UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2018

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File No. 000-55715

 

EMR TECHNOLOGY SOLUTIONS INC.

(Exact name of registrant as specified in its charter)

 

Nevada		47-5482792
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

 

90 Washington Valley Road

Bedminster, NJ 07921

(Address of principal executive offices)

 

(908) 997-0617

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of August 13, 2018, there were 10,064,754 shares outstanding of the registrant’s common stock.

  

 

  

TABLE OF CONTENTS

 

		Page
PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements.	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	14
Item 4.	Controls and Procedures.	14
PART II – OTHER INFORMATION		15
Item 1.	Legal Proceedings.	15
Item 1A.	Risk Factors.	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	15
Item 3.	Defaults Upon Senior Securities.	15
Item 4.	Mine Safety Disclosures.	15
Item 5.	Other Information.	15
Item 6.	Exhibits.	16
Signatures		17

  

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

EMR TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES 

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2018 AND DECEMBER 31, 2017

 

		June 30, 2018				December 31, 2017
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	39,646			$	8,969
Accounts receivable, net			49,336				66,754
Total Current Assets			88,982				75,723
Property and equipment, net			--				--
Other Assets:
Security Deposit			1,450				1,450
Software, net			725,956				988,838
Customer lists, net			682,346				856,898
Covenant not to compete, net			31,089				37,794
Total other assets			1,440,841				1,884,980
TOTAL ASSETS		$	1,529,823			$	1,960,703
LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)
Current Liabilities:
Accounts payable		$	386,972			$	332,760
Accrued expenses			115,730				110,008
Cash overdraft			5,552				--
Deferred revenue			61,028				51,410
Factor advance, net			94,054				--
Promissory notes – current portion			384,375				175,000
Promissory notes – related party - current portion			400,000				125,000
Total Current Liabilities			1,447,711				794,178
Promissory note – related party – non-current			128,125				375,000
Promissory notes – non-current			150,000				375,000
TOTAL LIABILITIES			1,725,836				1,544,178
Commitments and Contingencies (See Note 5)
Stockholders’ Equity(Deficit):
Common Stock, 70,000,000 shares authorized, $.001 par value, 10,064,754 and 10,049,754 shares issued and outstanding in 2018 and 2017, respectively			10,065				10,050
Additional paid in capital			4,034,572				3,977,977
Accumulated deficit			(4,240,650	)			(3,571,502	)
Total stockholders’ equity(deficit)			(196,013	)			416,525
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)		$	1,529,823			$	1,960,703

 

The Notes to the Condensed Consolidated Unaudited Financial Statements are an integral part of these statements.

  

 

EMR TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS 

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2018 AND JUNE 30, 2017

(UNAUDITED)

  

		Three Months Ended June 30,								Six Months Ended June 30,
		2018				2017				2018				2017
Revenues:
Service revenues		$	18,287			$	42,935			$	146,767			$	117,590
Contract revenues			103,951				127,120				236,780				169,166
Total revenues			122,238				170,055				383,547				286,756
Costs and expenses:
Cost of revenues			11,586				28,099				46,401				54,827
Selling, general, and administrative expense			215,373				251,500				497,046				398,346
Amortization expense			221,162				221,162				442,324				387,762
Total operating expenses			448,121				500,761				985,771				840,935
Loss from operations			(325,883	)			(330,706	)			(602,224	)			(554,179	)
Other Income (Expense)
Interest expense (net)			(41,024	)			(21,497	)			(66,924	)			(43,141	)
Total other income (expense)			(41,024	)			(21,497	)			(66,924	)			(43,141	)
Loss before income taxes			(366,907	)			(352,203	)			(669,148	)			(597,320	)
Provision for income taxes			--				--				--				--
Net Loss		$	(366,907	)		$	(352,203	)		$	(669,148	)		$	(597,320	)
Basic and diluted net loss per common share		$	(0.04	)		$	(0.04	)		$	(0.07	)		$	(0.06	)
Weighted Average Number of Common Shares – Basic and diluted			10,063,321				9,911,755				10,059,906				9,266,657

 

The Notes to the Condensed Consolidated Unaudited Financial Statements are an integral part of these statements.

