income
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105 | 21 | ||||||
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Interest expense
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- | (2,043 | ) | |||||
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TOTAL OTHER INCOME (EXPENSE)
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105 | (2,022 | ) | |||||
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NET LOSS
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$ | (37,989 | ) | $ | (286,807 | ) | ||
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Basic and diluted weighted average shares outstanding
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9,487,018 | 9,367,000 | ||||||
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Basic and diluted net loss per share
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$ | (0.00 | ) | $ | (0.03 | ) | ||
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See accompanying summary of accounting policies and notes to consolidated financial statements.
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F-3
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PHOENIX MEDICAL SOFTWARE, INC.
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(FORMERLY TRIPLE A MEDICAL, INC.)
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
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YEARS ENDED DECEMBER 31, 2010 AND 2009
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Subscription
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Common Stock
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Paid-in
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(Receivable)
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Accumulated
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Shares
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Amount
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Capital
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Payable
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Deficit
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Totals
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Balances at December 31, 2008
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9,367,000 | $ | 9,367 | $ | 1,662,381 | $ | (2,000 | ) | $ | (1,434,157 | ) | $ | 235,591 | |||||||||||
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Contributed capital
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- | - | 239,000 | - | - | 239,000 | ||||||||||||||||||
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Collection of subscription receivable
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- | - | - | 2,000 | - | 2,000 | ||||||||||||||||||
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Net loss
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- | - | - | - | (286,807 | ) | (286,807 | ) | ||||||||||||||||
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Balances at December 31, 2009
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9,367,000 | 9,367 | 1,901,381 | - | (1,720,964 | ) | 189,784 | |||||||||||||||||
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Shares issued for cash
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13,334 | 14 | 14,986 | - | - | 15,000 | ||||||||||||||||||
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Shares issued for services
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113,333 | 113 | 84,887 | - | - | 85,000 | ||||||||||||||||||
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Debt relieved in exchange for
stock
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20,000 | 20 | 14,980 | - | - | 15,000 | ||||||||||||||||||
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Subscription payable
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- | - | - | 2,625 | - | 2,625 | ||||||||||||||||||
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Net loss
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- | - | - | - | (37,989 | ) | (37,989 | ) | ||||||||||||||||
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Balances at December 31, 2010
|
9,513,667 | $ | 9,514 | $ | 2,016,234 | $ | 2,625 | $ | (1,758,953 | ) | $ | 269,420 | ||||||||||||
|
See accompanying summary of accounting policies and notes to consolidated financial statements.
|
||||||||||||||||||||||||
F-4
|
PHOENIX MEDICAL SOFTWARE, INC.
|
||||||||
|
(FORMERLY TRIPLE A MEDICAL, INC.)
|
||||||||
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
||||||||
|
Years Ended
|
||||||||
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net Loss
|
$ | (37,989 | ) | $ | (286,807 | ) | ||
|
Adjustments to reconcile net (loss) to net cash
|
||||||||
|
provided by (used in) operating activities:
|
||||||||
|
Depreciation and amortization
|
83,358 | 84,727 | ||||||
|
Common stock issued for services
|
85,000 | - | ||||||
|
Write-off of subscription receivable
|
- | 2,000 | ||||||
|
Bad debt expense
|
218,718 | 58,078 | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(311,635 | ) | (50,517 | ) | ||||
|
Accounts payable and accrued expenses
|
57,004 | 1,339 | ||||||
|
Net cash provided by (used in) operating activities
|
94,456 | (191,180 | ) | |||||
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
|
Contributed capital
|
- | 239,000 | ||||||
|
Proceeds from sale of stock
|
17,625 | - | ||||||
|
Payments to shareholder
|
(22,910 | ) | (57,140 | ) | ||||
|
Proceeds from short-term debt
|
- | 15,000 | ||||||
|
Advances from shareholder
|
5,200 | 80,050 | ||||||
|
Payments on related party line of credit
|
(5,016 | ) | (691 | ) | ||||
|
Net cash provided by (used in) financing activities
|
(5,101 | ) | 276,219 | |||||
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
89,355 | 85,039 | ||||||
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
132,993 | 47,954 | ||||||
|
CASH AND CASH EQUIVALENTS AT END OF YEAR
|
$ | 222,348 | $ | 132,993 | ||||
|
SUPPLEMENTAL DISCLOSURES
|
||||||||
|
Interest paid
|
$ | - | $ | - | ||||
|
Income taxes paid
|
- | - | ||||||
|
NONCASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
|
Common stock issued for debt
|
$ | 15,000 | $ | - | ||||
|
See accompanying summary of accounting policies and notes to consolidated financial statements.
|
||||||||
F-5
PHOENIX MEDICAL SOFTWARE, INC.
