(Mark One)
|
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Nevada
|
99-0363866
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
Large Accelerated Filer o
|
Accelerated Filer o
|
|
Non-Accelerated Filer o
|
(Do not check if a smaller reporting company)
|
Smaller Reporting Company x
|
Page
|
||
PART 1 - FINANCIAL INFORMATION
|
||
Item 1.
|
1
|
|
Item 2.
|
12
|
|
Item 3.
|
23
|
|
Item 4.
|
23
|
|
Item 1.
|
24
|
|
Item 1A.
|
24
|
|
Item 2.
|
24
|
|
Item 3.
|
24
|
|
Item 4.
|
24
|
|
Item 5.
|
24
|
|
Item 6.
|
24
|
|
25
|
HEALTH REVENUE ASSURANCE HOLDINGS, INC. AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED BALANCE SHEETS
|
June 30,
|
December 31,
|
|||||||
2013
|
2012
|
|||||||
(unaudited)
|
||||||||
Assets | ||||||||
Cash
|
$ | 171,183 | $ | 893,458 | ||||
Accounts receivable
|
1,510,690 | 1,246,814 | ||||||
Prepaid expenses
|
91,270 | 3,600 | ||||||
Other current assets
|
12,831 | 688 | ||||||
Total Current Assets
|
1,785,974 | 2,144,560 | ||||||
Property and Equipment, net
|
411,120 | 365,017 | ||||||
Software
|
940,305 | 258,933 | ||||||
Other assets
|
8,865 | 8,871 | ||||||
Finance costs, net
|
2,313 | 2,477 | ||||||
Total Other Assets
|
951,483 | 270,281 | ||||||
Total Assets
|
$ | 3,148,577 | $ | 2,779,858 | ||||
Liabilities and Stockholders' Equity
|
||||||||
Accounts payable
|
$ | 338,296 | $ | 207,741 | ||||
Due to officer
|
75,000 | 75,000 | ||||||
Accrued expenses
|
136,152 | 64,077 | ||||||
Accrued payroll
|
641,621 | 412,186 | ||||||
Loan payable to factor
|
552,439 | 827,075 | ||||||
Accrued interest
|
- | 4,524 | ||||||
Lines of credit, current portion
|
74,791 | 25,000 | ||||||
Capital Leases, current portion
|
21,972 | 16,923 | ||||||
Notes payable, current portion, net of discount
|
574,718 | 202,557 | ||||||
Long term debt, current portion
|
32,610 | 37,513 | ||||||
Settlement Payable
|
23,056 | 115,278 | ||||||
Total Current Liabilities
|
2,470,655 | 1,987,874 | ||||||
Capital Leases (net of current portion)
|
30,565 | 23,974 | ||||||
Line of credit (net of current portion)
|
111,637 | 125,000 | ||||||
Notes payable (net of current portion), net of discount
|
287,355 | 273,751 | ||||||
Long term debt (net of current portion)
|
168,029 | 181,457 | ||||||
Total Liabilities
|
3,068,241 | 2,592,056 | ||||||
Commitments and Contingencies (see Note 8)
|
||||||||
Stockholders' Equity:
|
||||||||
Common stock ($0.001 par value, 75,000,000 shares authorized,
|
||||||||
46,511,409 shares and 39,054,867 issued and outstanding at
|
||||||||
June 30, 2013 and December 31, 2012, respectively)
|
46,511 | 39,055 | ||||||
Additional paid-in capital
|
4,150,511 | 2,738,545 | ||||||
Subscription receivable
|
- | (5,000 | ) | |||||
Accumulated deficit
|
(4,116,686 | ) | (2,584,798 | ) | ||||
Total Stockholders' Equity
|
80,336 | 187,802 | ||||||
Total Liabilities and Stockholders' Equity
|
$ | 3,148,577 | $ | 2,779,858 |
(for the three months ended)
|
(for the six months ended)
|
|||||||||||||||
June 30,
|
June 30,
|
June 30,
|
June 30,
|
|||||||||||||
2013
|
2012
|
2013
|
2012
|
|||||||||||||
Revenues
|
$ | 2,067,464 | $ | 1,028,266 | $ | 4,224,061 | $ | 1,634,096 | ||||||||
Cost of Revenues
|
975,632 | 453,233 | 1,960,952 | 884,352 | ||||||||||||
Gross Profit
|
1,091,832 | 575,033 | 2,263,109 | 749,744 | ||||||||||||
Operating Expenses
|
||||||||||||||||
Selling and administrative expenses (includes stock compensation of $70,048 and $0 in 2013 and 2012, respectively)
|
1,941,675 | 1,047,334 | 3,385,759 | 1,656,605 | ||||||||||||
Research and development
|
- | 20,920 | 289 | 53,133 | ||||||||||||
Depreciation and amortization
|
19,169 | 12,879 | 44,598 | 22,750 | ||||||||||||
Total Operating Expenses
|
1,960,844 | 1,081,133 | 3,430,646 | 1,732,488 | ||||||||||||
Operating Loss
|
(869,012 | ) | (506,100 | ) | (1,167,537 | ) | (982,744 | ) | ||||||||