  

 

EMR TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

FOR THE SIX MONTHS ENDED JUNE 30, 2018 AND 2017

(UNAUDITED) 

 

		For the Six Months ended June 30, 2018				For the Six Months ended June 30, 2017
Cash Flows From Operating Activities:
Net Loss		$	(669,148	)		$	(597,320	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock issued for services			8,100				--
Amortization			442,324				387,762
Depreciation			--				623
Stock option expense			48,510				--
Provision for(recovery of) bad debt			(2,234	)			--
Amortization of debt discount			18,667				--
Changes in operating assets and liabilities:
Accounts receivable			19,652				139,166
Accounts payable and accrued expenses			74,249				18,580
Deferred revenue			9,618				2,629
Other assets			--				(1,450	)
Net Cash Used in Operating Activities			(50,262	)			(50,010	)
Cash Flows From Investing Activities:
Cash acquired in acquisition			--				10,586
Payments for acquisitions			--				(1,045,352	)
Net Cash Used in Investing Activities			--				(1,034,766	)
Cash Flows From Financing Activities:
Proceeds from factoring advance			151,500				--
Repayment of factoring advance			(76,113	)			--
Cash overdraft			5,552				--
Proceeds from issuance stock			--				1,050,000
Net Cash Provided by Financing Activities			80,939				1,050,000
Net Change in Cash and cash equivalents			30,677				(34,776	)
Cash and cash equivalents at Beginning of the Period			8,969				42,186
Cash and cash equivalents at End of the Period		$	39,646			$	7,410
Cash paid for interest		$	40,750			$	43,141
Cash paid for taxes		$	--			$	--
Non-Cash Investing & Financing Activities:
Promissory note obligation incurred upon acquisition		$	--			$	400,000
Accrued interest converted into promissory note		$	12,500			$	--

 

The Notes to the Condensed Consolidated Unaudited Financial Statements are an integral part of these statements.

  

 

EMR TECHNOLOGY SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2018

(UNAUDITED)

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

(A)

Basis of Presentation

 

The accompanying condensed consolidated unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.

 

It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year. 

 

The Company is a Nevada corporation formed on November 3, 2015. It was formed as a holding company whose principal activities consists of acquiring healthcare technology companies. Its fiscal year end is December 31. To date, the Company has financed and acquired four electronic medical records companies.

 

(B)

Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include the allocation of purchase price to fair value of assets acquired, valuation of deferred taxes, allowance for bad debt, useful lives of intangible assets, and stock-based compensation.

 

(C)

Cash and Cash Equivalents

 

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At June 30, 2018 and December 31, 2017, the Company had no cash equivalents.

 

(D)

Accounts Receivable

 

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables, and changes in payment histories. Accounts receivable are written off when management determines the likelihood of collection is remote. Interest is not charged on accounts receivable that are past due. The Company recorded an allowance for doubtful accounts of $29,213 and $41,044 as of June 30, 2018 and December 31, 2017, respectively.

 

(E)

Principles of Consolidation

 

The 2018 and 2017 consolidated financial statements include the operations of EMR Technology Solutions, Inc. (“EMR”), its wholly owned subsidiaries First Medical Solutions, Inc. (“FMS”), EMRgence, LLC (“EMRG”), Empower Technologies, Inc. (from January 1, 2017) (“ETI”), and Digital Medical Solutions, Inc. (from March 15, 2017) (“DMSI”). All significant intercompany accounts and transactions have been eliminated in consolidation.

  

 

(F)

Income Taxes

 

The Company accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  The tax return for the years ended December 31, 2017 and 2016 are subject to examination by the Internal Revenue Service. 

 

(G)

Furniture and Computer Equipment

 

Office Furniture and Computer Equipment are capitalized at cost, net of accumulated depreciation. Depreciation is calculated by using the straight-line method over the estimated useful lives of the assets, which is five to seven years for all categories. Repairs and maintenance are charged to expense as incurred. Expenditures for betterments and renewals are capitalized. The cost of computer equipment and the related accumulated depreciation are removed from the accounts upon retirement or disposal with any resulting gain or loss being recorded in operations. 

