The following is management's discussion and analysis of certain significant
factors that have affected our financial position and operating results during
the periods included in the accompanying financial statements, as well as
information relating to the plans of our current management. This report
includes forward-looking statements. Undue reliance should not be placed on
these forward-looking statements which speak only as of the date hereof. We
undertake no obligation to update these forward-looking statements.
The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto and other financial information contained elsewhere in this Form 10-K.
Table of Contents -21- Business
The Company was incorporated in
The Future for Cloud-MD™
Our business strategy includes the acquisition of successful billing companies in strategic markets, the acquisition or licensing of useful emerging technologies and the direct sale to physicians of Cloud-MD™ Office software licenses.
Our model is effective because we offer:
· Software For Life - Buy One Time · Evergreen Product - Support, Maintenance and Upgrades Included With User
· Physician Ownership Opportunity - Stock Award With Purchase Of License · Cloud-MD™ is Publicly Traded NSCT.PK · Patented Auto Post Feature - To Eliminate Need For Manual Posting of Electronic
Remittance Advice (835) By Staff · Multiple Opportunities to
Recover Investment(Meaningful Use Dollars, Stock
Collections and Reduce Days in A/R · Cloud Based Technology- IPAD, IPHONE, ANDROID, GOOGLE, WINDOWS for Anytime and Anywhere Availability and Eliminates Catastrophic Loss of Data Table of Contents -22-
As we move forward building on our current platforms and strengths and gaining significant momentum in acquisitions, capabilities and revenue streams, it is important for Cloud-MD™ to augment its portfolio of capabilities with solutions that complement those offerings currently available. With the addition of a pending acquisition, we will add another dimension to our Cloud-MD™ Office and Billing Services offering that will offer a secure mechanism for providers to exchange patient PHI without the need to have all of the providers on a common EMR platform, but will integrate with our EMR in a manner that offers prospective large clients such as hospitals, ACO's, etc. the functionality of an
The Future for CipherLoc™
The digital cipher and encryption market offers seemingly endless opportunity. Our CipherLoc™ Polymorphic Cipher Engine is a ground-breaking; state-of-the-art Polymorphic Key Progression Algorithm (PKPA) based digital encryption solution that has wide-spread applicability throughout the commercial computer, communications and broadcasting industries as well as significant applicability in the government arena.
Critical Accounting Policies
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in
These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
License revenue consists principally of revenue earned under software license agreements. The Company sells its software to a medical practitioner for direct payment or through a third party leasing company for direct payment to the Company. The third party lease agreement is a non-recourse debt and the Company is not responsible for the default of the medical practitioner. License revenue is generally recognized when a signed contract or other persuasive evidence of an arrangement exists, the software has been electronically delivered, the license fee is fixed or is measured on a paid user basis; and collection of the resulting receivable is probable. When contracts contain multiple elements wherein Vendor-Specific Objective Evidence ("VSOE") exists for all undelivered elements, we account for the delivered elements in accordance with the "Residual Method." VSOE of fair value for maintenance and support is established by a stated renewal rate, if substantive, included in the license arrangement or rates charged in stand-alone sales of maintenance and support. Revenue from subscription license agreements, which include software, rights to unspecified future products and maintenance, is recognized ratably over the term of the subscription period.
Provided all other revenue criteria are met, the upfront, minimum, non-refundable license fees from customers are generally recognized upon delivery and on-going royalty fees are generally recognized upon reports of new licenses issued. If there is significant uncertainty about the project completion or receipt of payment for professional services, revenue is deferred until the uncertainty is sufficiently resolved. VSOE of fair value of services is based upon stand-alone sales of those services.
Subscription revenue is generated from bandwidth and information storage. One year and each year thereafter, the software is purchased and installed the purchaser will pay an annual fee of
Table of Contents -23-
Transaction revenue is generated from the following services and recognized when the transaction occurs:
· Electronic Remittance Advise
$0.35Electronic remittance transaction fee; · Paper Claims $1.00Paper claim fee; · Carrier Direct $0.16Carrier direct fee; · Fast Forward $0.35Fast forward transaction fee; and, · Patient Credit $2.50Automatic Debit processing per transaction paid by the patient
The Company has not incurred any transaction revenue in the year ended
Cost of License, and Subscriptions Revenues
Cost of license revenue is primarily comprised of the license-based royalties to third parties and production and distribution costs for initial product licenses.
Cost of subscription revenue is primarily comprised of the costs associated with the customer support personnel that provide maintenance, enhancement and support services to customers.
The amortization of acquired technology for products acquired through business combinations are considered as cost of revenues.
Accounts Receivable and Allowance for Uncollectible Accounts
Substantially all of the Company's accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments for services. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the number of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged against the allowance when it is probable the receivable will not be recovered.
The Company measures the cost of services received in exchange for an award of an equity instrument based on the grant-date fair value of the award.
Compensation cost is recognized over the vesting or requisite service period. The Black-Scholes option-pricing model is used to estimate the fair value of options or warrants granted.
RESULTS OF OPERATIONS
Fiscal Year Ended
Revenue increased to
Cost of revenue increased to
General and administrative expenses decreased to
Table of Contents -24-
Research and development costs increased to
Impairment of assets increased to
Interest expenses increased to
Gain on write off of debt increased to
We recorded a gain from discontinued operations for the year ended
Liquidity and Capital Resources
We expect to incur substantial expenses and generate significant operating losses as we continue to grow our operations, as well as incur expenses related to operating as a public company and compliance with regulatory requirements.
The independent auditor's report on our financial statements contains explanatory language that substantial doubt exists about our ability to continue as a going concern. We have an accumulated deficit at
The Company has a line of credit with Chase for
Cash flows from operations. Our cash provided by (used in) operating activities were
Cash flows from financing activities. Cash (used in) provided by financing activities were (