Other Income (Expense)
|
||||||||||||||||
Other income, net
|
635 | - | 351 | - | ||||||||||||
Interest expense
|
(228,684 | ) | (4,922 | ) | (364,702 | ) | (10,842 | ) | ||||||||
Total Other Income (Expense), net
|
(228,049 | ) | (4,922 | ) | (364,351 | ) | (10,842 | ) | ||||||||
Loss before provision for income taxes
|
(1,097,061 | ) | (511,022 | ) | (1,531,888 | ) | (993,586 | ) | ||||||||
Provision for income taxes
|
- | - | - | - | ||||||||||||
Net Loss
|
$ | (1,097,061 | ) | $ | (511,022 | ) | $ | (1,531,888 | ) | $ | (993,586 | ) | ||||
Net Loss Per Share
|
||||||||||||||||
basic and diluted
|
$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.03 | ) | ||||
Weighted Average Number of Shares Outstanding
|
||||||||||||||||
basic and diluted
|
45,422,517 | 35,229,195 | 44,763,302 | 35,229,195 |
June 30,
|
June 30,
|
|||||||
2013
|
2012
|
|||||||
Cash flows from Operating Activities:
|
||||||||
Net loss
|
$ | (1,531,888 | ) | $ | (993,586 | ) | ||
Adjustments to reconcile net loss to net cash
|
||||||||
used in operating activities:
|
||||||||
Depreciation and amortization
|
44,598 | 22,750 | ||||||
Stock issued for compensation
|
70,048 | - | ||||||
Amortization of debt discount
|
209,915 | 2,198 | ||||||
Bad debt expense
|
6,450 | - | ||||||
Change in operating assets and liabilities:
|
||||||||
Accounts receivable, net
|
(270,326 | ) | (304,609 | ) | ||||
Prepaid expenses
|
26,924 | 21,680 | ||||||
Other assets
|
(12,140
|
) | (1,124 | ) | ||||
Accounts payable
|
130,555 | 309,826 | ||||||
Unearned revenue
|
- | 52,069 | ||||||
Accrued liabilities
|
239,414 | - | ||||||
Net Cash used in operating activities
|
(1,086,450
|
) | (890,796 | ) | ||||
Cash flows from Investing Activities:
|
||||||||
Capitalization of internally developed software
|
(681,372 | ) | - | |||||
Purchases of property and equipment
|
(7,732 | ) | (21,175 | ) | ||||
Net Cash used in investing activities
|
(689,104 | ) | (21,175 | ) | ||||
Cash flows from Financing Activities:
|
||||||||
Borrowings (Repayments) on line of credit, net
|
(34,738 | ) | 51,500 | |||||
Settlement payments
|
(92,222 | ) | - | |||||
Loan proceeds
|
1,220,000 | - | ||||||
Loan proceeds from factor, net
|
(274,636 | ) | - | |||||
Repayments of debt obligations
|
(383,125 | ) | (17,629 | ) | ||||
Issuance of stock for cash net of offering cost
|
618,000 | 818,337 | ||||||
Net Cash provided by financing activities
|
1,053,279 | 852,208 | ||||||
Net decrease in cash
|
(722,275
|
) | (59,763 | ) | ||||
Cash at beginning of period
|
893,458 | 198,500 | ||||||
Cash at ending of period
|
$ |
171,183
|
$ | 138,737 | ||||
Supplemental schedule of cash paid during the period for:
|
||||||||
Interest
|
$ | 295,950 | $ | 14,898 | ||||
Income Taxes
|
$ | - | $ | - | ||||
Supplemental schedule of non-cash investing and financing activities:
|
||||||||
Issuance of stock to repay debt
|
$ | - | $ | 563,907 | ||||
Capital lease obligation incurred for use of equipment
|
$ | 28,701 | $ | 38,704 | ||||
Beneficial conversion feature on convertible debt charged to additional paid in capital
|
$ | - | $ | 300,000 | ||||
Shares issued as a loan fee
|
$ | 679,353 | $ | - | ||||
Financed Equipment purchases
|
$ | 54,105 | $ | - | ||||
Insurance premium finance contract recorded as prepaid asset
|
$ | 57,573 | $ | - | ||||
Prepaid common stock issued for services
|
$ | 57,021 | $ | - |
●
|
Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets and liabilities in active markets;
|
●
|
Level 2—Observable inputs, other than quoted market prices, that are either directly or indirectly observable in the marketplace for identical or similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets and liabilities; and
|
|
●
|
Level 3—Unobservable inputs that are supported by little or no market activity that is significant to the fair value of assets or liabilities.