 

	Asset Category		Period
	Furniture and fixtures		7 Years
	Computer equipment		3 Years

 

(H)

Amortization and Impairment of Long-Lived Assets

 

Amortization and Impairment of long-lived assets are non-cash expenses relating primarily to intangible assets. The Company accounts for long-lived assets in accordance with the provisions of FASB ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Software costs are amortized over three (3) years. Non-compete costs are amortized over three (3) years and Customer Lists are amortized over three (3) years. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of June 30, 2018 and December 31, 2017, we have not recorded any impairments. For the three and six months ended June 30, 2018, amortization expense was $221,162 and $442,324, respectively, and $221,162 and $387,762 for the three and six months ended June 30, 2017, respectively.

 

(I)

Fair Value Measurements and Fair Value of Financial Instruments

 

The Company adopted FASB ASC Topic 820, Fair Value Measurements. ASC Topic 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

 

Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

 

Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

 

Level 3-Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

  

 

The Company did not identify any assets or liabilities that are required to be presented on the balance sheets at fair value in accordance with ASC Topic 820 (F).

 

(J)

Advertising

 

Advertising costs are expensed as incurred. For the three and six months ended June 30, 2018, the Company incurred $0 and $500, respectively, in advertising expenses and $0 and $0 for the three and six months ended June 30, 2017, respectively.

 

(K)

Business Segments

 

The Company operates in one segment and therefore segment information is not presented.

 

(L)

Revenue Recognition

 

The Company accounts for revenue in accordance with Topic 606, which the Company adopted on January 1, 2018, using the modified retrospective method. The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption date or for the six months ended June 30, 2018. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Also, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

Revenues are recognized when the Company satisfies a performance obligation by transferring control of the promised goods or services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration The Company expect to be entitled to in exchange for those goods or services. The Company also assesses our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience and financial condition.

 

The Company derives revenue from the sale of hardware and software licenses when the products are installed and all required post implementation services are completed. The Company recognizes revenue from consulting services as the services are performed. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. In accordance with Topic 606, we do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. The timing of our performance often differs from the timing of invoicing, which results in the recording of deferred revenue. Deferred revenue will be recognized when performance obligation is satisfied.

 

(M)

Stock-Based Compensation

 

The Company accounts for stock-based instruments issued to employees for services in accordance with ASC Topic 718. ASC Topic 718 requires the Company to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. The value of the portion of an employee award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company accounts for non-employee share-based awards in accordance with the measurement and recognition criteria of ASC Topic 505-50, “Equity-Based Payments to Non-Employees”.

  

 

(N)

Cost of Revenue

 

Cost of revenue consists primarily of sub-contractor costs related to personnel who provide services to our customers, co-location costs, and other direct costs related to our services. Costs associated with the implementation of new customers are expensed as incurred.

 

(O)

Basic and Diluted Net Loss Per Common Share

 

In accordance with ASC 260-10, “Earnings Per Share”, basic net loss per common share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period. Diluted loss per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. As of June 30, 2018 and June 30, 2017, the Company has 829,167 and 366,667 shares of common stock issuable upon the conversion of notes payable and 90,000 and 0 shares of common stock issuable upon the exercise of options, respectively, that were not included in the computation of dilutive loss per share because their inclusion is anti-dilutive.

 

(P)

Recent Accounting Pronouncements

 

In April 2016, the FASB issued ASU 2016–10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing “The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company adopted Topic 606 using the modified retrospective method on January 1, 2018. The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption date or for the six months ended June 30, 2018. Furthermore, we expect the impact of the adoption of the new standard to be immaterial to our revenue and gross profit on an ongoing basis. We did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Also, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

In May 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (ASU”) 2017-09, Compensation-Stock Compensation (Topic718) Clarifying share-based payment modification guidance. The amendments in this update clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date, with early adoption permitted. We determined that the provisions of this ASU have no any impact on our results of operations, cash flows, or financial condition.

 

Accounting standards-setting organizations frequently issue new or revised accounting rules. We regularly review all new pronouncements to determine their impact, if any, on our financial statements.