(FORMERLY TRIPLE A MEDICAL, INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities, History and Organization:
On August 10, 2010 Phoenix Medical Software, Inc. (formerly Triple A Medical, Inc.) announced a merger with Grand Silver, Inc., a Cayman Islands company. Phoenix Medical Software then changed its name to Phoenix Medical Software, Inc. from Triple A Medical, Inc. The Prospectus stated that 9,513,667 shares of Grand Silver, Inc. common stock at $0.001 par value, would be exchanged for all the outstanding stock of Phoenix Medical, (14,270,500), in effect a two-for-three reverse stock split. The merger would be effective upon Phoenix Medical, changing its corporate domicile from Nevada to the Caymans Islands. This was effective on January 28, 2011. All share and per share amounts herein have been retroactively restated to reflect the split.
Phoenix Medical, through its wholly owned subsidiary Triple A Software, Inc. (TAS), has developed and is in the process of selling and distributing a proprietary software developed for use as an electronic medical record by orthopedic surgeons. Phoenix Medical is located in Ovilla, Texas and was incorporated on December 27, 2006 in Nevada.
Phoenix Medical is the parent company of TAS, a Texas corporation. TAS was established in 2005 and since that time has been working to develop software. The software being developed is designed as an easy to use, interactive software with customization that can be made as it is used.
On December 29, 2006, Phoenix Medical issued 13,500,000 shares of common stock in exchange for a 100% equity interest in TAS. As a result of the share exchange, TAS became the wholly owned subsidiary of Phoenix Medical. The share exchange was treated as a recapitalization of TAS. The financial statements have been prepared as if TAS had always been the reporting company and then on the share exchange date, had changed its name and reorganized its capital stock.
The consolidated financial statements also include the accounts of Phoenix Medical’s wholly owned subsidiary, Phoenix Ortho, LLC (collectively, “Phoenix Medical” or the “Company”).
Significant Accounting Policies:
Phoenix Medical’s management selects accounting principles generally accepted in the United States of America and adopts methods for their application. The application of accounting principles requires the estimating, matching and timing of revenue and expense. The accounting policies used conform to generally accepted accounting principles which have been consistently applied in the preparation of these financial statements.
The consolidated financial statements and notes are representations of Phoenix Medical’s management which is responsible for their integrity and objectivity. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of Phoenix Medical for the respective periods being presented.
F-6
Basis of Presentation
Phoenix Medical prepares its consolidated financial statements on the accrual basis of accounting. Phoenix Medical consolidates its wholly owned subsidiaries. All intercompany balances and transactions are eliminated.
Certain 2009 amounts have been reclassified to conform to 2010 presentation.
Cash and Cash Equivalents
Cash and cash equivalents includes cash in banks with original maturities of three months or less and are stated at cost which approximates market value, which in the opinion of management, are subject to an insignificant risk of loss in value.
Fair Value of Financial Instruments
The carrying amounts of cash, cash equivalents, accounts receivable, accounts payable and notes payable approximate their fair values due to the short-term maturities of these instruments.
Property and Equipment
Property and equipment are carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repair and maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which is 3 years.
Software Development Costs
Phoenix Medical follows FASB ASC 985-20, “Costs of Software to be Sold, Leased or Marketed.” In accordance with ASC 985-20, internal costs incurred to create computer software are charged to expense when incurred until technological feasibility has been established for the product. Technological feasibility is established upon completion of a detailed program design or, in its absence, completion of a working model. After technological feasibility is established, the costs of coding and testing and other costs of producing product masters are capitalized. Cost capitalization ceases when the product is available for general release to customers.