|
●
|
Planning Phase - work commences prior to and as soon as the contract is signed and includes setting the audit scope, scheduling of the job, assignment of audit staff, understanding the client and their systems, determination of sample size and sampling methods to be employed, and other specific items as outlined in the contract. The planning phase includes the determination of deliverables as defined in the contract, generally consisting of a listing of errors, training and a final report. The Company generally invoices and recognizes 50% of the contract value at the completion of the Planning Phase. Although all of the contracts contain a clause making the first 50% of the engagement fee due and non-refundable at this point, the Company does not deem this initial fee to be recognized as deferred revenue under SAB 104 due to the extensive amount of work to be done prior to accepting the contract.
|
●
|
Field Work Phase – is performed at the client location and generally lasts one week and encompasses actual testing of sample claims preselected in the Planning Phase. The auditor generally preloads the selected claims into the Company’s proprietary software and audits the claim records by reviewing actual medical records. The software assists the auditor in determining proper classifications and allows the auditor to compare the proper classification against what was filed in the submission made by the client to Medicare. Notes and comments are recorded and audit reports are generated. The Company generally invoices and recognizes 40% of the contract value at the completion of the Field Work Phase.
|
●
|
Reporting Phase – includes a summary of audit findings, exit conference with clients, and any other specific deliverables as determined by the contract. The Company generally invoices and recognizes the remaining 10% of the contract value at the completion of the Report Phase.
|
June 30,
|
December 31,
|
|||||||
2013
|
2012
|
|||||||
Accounts receivable
|
$
|
1,510,690
|
$
|
1,246,814
|
||||
Allowance for doubtful accounts
|
-
|
-
|
||||||
Total
|
$
|
1,510,690
|
$
|
1,246,814
|
June 30,
2013
|
December 31,
2012
|
|||||||
Software
|
$
|
940,305
|
$
|
258,933
|
||||
Accumulated amortization
|
-
|
-
|
||||||
Software, net
|
$
|
940,305
|
$
|
258,933
|
Estimated amortization expense of software is as follows:
|
||||
July 1, 2013 through December 31, 2013
|
$
|
156,717
|
||
2014
|
313,435
|
|||
2015
|
313,435
|
|||
2016
|
156,718
|
|||
TOTAL
|
$
|
940,305
|
June 30,
2013
|
December 31,
2012
|
|||||||
Bank term loan
|
$
|
23,229
|
$
|
38,897
|
||||
Mortgage loan
|
177,410
|
180,073
|
||||||
200,639
|
218,970
|
|||||||
Less current portion
|
(32,610)
|
(37,513
|
)
|
|||||
Total long term portion
|
$
|
168,029
|
$
|
181,457
|
June 30, 2013
|
||||
Principal amount of notes payable
|
$
|
1,670,204
|
||
Unamortized discount
|
(808,131
|
)
|
||
Notes payable, net of discount
|
862,073
|
|||
Less current portion
|
(574,718
|
)
|
||
Total Long term portion
|
$
|
287,355
|
June 30,
2013
|
||||
Equipment
|
70,670
|
|||
Less accumulated depreciation
|
(20,405
|
)
|
||
Total
|
$
|
50,265
|
Year Ending December 31:
|
||||
2013
|
$
|
14,353
|
||
2014
|
28,706
|
|||
2015
|
18,467
|
|||
2016
|
983
|
Total minimum lease payments
|
62,509
|
|||
Less amount representing interest
|
(9,972
|
)
|
||
Present value of minimum lease payments
|
$
|
52,537
|
Sales to thirteen hospitals represented approximately 49% of net sales for the three months ended June 30, 2013. Wherein, seven and six hospitals respectively are part of two larger health systems. The company has direct relationships with both the individual hospitals and the health systems. As such, the strength of the relationship is driven by the individual hospitals.