 

NOTE 2 – GOING CONCERN

 

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company sustained a net loss for the six months ended June 30, 2018. The Company also has a working capital deficit and an accumulated deficit at June 30, 2018. These factors raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company’s continuation as a going concern is dependent upon its ability to generate revenues and its ability to continue receiving investment capital to sustain its current level of operations.

  

Management plans to continue raising additional capital through private placements and is exploring additional avenues for future fund-raising through both public and private sources.

 

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

   

 

NOTE 3 – ACQUISITIONS

 

Effective January 1, 2017 (the “Effective Date”), EMR entered into a Purchase Agreement (“Agreement”) by and among Empower Technologies, Inc., a Nevada corporation (“ETI”), and its sole shareholder Dr. John F. Stagl (the “Seller” and together with ETI and the Company, the “Parties”). Pursuant to the Agreement, the Company purchased all of the Capital Stock (as defined in the Agreement) of ETI from the Seller (the “ETI Shares”) in exchange for (i) $500,000, subject to certain post-closing adjustments for working capital and deferred revenue, consisting of (a) $300,000 in cash, and (b) a Convertible Promissory Note (the “Note”) issued in favor of the Seller in the principal amount of $150,000 payable over a 36 month period, with 6% annual interest, convertible into common stock of the Company at a price of $3.00 per share (the “Purchase Price”). On January 16, 2017, in accordance with the terms and conditions of the Agreement, ETI became a wholly owned subsidiary of the Company (the “Closing Date”). The post-closing adjustments referenced above consisted of $4,648 reduction in cash at closing for working capital and a reduction of the convertible promissory note of $50,000 for deferred revenue.

 

The acquisition date estimated fair value of the consideration transferred consisted of the following:

 

	Liabilities assumed		$	(72,917	)
	Net tangible assets			(72,917	)
	Non-compete agreements			36,109
	Customer list			482,160
	Total purchase price		$	445,352

 

Effective January 1, 2017 (the “Effective Date”), EMR Technologies, Inc., a Nevada corporation (the “Company”) entered into a Purchase Agreement (“Agreement”) by and among Digital Medical Solutions, Inc., a Florida corporation (“DMSI”), and its sole shareholder Dr. Joseph J. Memminger III (the “Seller” and together with DMSI and the Company, the “Parties”).  Pursuant to the Agreement, the Company purchased all of the Capital Stock (as defined in the Agreement) of DMSI from the Seller (the “DMSI Shares”) in exchange for (i) $1,000,000, subject to certain post-closing adjustments for working capital and earnings before interest, taxes, depreciation, and amortization, consisting of (a) $750,000 in cash, and (b) a Convertible Promissory Note (the “Note”) issued in favor of the Seller in the principal amount of $250,000 payable over a 36 month period, with 6% annual interest, convertible into common stock of the Company at a price of $3.00 per share (the “Purchase Price”). On March 15, 2017, in accordance with the terms and conditions of the Agreement, DMSI became a wholly owned subsidiary of the Company (the “Closing Date”).

 

The acquisition date estimated fair value of the consideration transferred consisted of the following:

 

	Tangible assets acquired		$	269,067
	Liabilities assumed			(83,428	)
	Net tangible assets			185,639
	Customer list			364,361
	Software			450,000
	Total purchase price		$	1,000,000

 

The agreements resulted in the purchase of 100% of the outstanding shares of ETI and DMSI.

 

Pro-forma Financial Information

 

The following unaudited pro-forma information presents the combined results of operations for the periods as if the acquisition of DMSI had been completed on January 1, 2017.

 

			For the Six Months Ended June 30, 2017
	Revenue		$	563,590
	Total expenses			908,772
	Net loss		$	(345,182	)
	Net loss per common share, basic and diluted		$	(0.04	)

  

 

NOTE 4 – PROMISSORY NOTES AND FACTOR ADVANCES

 

The $700,000 FMS Note has an interest rate of ten percent (10%) per annum for a period of two (2) years and fully amortizes during the third (3rd) year. The note is secured by an escrowed copy of the software source code. The note can be converted at any time, at the option of the holder, into shares of the Company’s stock at a conversion price of $1.00 per share. On October 31, 2016, the holder of the FMS Note converted $200,000 of the note for 200,000 shares of common stock. The Company has recorded loss on conversion of debt of $72,000. On November 15, 2017, the Board of Directors approved an amendment to the FMS Note changing the conversion provision from $3.00 per share to $1.00 per share. On December 31, 2017, the holder of the FMS Note converted $25,000 of interest due for 25,000 shares of common stock. On June 30, 2018, the holder of the FMS Note converted $12,500 of interest due to additional principal on the FMS Note accruing at six percent (6.0%) annual interest.