Capitalized software costs are amortized on a product-by-product basis, starting when the product is available for general release to customers. Annual amortization is the greater of straight-line over the product's estimated useful life or the percent of the product's current-year revenues as compared to the product's anticipated future revenues.
Capitalized software costs are evaluated for impairment on a product-by-product basis by a comparison of the unamortized capitalized costs to the product's net realizable value. The amount by which the unamortized capitalized costs exceed the net realizable value is recognized as an impairment charge.
F-7
Revenue Recognition
Phoenix Medical recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured, FASB ASC 605-25. Phoenix Medical recognizes revenue under multiple deliverable arrangements from installation and other services as the services are performed.
Our software products are modified and customized to each specific customer. As a result, the service element is essential to the functionality of the software license. Consequently, we recognize revenue upon completion of specific contractual milestones or by using the percentage-of-completion method. Typically, we recognize 40% of the revenue upon delivery of the software; 40% on the completion of the installation, which generally takes from four to six weeks and 20% upon the completion of training and the “go live” date.
Accounts Receivable:
Accounts receivable are carried at their face amount, less an allowance for doubtful accounts. On a periodic basis, the Company evaluates accounts receivable and establishes the allowance for doubtful accounts based on a combination of specific customer circumstances and credit conditions, based on a history of write offs and collections. The Company’s policy is generally not to charge interest on trade receivables after the invoice becomes past due. A receivable is considered past due if payments have not been received within agreed upon invoice terms. The Company provides an allowance for all receivables that are greater than 90 days old. Allowances for Doubtful Accounts totaled $216,825 and $17,576 at December 31, 2010 and 2009 respectively. Write-offs are recorded at a time when a customer receivable is deemed uncollectible.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Earnings (Loss) per Share
Earnings (loss) per share (basic) is calculated by dividing the net income (loss) by the weighted average number of common shares outstanding for the period covered. As Phoenix Medical has no potentially dilutive securities, fully diluted earnings (loss) per share is identical to earnings (loss) per share (basic).
Recent Accounting Pronouncements:
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
F-8
NOTE 2 - GOING CONCERN
Phoenix Medical 's consolidated financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Phoenix Medical has suffered losses since inception through 2010 and has an accumulated deficit as of December 31, 2010. Additionally, Phoenix Medical has incurred deficits in cash flows from operating activities up until fiscal 2010. These conditions raise substantial doubt as to Phoenix Medical’s ability to continue as a going concern.
Phoenix Medical 's ability to continue as a going concern is dependent upon its ability to complete the development of its developed software product with existing sources of capital, to successfully market and implement its developed software product and to achieve profitable operations. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 3 - CONCENTRATIONS
Phoenix Medical maintains demand deposit accounts which at times exceed Federal Deposit Insurance Corporation (“FDIC”) insurance limitations of $250,000 per account. Balances on deposit at financial institutions as of December 31, 2010 and 2009 in excess of FDIC deposit insurance amounts were $0.
Phoenix Medical has a concentration of revenues based upon a limited number of customers. For the year ended December 31, 2010, 15 customers comprised 89% of total revenues. For the year ended December 31, 2009 seven customers comprised 74% of total revenues. All of the customers are orthopedic medical practices.
Phoenix Medical has contracted with the entity Ortho Dev, LLC to develop the software it uses to provide its electronic medical records. All software development costs including those capitalized as well as expense, as detailed in the following tables, have been acquired from Ortho Dev, LLC.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2010 and 2009:
| Description | Life | 2010 | 2009 | ||||||
| Computer equipment | 3 Years | $ | 24,639 | $ | 24,639 | ||||
| Accumulated depreciation | $ | (24,639 | ) | (17,795 | ) | ||||
| $ | - | $ | 6,844 | ||||||
Depreciation expense totaled $6,844 and $8,213 for the years ended December 31, 2010 and 2009, respectively.
NOTE 5 – CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Capitalized software development costs at December 31, 2010 and 2009 consist of the following:
| 2010 | 2009 | |||||||
| Software | $ | 382,569 | $ | 382,569 | ||||
| Less: accumulated amortization | (249,562 | ) | (173,048 | ) | ||||
| $ | 133,007 | $ | 209,521 | |||||
Amortization expense totaled $76,514 in both 2010 and 2009.