Sales to four customers were approximately 66% of revenue for the three months ended June 30, 2013.
|
Two and three vendors represented approximately 59% and 68% of the outstanding accounts payable balance as of June 30, 2013 and December 31, 2012, respectively.
|
Two customers represented approximately 41% and 62% of the accounts receivable as of June 30, 2013 and December 31, 2012 respectively.
|
●
|
The new system will require time, money and commitment by over 6,000 hospitals, 600,000 physicians and every health insurance provider in the United States.
|
●
|
Re-education and training of every Health Information Management (“HIM”) department is required of every hospital and medical facility in the United States.
|
●
|
All claims submitted by hospitals and physicians for reimbursement without utilizing ICD-10 will result in immediate rejection and non-payment.
|
●
|
Hospitals and medical facilities will incur massive backlogs in their billing and coding departments. Backlog in coding will lead to greater time between payments and crippling financial deficits.
|
●
|
There will likely be an increase in coding errors, resulting in incorrect payments that can lead to hefty fines.
|
●
|
Initial estimates based on other countries that have already converted to ICD-10 predict a 50% loss of productivity due to the complexity of the new system - a result of more time being allocated to the preparation of each individual patient case.
|
●
|
The sheer number of codes and time for each entry will dramatically impact the workload. Currently there are not enough coders to meet this demand, resulting in an ongoing shortfall, with an accelerating shortfall anticipated after ICD-10 is implemented.
|
●
|
Every discipline in the hospital will be affected as they all revolve around the same coding system.
|
●
|
For each code in the ICD-9 format, there will be additional, more descriptive codes in the ICD-10 format. This will greatly increase the quality of patient care, but simultaneously put a burden on hospitals and their medical coders.
|
●
|
Currently under ICD-9, hundreds of millions of dollars of revenue are lost each year due to medical coding and billing errors.
|
●
|
The average age of a medical coder is 54. It is estimated that 20% of coders plan to retire or change activities because of this transition.
|
●
|
“Female Executive of the Year” Gold Award Winner - Stevie Awards for Women in Business – December, 2012
|
●
|
"Maverick of the Year” Bronze Award Winner - Stevie Awards for Women in Business – December, 2012
|
●
|
“Mentor of the Year" - 2012 AHIMA Triumph Awards – June, 2012
|
●
|
“10 HIM Heroes, Professionals Who Have Made a Difference" - For The Record Magazine – October, 2011
|
●
|
“Fastest Growing Company of the Year” Bronze Award Winner- Stevie Awards for Women in Business – December, 2012
|
●
|
“Top Ten Best Places To Work” - South Florida Business Journal – 2011
|
●
|
development of long lasting relationships with new clients and strengthen relationships with existing clients;
|
●
|
recruitment and proper training of qualified personnel;
|
●
|
appropriate fiscal planning and execution;
|
●
|
development of an extensive sales network;
|
●
|
effective and broad-reaching promotional programs;
|
●
|
connecting effectively with executive-level decision makers of hospitals and medical facilities;
|
●
|
accurately and efficiently audit the medical billing records to maximize revenue integrity;
|
●
|
ensure that we are supplying hospitals and medical facilities with top quality, certified medical coders;
|
●
|
developing and deploying dynamic and effective marketing strategies; and
|
●
|
informing healthcare professionals of the products, services and benefits of being an HRAA client.