 

The Company issued a three (3) year convertible promissory note (the “EMRG Note”) for two hundred thousand dollars ($200,000). The EMRG Note has an interest rate of eight percent (8%) per annum for a period of one (1) years and fully amortizes during the next two (2) years. The note is secured with a pledge of forty percent (40%) of the membership interests acquired. The note can be converted at any time, at the option of the holder, into shares of the Company’s stock at a conversion price of $3 per share. On December 29, 2017, the EMRG Note was amended to change the beginning amortization period from December 31, 2017 to March 31, 2018 for $50,000 and 7 equal quarterly installments of $25,000 each thereafter and the interest rate was increased from 6% to 8% annually. On March 31, 2018, the EMRG Note was amended to change the beginning amortization period from March 31, 2018 to October 1, 2018 for $100,000 and 4 equal quarterly installments of $25,000 each thereafter.

 

The Company issued a three (3) year unsecured convertible promissory note (the “ETI Note”) for one hundred fifty thousand dollars ($150,000). The ETI Note has an interest rate of six percent (6%) per annum for a period of two (2) years and fully amortizes during the third (3rd) year. The note can be converted at any time, at the option of the holder, into shares of the Company’s stock at a conversion price of $3 per share.

 

The Company issued a three (3) year unsecured convertible promissory note (the “DMSI Note”) for two hundred fifty thousand dollars ($250,000). The DMSI Note has an interest rate of six percent (6%) per annum for a period of one (1) year and fully amortizes during the next two (2) years. The note can be converted at any time, at the option of the holder, into shares of the Company’s stock at a conversion price of $1.00 per share. On December 20, 2017, the Agreement was amended to remove the purchase price adjustment for EBITDA. On December 20, 2017, the Note was amended to change the interest only period from one year to two years, changing the beginning of principal payments from December 31, 2017 to December 31, 2018 and to increase the annual interest rate from 6% to 8% commencing January 1, 2018. On December 22, 2017, the Board of Directors approved an amendment to the Note changing the conversion provision from $3.00 per share to $1.00 per share. On December 29, 2017, the Board of Directors approved the request by the holder of the DMSI Note to convert $50,000 principal of the DMSI Note into 50,000 shares of the Company’s common stock.

 

On January 18, 2018, the Company entered into a Revenue Based Factoring Agreement with a third party. Under the agreement, the Company has sold $74,919 (the “Purchase Price”) in future accounts and contract rights for $56,500. The advance was received by the Company on January, 31, 2018. The difference between the amount sold and the purchase price of $18,419 has been recorded as a debt discount. In exchange for the purchased amount, the Company authorized the third party to ACH debit $305 daily from the Company’s bank account until the purchased amount is fully received. As of June 30, 2018, the balance due was fully repaid using the proceeds received from the June 26, 2018 Factoring Agreement described below. The Company amortized $18,419 of debt discount during the six months ended June 30, 2018.

 

On June 26, 2018, the Company entered into a Revenue Based Factoring Agreement with a third party. Under the agreement, the Company has sold $125,875 (the “Purchase Price”) in future accounts and contract rights for $95,000. The advance was received by the Company on June 28, 2018. A portion of the proceeds was used to satisfy the balance due on the January 18, 2018 Factoring Agreement described above. The difference between the amount sold and the purchase price of $30,875 has been recorded as a debt discount. In exchange for the purchased amount, the Company authorized the third party to ACH debit $473 daily from the Company’s bank account until the purchased amount is fully received. As of June 30, 2018, the balance due was $94,054, net of debt discount of $30,627. The Company amortized $248 of debt discount during the six months ended June 30, 2018.