F-9
NOTE 6 – STOCKHOLDERS’ EQUITY
During the year ended December 31, 2010, Phoenix Medical issued 13,334 common shares for cash of $15,000, 113,333 common shares for services valued at $85,000 and 20,000 common shares for the conversion of debt totaling $15,000. In addition, Phoenix Medical received a cash deposit of $2,625 for the purchase of common stock.
During the year ended December 31, 2009, Phoenix Medical collected a subscription receivable of $2,000 and received capital contributions totaling $239,000.
NOTE 7 – INCOME TAXES
Deferred tax assets at December 31, 2010 and 2009 consisted of the following:
|
Deferred tax asset related to:
|
2010
|
2009
|
||||||
|
Net operating loss carry forward
|
$ | 267,302 | $ | 383,797 | ||||
|
Less: valuation allowance
|
(267,302 | ) | (383,797 | ) | ||||
|
Net deferred tax asset
|
$ | - | $ | - | ||||
The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $786,181 at December 31, 2010, and will expire in the years 2024 through 2030.
The difference in the income tax benefit not shown in the consolidated statements of operations and the amount at that would result if the U.S. Federal statutory rate of 34% were applied to pre-tax loss for 2010 and 2009 is attributable to the valuation allowance.
The realization of deferred tax benefits is contingent upon future earnings.
The Company had no gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The Company has not accrued any additional interest or penalties as a result of the adoption of FASB ASC 740.
NOTE 8 – RELATED PARTY TRANSACTIONS
In order to fund the development of the software, Phoenix Medical entered into an ‘Investment and Net Revenue Agreement’ with Phoenix Ortho, LLC (ORTHO), an entity controlled by a relative of the President of Phoenix Medical. In connection with this agreement, ORTHO provided Phoenix Medical with contributions to capital of $0 during 2010 and $239,000 in 2009. This cash is reflected as additional paid-in capital as of December 31, 2010 and 2009. In exchange for this contributed capital, Phoenix Medical provided ORTHO with an income participation interest in its operations. The terms of this agreement require Phoenix Medical to pay ORTHO 32.60% of the net income generated by the business in the immediately preceding month. This Investment and net revenue agreement has been assigned form Ortho to another entity controlled by the owners, Phoenix Scap, LLP during 2006.
F-10
Phoenix Medical borrowed $45,398 in the form of a short term line of credit from Ortho Dev, LLC, the entity responsible for developing its software, in September 2008. This line of credit matures in September 2011 and bears interest at a rate of 5.85%. The unpaid balance on this line of credit amounted to $34,691 at December 31, 2010 and $39,707 as of December 31, 2009.
At December 31, 2009, the Company owed advances of $15,000 to shareholders. This was converted into common stock on January 8, 2010, at $0.50 per share, or 20,000 shares.
As of December 31, 2010 and 2009, Phoenix Medical had unpaid advances owed to Paul McCune, the sole Director of the company. The unpaid advance, totaling $5,200 and $22,910 as of December 31, 2010 and 2009, respectively, are unsecured, bear no interest and are due on demand.
F-11
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
We have retained MaloneBailey, LLP as our registered independent public accounting firm. We have
had no disagreements with them on accounting and disclosure issues.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2010. This evaluation was accomplished under the supervision and with the participation of our chief executive officer / principal executive officer, and chief financial officer / principal financial officer who concluded that our disclosure controls and procedures are not effective to ensure that all material information required to be filed in the annual report on Form 10-K has been made known to them.
Disclosure, controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by in our reports filed under the Securities Exchange Act of 1934, as amended (the "Act") is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based upon an evaluation conducted for the period ended December 31, 2010, our Chief Executive and Chief Financial Officer as of December 31, 2010 and as of the date of this Report, has concluded that as of the end of the periods covered by this report, we have identified the following material weakness of our internal controls:
|
|
·
|
Reliance upon independent financial reporting consultants for review of critical accounting areas and disclosures and material non-standard transaction.
|
|
|
·
|
Lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control.