|
For the three months ended
|
Increase/
|
Increase/
|
||||||||||||||
June 30,
2013
|
June 30,
2012
|
(Decrease)
$ |
(Decrease)
% |
|||||||||||||
Revenue
|
$
|
2,067,464
|
$
|
1,028,266
|
$
|
1,039,198
|
101.06
|
%
|
||||||||
Costs of Revenues
|
975,632
|
453,233
|
522,399
|
115.26
|
%
|
|||||||||||
Gross profit
|
1,091,832
|
575,033
|
516,799
|
89.87
|
%
|
|||||||||||
Selling and administrative expenses
|
1,941,675
|
1,047,334
|
894,341
|
85.39
|
%
|
|||||||||||
Research and development expenses
|
0
|
20,920
|
(20,920)
|
(100.00
|
)%
|
|||||||||||
Depreciation and amortization
|
19,169
|
12,879
|
6,290
|
48.84
|
%
|
|||||||||||
Total operating expenses
|
1,960,844
|
1,081,133
|
879,712
|
81.37
|
%
|
|||||||||||
Operating income (loss)
|
(869,012
|
) |
(506,100
|
) |
(362,912
|
) |
71.71
|
%
|
||||||||
Other expense, net
|
(228,049
|
) |
(4,922
|
) |
(223,127
|
) |
4,533.25
|
%
|
||||||||
Net loss
|
$
|
(1,097,061
|
) |
$
|
(511,022
|
) |
$
|
586,039
|
114.68
|
%
|
●
|
Personnel costs have increased by approximately $641,000 or approximately 104%, from approximately $614,000 for the three months ended June 30, 2012 to approximately $1,255,000 for the three months ended June 30, 2013. The increase is due primarily to increased compensation and related expenses associated with the buildup of the Company’s management, sales and administrative staff in anticipation of growth in business volume.
|
●
|
Professional fees have increased from approximately $68,000 for the three months ended June 30, 2012 to approximately $186,000 for the three months ended June 30, 2013, an increase of approximately $118,000, or 173%. This increase is attributable to legal, audit, consulting, and accounting services provided in connection with expenses associated with financial reporting matters.
|
●
|
The remainder of the increase in Selling and administrative expenses is related to costs associated to the company’s business development such as marketing, trade shows and seminars.
|
For the six months ended
|
Increase/
|
Increase/
|
||||||||||||||
June 30,
2013
|
June 30,
2012
|
(Decrease)
$
|
(Decrease)
%
|
|||||||||||||
Revenue
|
$ | 4,224,061 | $ | 1,634,096 | $ | 2,589,965 | 158.5 | % | ||||||||
Costs of Revenues
|
1,960,952 | 884,352 | 1,076,600 | 121.7 | % | |||||||||||
Gross profit
|
2,263,109 | 749,744 | 1,513,365 | 201.9 | % | |||||||||||
Selling and administrative expenses
|
3,385,758 | 1,656,605 | 1,729,153 | 104.4 | % | |||||||||||
Research and development expenses
|
289 | 53,133 | (52,844 | ) | (99.5 | )% | ||||||||||
Depreciation and amortization
|
44,598 | 22,750 | 21,848 | 96.0 | % | |||||||||||
Total operating expenses
|
3,430,646 | 1,731,488 | 1,698,157 | 98.0 | % | |||||||||||
Operating income (loss)
|
(1,167,537 | ) | (982,744 | ) | (184,793 | ) | 18.8 | % | ||||||||
Other expense, net
|
(364,351 | ) | (10,842 | ) | (353,509 | ) | 3,260.6 | % | ||||||||
Net loss
|
$ | (1,531,888 | ) | $ | (993,586 | ) | $ | 538,302 | 54.52 | % |
●
|
Personnel costs have increased by approximately $1,215,000 or approximately 140%, from approximately $867,000 for the six months ended June 30, 2012 to approximately $2,082,000 for the six months ended June 30, 2013. The increase is due primarily to increased compensation and related expenses associated with the buildup of the Company’s management, sales and administrative staff in anticipation of growth in business volume.
|
●
|
Professional fees have increased from approximately $103,000 for the six months ended June 30, 2012 to approximately $321,000 for the six months ended June 30, 2013, an increase of approximately $218,000, or 212%. This increase is attributable to legal, audit, consulting, and accounting services provided in connection with expenses associated with financial reporting matters.
|
●
|
The remainder of the increase in Selling and administrative expenses is related to costs associated to the company’s business development such as marketing, trade shows and seminars.
|
For the three months ended
|
||||||||
June 30,
2013
|
June 30,
2012
|
|||||||
Net loss
|
$
|
(1,097,061
|
)
|
$
|
(511,022
|
)
|
||
Interest expense
|
228,684
|
4,922
|
||||||
Depreciation and amortization
|
19,169
|
12,879
|
||||||
Stock based compensation expense
|
70,048
|
-
|
||||||
Adjusted EBITDA (loss) from operations
|
$
|
(779,160
|
) |
$
|
(493,221
|
) |
1.