  

 

NOTE 5 – COMMITMENTS AND CONTINGENCIES

 

On January 15, 2017, the Company entered into a two-year lease for office space, effective January 15, 2017 for a monthly rent of $1,143 per month. Rent expense for the three and six months ended June 30, 2018 was $2,600 and $6,084, respectively, and $3,463 and $6,048 for the three and six months ended June 30, 2017, respectively. The lease expires January 31, 2019.

  

NOTE 6 – STOCKHOLDERS’ EQUITY

 

(A) - Stock issued for cash

 

Effective August 23, 2016, the Company entered into an Investor Stock Subscription Agreement (“Agreement”) with an entity controlled by our Chief Financial Officer (the “Investor”) to purchase three million seven hundred thousand (3,700,000) shares of the Company’s common stock for two million dollars ($2,000,000) in tranches based on certain milestone events. On August 23, 2016, the investor purchased 656,751 shares of common stock for $355,000. On September 22, 2016, the Investor purchased 925,001 shares of common stock for $500,000 that was used to close two acquisitions. On December 29, 2016, the Investor purchased 92,500 shares of common stock for $50,000 that was used for working capital. On January 13, 2017, the Investor purchased 550,001 shares of common stock for $300,000 that was used to close an acquisition. On March 17, 2017, the Investor purchased 1,387,501 shares of common stock for $750,000 that was used to close an acquisition. The remaining investments are subject to the company reaching certain milestones under the agreement. On April 6, 2018, the Board of Directors of the Company approved an amendment to the Investor Stock Subscription Agreement reducing the number of shares of the Company’s common stock to be issued to the Investor to 3,611,754 shares for $1,955,000.

 

(B) - Stock issued for Services

 

On January 17, 2018, 7,500 shares of the Company’s common stock with a fair value of $4,050 were issued to a non-executive employee of the Company as a bonus for performance.

 

On April 23, 2018, 7,500 shares of the Company’s common stock with a fair value of $4,050 were issued to a non-executive employee of the Company as a bonus for performance.

 

(C) - Equity Incentive Plan

 

On January 30, 2016, the Board of Directors, with the approval of a majority of the shareholders of the Company, adopted the 2016 Equity Incentive Plan (the “Plan”) which will be administered by a committee appointed by the Board.

 

The Company, under its 2016 Plan, issues options to various officers, directors and consultants. The options vest in equal annual installments over a five-year period. All of the options are exercisable at a purchase price based on the last price of the Company’s common stock on the date of grant and have a term of 10 years.

 

On December 12, 2017, the Board of Directors approved the issuance of ninety thousand (90,000) options, with immediate vesting on January 1, 2018, to purchase common stock of the Corporation at a value of $0.001 per share for consulting services. The options will expire five (5) years from the date of the grant, which is January 1, 2018. The Company calculated the fair value of the options by using the Black-Scholes option-pricing model with the following assumptions: no dividend yield; expected volatility of 78%; risk-free interest rate of 1.53%; and an expected life of six months.

  

The total fair value calculated for option is $48,510. During the six month period ended June 30, 2018, the Company expensed $48,510 for options. The unrecognized future balance to be expensed over the term of the options is $0.

 

The following sets forth the options granted and outstanding as of June 30, 2018:

 

			Number of Options				Weighted Average Exercise price				Granted Options Exercisable				Intrinsic value
	Options outstanding at December 31, 2017			--				--				--				--
	Granted			90,000			$	0.001				90,000			$	48,510
	Exercised			--				--				--				--
	Forfeited/Expired			--				--				--				--
	Options outstanding at June 30, 2018			90,000			$	0.001				90,000			$	48,510

  

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

This quarterly report on Form 10-Q and other reports filed by EMR Technology Solutions Inc. (the “Company”) from time to time with the SEC (collectively, the “Filings”) contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the Filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks relating to the Company’s business, industry, and the Company’s operations and results of operations. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

 

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates and actual results. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

 

Overview

 

We intend for this discussion to provide information that will assist in understanding our financial statements, the changes in certain key items in those financial statements, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements.