|
In order to remedy our existing internal control deficiencies, as our finances allow, we will hire additional accounting staff.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States of America. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
21
Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework at December 31, 2010. Based on its evaluation, our management concluded that, as of December 31, 2010, our internal control over financial reporting was not effective because of limited staff and a need for a full-time chief financial officer and that we do not have an audit committee.. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
Changes in Internal Controls over Financial Reporting
We have not yet made any changes in our internal controls over financial reporting that occurred during the period covered by this report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
22
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The directors and officers of the company, their ages and principal positions are as follows:
P. Morgan McCune 32 Director, President; Secretary and Director
Since December 2006
Background of Directors and Executive Officers:
P. Morgan McCune.
AA Degree Dallas Art Institute, Multimedia, Animation, Web Design, Web Developer, Graphic Artist, Medical Illustrator 6 years experience, Co-developer NextGen Orthopedic DB Developer NextGen Physical Therapy DB, Medical Illustrator for NextGen EMR, Development Proficiency: SQL 2005, Visual Studio 2005, .NET, C#, VB.
The Registrant has one shareholder, the President, P. Morgan McCune, who owns at least ten percent of the Company’s common stock. The initial Form 3 required to be filed by the shareholder was filed late. P. Morgan McCune was not required to file a Form 4 or Form 5 as his share holdings did not change.
ITEM 11. EXECUTIVE COMPENSATION
Our sole officer and director received the following compensation for the years of 2009 and 2008. He has no employment contract with the company.
|
Name of Person
Receiving Compensation
|
Capacity in which he served
to receive remuneration
|
Aggregate
remuneration
|
||
| P. Morgan McCune | President, Secretary and Treasurer | 2010 - $75,000 | ||
| 2009 - $75,000 |
We have no employment agreements with any officer, director or employee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table lists the officers, directors and stockholders who, at the date hereof, own of record or beneficially, directly or indirectly, more than 10% of the outstanding common stock, and all officers and directors of the company:
| Title / relationship to Issuer | Name of Owner | Amount Owned Before the Offering | Percent | ||||||
| President, Secretary | P. Morgan McCune | 13,000,000 | 91.10 | % | |||||
|
All officers and
Directors as a group
|
13,000,000 | 91.10 | % | ||||||
No options, warrants or rights have been issued by the Company.
23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
None.
As of the date of this filing, there are no other agreements or proposed transactions, whether direct or indirect, with anyone, but more particularly with any of the following:
|
|
·
|
a director or officer of the issuer;
|
|
|
·
|
any principal security holder;
|
|
|
·
|
any promoter of the issuer;
|
|
|
·
|
any relative or spouse, or relative of such spouse, of the above referenced persons.
|
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
(1) Audit fees
The aggregate fees billed for professional services rendered by our auditors, for the audit of the registrant's annual consolidated financial statements and review of the financial statements included in the registrant's Form 10-K or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for fiscal years 2010 and 2009, were $26,000 and $23,700 respectively.
(2) Audit-related fees
None
(3) Tax fees
None
(4) All other fees
None
(5) Audit committee policies and procedures
Audit Committee Financial Expert:
The Securities and Exchange Commission has adopted rules implementing Section 407 of the Sarbanes-Oxley Act of 2002 requiring public companies to disclose information about “audit committee financial experts.” As of the date of this Annual report, we do not have a standing Audit Committee. The functions of the Audit Committee are currently assumed by our Board of Directors. Additionally, we do not have a member of our Board of Directors that qualifies as an “audit committee financial expert.” For that reason, we do not have an audit committee financial expert.
24
Policies and Procedures:
The Board of Directors policies and procedures for hiring Independent Principle Accountants are summarized as follows:
|
|
·
|
The Board ensures that the accountants are qualified by reviewing their valid license information as filed with the Texas State Board of Public Accountancy.
|
|
|
·
|
The Board ensures that the accountants are independent by reviewing Regulation S-X, section 210.2-01(b).
|
(6) If greater than 50 percent, disclose the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.
Not applicable.
25
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
a) 1. Financial Statements Schedules
None
a) 3. Exhibits
Exhibits
Exhibit Number Name of Exhibit
31.1 Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) of the Exchange Act, as enacted by Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 United States Code Section 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002.
26
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
PHOENIX MEDICAL SOFTWARE, INC.
By /s/ P. Morgan McCune
P. Morgan McCune, President, CFO
Date: March 31, 2011
27