|
The revolving line of credit for $150,000 with Bank of America for working capital needs was modified on December 18, 2012. The loan no longer has an expiration date of December 18, 2012, but instead a final maturity date of December 18, 2018. The interest rate per year is equal to the Bank’s Prime Rate plus 6.5 percentage points. The Bank’s prime rate of interest at June 30, 2013 was 3.25%. First payment of $2,083 was paid January 18, 2013.
|
2.
|
A term loan with Bank of America whose proceeds were used for general working capital. The loan is personally guaranteed by one of the Company’s stockholders and is collateralized by the assets of HRAA. Payments of principal and interest are approximately $2,700 per month. The loan matures in five years from September 2009, and incurs interest at the rate of 6.75% per annum. The balance due as of June 30, 2013 was approximately $23,300.
|
3.
|
A mortgage made to HRAA’s subsidiary related to certain real estate which houses HRAA’s main offices in Plantation, Florida. The loan originated in July 2010 in the amount of $192,500 and matures July 2020, when a balloon principal payment of approximately $129,000 becomes due. The loan is collateralized by the real estate and is personally guaranteed by a stockholder of HRAA. Interest is fixed at 6.625% for the first five years of the loan, and converts to an adjustable rate for the second five years at the Federal Funds Rate plus 3.25%, as established by the United State Federal Reserve. The balance under this mortgage loan as of June 30, 2013 was approximately $177,000. Monthly payments for principal and interest are approximately $1,500 until July 2015, when the total monthly payment may vary due to the adjustable interest rate provision in the note.
|
4.
|
A factoring facility with a finance company whereby, under the terms of the agreement, the Company, at its discretion, assigns the collection rights of its receivables to the finance company in exchange for an advance rate of 85% of face value. The assignments are transacted with recourse in the event of non-payment. For the three months ended June 30, 2013, the Company had factored approximately $1,274,000 of receivables and had received cash advances of approximately $1,083,000. Outstanding receivables purchased by the factor as of June 30, 2013 were approximately $635,000 and included in accounts receivable in the accompanying unaudited condensed consolidated balance sheet, and the secured loan due to the lender was approximately $553,000. Factor fees in 2013 were approximately $69,000, and are included in interest expenses.
|
5.
|
The Company leases certain office equipment under non-cancelable operating lease arrangements. Monthly payments under the lease agreements are approximately $500 as of June 30, 2013.
|
6.
|
During December 2012 and January 2013, the Company entered into a round of Loan Agreement and Promissory notes totaling $2,035,000. As of December 31, 2012, the Company had received $815,000. The remainder of $1,220,000 was received in January and February 2013.
|
●
|
Planning Phase - work commences prior to and as soon as the contract is signed and includes setting the audit scope, scheduling of the job, assignment of audit staff, understanding the client and their systems, determination of sample size and sampling methods to be employed, and other specific items as outlined in the contract. The planning phase includes the determination of deliverables as defined in the contract, generally consisting of a listing of errors, training and a final report. The Company generally invoices and recognizes 50% of the contract value at the completion of the Planning Phase. Although all of the contracts contain a clause making the first 50% of the engagement fee due and non-refundable at this point, the Company does not deem this initial fee to be recognized as deferred revenue under SAB 104 due to the extensive amount of work to be done prior to accepting the contract.
|
●
|
Field Work Phase – is performed at the client location and generally lasts one week and encompasses actual testing of sample claims preselected in the Planning Phase. The auditor generally preloads the selected claims into the Company’s proprietary software and audits the claim records by reviewing actual medical records. The software assists the auditor in determining proper classifications and allows the auditor to compare the proper classification against what was filed in the submission made by the client to Medicare. Notes and comments are recorded and audit reports are generated. The Company generally invoices and recognizes 40% of the contract value at the completion of the Field Work Phase.
|
●
|
Reporting Phase – includes a summary of audit findings, exit conference with clients, and any other specific deliverables as determined by the contract. The Company generally invoices and recognizes the remaining 10% of the contract value at the completion of the Report Phase.
|
Item 4.
|
Item 1.
|
Item 1A.
|
Item 3.
|
Item 4.
|
Item 5.
|
Item 6.
|
Exhibit
Number
|
Description
|
|
31.1
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.