 

Business Overview

 

The Company is a Nevada corporation incorporated on November 3, 2015 as a holding corporation focusing on the acquisition of healthcare related technology companies. The Company’s fiscal year end is December 31. To date, the Company has financed and acquired three electronic medical records companies. 

 

Growth Strategy

 

Our growth strategy involves three primary approaches: acquiring electronic medical record companies and then migrating the customers of those companies to our solutions, selling our solutions directly to healthcare providers practicing in ambulatory settings, and acquiring providers of other healthcare technology services such as third party insurance administrators and revenue cycle management companies. We intend to distribute our solutions through our websites, endorsements from medical groups and associations, and referrals from existing clients.

  

 

Results of Operations

 

Revenues

 

For the three and six month periods ended June 30, 2018, revenues were $122,238 and $383,547 compared to $170,055 and $286,756 for the same periods in 2017. The increase in revenue for the three and six month periods ended June 30, 2018 was primarily attributable to a full six month period of operations from DMSI.

 

Cost of Revenues

 

Cost of revenues was $11,586 and $46,401 for the three and six month periods ended June 30, 2018 compared to $28,099 and $54,827 for the same periods in 2017. The increase in cost of revenues for the three and six month periods ended June 30, 2018, was primarily attributable to a full six month period of operations from DMSI.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses was $215,373 and $497,046 for the three and six month periods ended June 30, 2018 compared to $251,500 and $398,346 for the same periods in 2017. The increase in selling, general and administrative expenses was primarily attributable to a full six month period of operations from DMSI as well as an increase in stock option expense of $48,510.

 

Amortization Expense

 

Amortization expense was $221,162 and $442,324 for the three and six month periods ended June 30, 2018 compared to $221,162 and $387,762 for the same periods in 2017. This increase was primarily attributable to a full six month period of amortization for DMSI.

 

Other Expense

 

Other Expense was $41,024 and $66,924 for the three and six month periods ended June 30, 2018 compared to $21,497 and $43,141 for the same periods in 2017. This was primarily due to the increase in interest expense resulting from the factoring agreements entered into in January and June 2018.

 

Net Loss

 

Net Loss for the three months ended June 30, 2018 was $366,907 compared to $352,203 for the same period in 2017. This increase was primarily due to a decrease in Revenues and an increase in Other Expense and offset by decreases in Cost of Revenues and SG&A Expenses. The Net Loss for the six month period ended June 30, 2018 was $669,148 compared to $597,320 for the same period in 2017. This increase was primarily due to the increases in SG&A Expenses, Amortization, and Other Expense described above and offset by the increase in Revenues and decrease in Cost of Revenues.

 

Liquidity and Capital Resources

 

The following table summarizes total current assets, liabilities and working capital at three months ended June 30, 2018 compared to December 31, 2017. 

 

		June 30, 2018				December 31, 2017
Current Assets		$	88,982			$	75,723
Current Liabilities		$	1,447,711			$	794,178
Working Capital (Deficit)		$	(1,358,729	)		$	(718,455	)

 

As of June 30, 2018, we had a working capital deficit of ($1,358,729) as compared to working capital deficit of ($718,455) at December 31, 2017, an increase in working capital deficit of $640,274.

 

Net cash used in operations of $50,262 increased by $252 for the six months ended June 30, 2018 over the same period in 2017 primarily due to an increase in net loss in 2018 over 2017 of $71,828 and offset by an increase in amortization expense of $54,562.

 

 

Net cash provided from financing activities of $80,939 during the six months ended June 30, 2018 decreased by $969,061 from $1,050,000 during the same period in 2017. This decrease was primarily due to a decrease of $1,050,000 of proceeds from the issuance of stock during the six month period ended June 30, 2017 compared to the same period in 2018 offset by an increase in net proceeds from a factoring advance.

 

Our Auditors Have Raised Substantial Doubts as to Our Ability to Continue as a Going Concern

 

Our consolidated financial statements have been prepared assuming we will continue as a going concern. The Company has experienced recurring losses from operations which have caused an accumulated deficit of $4,240,650 at June 30, 2018.

 

The ability of the Company to continue its operations as a going concern is dependent on management’s plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements.