|
|
31.2
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.
|
|
32.1*
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 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 Document
|
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
HEALTH REVENUE ASSURANCE HOLDINGS, INC.
|
||
Dated: August 9, 2013
|
By:
|
/s/ Andrea Clark
|
Andrea Clark
|
||
Chief Executive Officer
(Duly Authorized and Principal Executive Officer)
|
Dated: August 9, 2013
|
By:
|
/s/ Evan McKeown
|
Evan McKeown
|
||
Chief Financial Officer
(Duly Authorized, Principal Financial Officer and Principal Accounting Officer)
|
Date: August 9, 2013
|
|
/s/ Andrea Clark
|
|
Andrea Clark
|
|
Chief Executive Officer
(Principal Executive Officer)
|
Date: August 9, 2013
|
|
/s/ Evan McKeown
|
|
Evan McKeown
|
|
Chief Financial Officer
(Principal Accounting Officer)
|
Date: August 9, 2013
|
/s/ Andrea Clark
|
Andrea Clark
|
|
Chief Executive Officer
(Principal Executive Officer)
|
Date: August 9, 2013
|
/s/ Evan McKeown
|
Evan McKeown
|
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
|
Subsequent Events
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Subsequent Events | |
SUBSEQUENT EVENTS | 11 – SUBSEQUENT EVENTS
During July and August pursuant to private placements, the Company issued 1,000,000 shares of common stock for cash with a per share price of $0.40 per share or $ 400,000.
|
Condensed Consolidated Statements of Operations (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Statements of Operations [Abstract] | ||||
Revenues | $ 2,067,464 | $ 1,028,266 | $ 4,224,061 | $ 1,634,096 |
Cost of Revenues | 975,632 | 453,233 | 1,960,952 | 884,352 |
Gross Profit | 1,091,832 | 575,033 | 2,263,109 | 749,744 |
Operating Expenses | ||||
Selling and administrative expenses (includes stock compensation of $70,048 and $0 in 2013 and 2012, respectively) | 1,941,675 | 1,047,334 | 3,385,759 | 1,656,605 |
Research and development | 20,920 | 289 | 53,133 | |
Depreciation and amortization | 19,169 | 12,879 | 44,598 | 22,750 |
Total Operating Expenses | 1,960,844 | 1,081,133 | 3,430,646 | 1,732,488 |
Operating Loss | (869,012) | (506,100) | (1,167,537) | (982,744) |
Other Income (Expense) | ||||
Other income, net | 635 | 351 | ||
Interest expense | (228,684) | (4,922) | (364,702) | (10,842) |
Total Other Income (Expense), net | (228,049) | (4,922) | (364,351) | (10,842) |
Loss before provision for income taxes | (1,097,061) | (511,022) | (1,531,888) | (993,586) |
Provision for income taxes | ||||
Net Loss | $ (1,097,061) | $ (511,022) | $ (1,531,888) | $ (993,586) |
Net Loss Per Share | ||||
basic and diluted | $ (0.02) | $ (0.01) | $ (0.03) | $ (0.03) |
Weighted Average Number of Shares Outstanding | ||||
basic and diluted | 45,422,517 | 35,229,195 | 44,763,302 | 35,229,195 |
Research and Developement and Software
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Research and Development and Software [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
RESEARCH AND DEVELOPMENT AND SOFTWARE | 4 – RESEARCH AND DEVELOPMENT AND SOFTWARE
Early 2012, the Company started developing the Visualizer™ suite. This intuitive and easy to use business intelligence product is designed to meet the emerging need for healthcare analytics. Customer data is infused into the suite, and the Company uses this to develop pre-defined analytics targeted to address healthcare’s emerging concerns and needs.
HRAA’s Visualizer™ suite will encompass multiple offerings. The first project currently under development is ICD Visualizer™, which assists healthcare leaders with their need to understand the exponential impact of the transition to ICD-10 including work flow, productivity, process changes and documentation and reimbursement risks. The application helps to visualize the reimbursement and operational effects of transitioning organizations to ICD-10 and identify where to focus education and documentation issues. It enables clients to develop a custom work plan to mitigate risks from the highest areas of exposure to the least.