 

The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future. There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all. The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

Use of Estimates

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Estimates may include those pertaining to accruals, stock-based compensation and income taxes. Actual results could materially differ from those estimates.

 

Revenue Recognition

 

The Company accounts for revenue in accordance with Topic 606, which The Company adopted on January 1, 2018, using the modified retrospective method. The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption date or for the six months ended June 30, 2018. The Company did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Also, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

  

Revenues are recognized when the Company satisfies a performance obligation by transferring control of the promised goods or services to our customers at a point in time, in an amount specified in the contract with our customer and that reflects the consideration The Company expect to be entitled to in exchange for those goods or services. The Company also assesses our customer’s ability and intention to pay, which is based on a variety of factors including our customer’s historical payment experience and financial condition.

  

 

The Company derives revenue from the sale of hardware and software licenses when the products are installed and all required post implementation services are completed. The Company recognizes revenue from consulting services as the services are performed. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer under Topic 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts with customers contain a single performance obligation to provide agreed-upon products or services. For contracts with multiple performance obligations, we allocate revenue to each performance obligation based on its relative standalone selling price. In accordance with Topic 606, we do not assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer. The timing of our performance often differs from the timing of invoicing, which results in the recording of deferred revenue. Deferred revenue will be recognized when performance obligation is satisfied. 

 

Recent Accounting Standards

 

We have implemented all new accounting standards that are in effect and may impact our financial statements and do not believe that there are any other new accounting standards that have been issued that might have a material impact on our financial position or results of operations.

 

In May 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (ASU”) 2017-09, Compensation-Stock Compensation (Topic718) Clarifying share-based payment modification guidance. The amendments in this update clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective for interim and annual periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date, with early adoption permitted. We determined that the provisions of this ASU have no any impact on our results of operations, cash flows, or financial condition. 

 

In April 2016, the FASB issued ASU 2016–10 Revenue from Contract with Customers (Topic 606): identifying Performance Obligations and Licensing”. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. Topic 606 includes implementation guidance on (a) contracts with customers to transfer goods and services in exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). The amendments in this Update are intended render more detailed implementation guidance with the expectation to reduce the degree of judgement necessary to comply with Topic 606. The Company adopted Topic 606 using the modified retrospective method on January 1, 2018. The adoption of Topic 606 did not have a material impact on the timing or amounts of revenue recognized in our unaudited condensed consolidated financial statements and therefore did not have a material impact on our financial position, results of operations, equity or cash flows as of the adoption date or for the six months ended June 30, 2018. Furthermore, we expect the impact of the adoption of the new standard to be immaterial to our revenue and gross profit on an ongoing basis. We did not recognize any cumulative-effect adjustment to retained earnings upon adoption as the impact was immaterial. Also, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We do not hold any derivative instruments and do not engage in any hedging activities.

   

Item 4. Controls and Procedures.

 

(a) Evaluation of Disclosure Controls and Procedures.

 

In connection with the preparation of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”) evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our PEO and PFO concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

(b) Changes in Internal Control over Financial Reporting.

 

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

We believe there are no changes that constitute material changes from the risk factors previously disclosed in our Registration Statement on Form S-1 filed with the SEC on May 14, 2018.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None. 

 

Item 3. Defaults Upon Senior Securities.

 

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default, with respect to any indebtedness of the Company.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

Not applicable.

  

 

Item 6. Exhibits.

 

Exhibit No.		Description
31.1		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
31.2		Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). *
32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
32.2		Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *
101.INS		XBRL Instance Document *
101.SCH		XBRL Taxonomy Extension Schema *
101.CAL		XBRL Taxonomy Extension Calculation Linkbase *
101.DEF		XBRL Taxonomy Extension Definition Linkbase *
101.LAB		XBRL Taxonomy Extension Label Linkbase *
101.PRE		XBRL Taxonomy Extension Presentation Linkbase *

 

* Filed herewith

  

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	EMR TECHNOLOGY SOLUTIONS, INC.
Date: August 13, 2018	By:	/s/ John X. Adiletta
	Name:	John X. Adiletta
	Title:	Chief Executive Officer
		(Principal Executive Officer)