The transition to ICD-10 is causing a paradigm shift in healthcare. In response, we have developed a new product called OMC Initiator (Outsourced Medical Coding) for processing healthcare claims within hospitals. This product captures data from the physician or the hospital’s financial systems and correlates the data in a manner that expedites the processing of a claim. To validate our new product, our team of Emergency Department Coders (ED Coders) is continuously evaluating the process of coding claims in order to enhance our product.
At June 30, 2013, the Company had accumulated a total of $940,305 in capitalized costs related to the development of the Visualizer™ suite and the OMC Initiater which is included as Software on the accompanying consolidated balance sheet.
Amortization expense for software, for the three months ended June 30, 2013 and 2012 was $0, respectively as the Company has yet to have a general release of either product. Software consisted of the following at June 30, 2013 and December 31, 2012:
The following is a schedule of estimated future amortization expense of software at June 30, 2013 (assumes amortization begins July 15, 2013 and a three-year amortization period):
|
Summary of Significant Accounting Policies (Details)
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Summary of significant accounting policies (Textual) | |
Percentage of contract value that is recognized at the completion of the planning phase | 50.00% |
Percentage of engagement fee due and non-refundable as per clause | 50.00% |
Percentage of contract value recognized at completion of field work phase | 40.00% |
Remaining percentage of contract value that recognize at completion of report phase | 10.00% |
Summary of Significant Accounting Policies (Policies)
|
6 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||
Summary of Significant Accounting Policies [Abstract] | |||||||||||||
Basis of Presentation | Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2013 are not indicative of the results that may be expected for the year ending December 31, 2013 or for any other future period. These unaudited condensed consolidated financial statements and the unaudited notes thereto should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2013 (our “10-K”). |
||||||||||||
Principles of Consolidation | Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Health Revenue Assurance Associates, Inc. and Dream Reachers, LLC. All significant inter-company transactions and balances are eliminated in consolidation. |
||||||||||||
Use of Estimates | Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include valuation of accounts receivable, valuation of property and equipment, valuation and amortization period of software, valuation of beneficial conversion features in convertible debt, valuation of equity based instruments issued for other than cash, revenue recognition, and the valuation allowance on deferred tax assets. |
||||||||||||
Cash | Cash
For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s cash balances are maintained at various banks that are insured by the Federal Deposit Insurance Corporation subject to certain limitations. |
||||||||||||
Accounts Receivable and Factoring | Accounts Receivable and Factoring
Accounts receivable are stated at the amounts management expects to collect. An allowance for doubtful accounts is recorded using a specific identification method based on a combination of historical experience, aging analysis and information on specific accounts. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Management has determined that no allowance is required at June 30, 2013. The Company accounts for its factoring arrangements as either a sale or a secured financing based on the criteria in ASC 860 "Transfers and Servicing". Estimates of allowances for doubtful accounts are reflected as a recourse obligation, a liability, for factor arrangements treated as a sale with recourse or as a contra asset accounts receivable allowance account for arrangements accounted for as a secured financing. |
||||||||||||
Software | Software
Costs incurred in connection with the development of software products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 985 Costs of Software to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market and capitalization ceases after the general release of the software. Amortization of capitalized software development costs begins upon initial product shipment after general release. Capitalized software development costs are amortized over the estimated life of the related product (generally thirty-six months) using the straight-line method. The Company evaluates its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset.
Software maintenance costs are charged to expense as incurred. Expenditures for enhanced functionality are capitalized. The cost of the software and the related accumulated amortization are removed from the accounts upon retirement of the software with any resulting loss being recorded in operations. No amortization expense was recorded in the accompanying unaudited consolidated financial statements as of June 30, 2013 since our first software product was released on July 15th. |
||||||||||||
Fair Value Measurements and Fair Value of Financial Instruments | Fair Value Measurements and Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company classifies assets and liabilities recorded at fair value under the fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The fair value measurements are classified under the following hierarchy:
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. |
||||||||||||
Revenue Recognition | Revenue Recognition
The Company recognizes services revenue based on the proportional performance method of recognizing revenue.
A portion of the Company’s revenue is generated from medical coding audit services. Auditing revenue is invoiced in accordance with the contract, generally at three benchmark time periods which coincide with when specific, obligatory field work services have been rendered and completed, the value of this portion of the contract price has been predetermined and agreed upon, and the client has received benefit or value in the form of the independent identification of system weaknesses and risk analysis. Further, collectability is reasonably assured due to the existence of a fixed fee contract and the size and financial health of the Company’s clients. Below is a description of the general benchmarks and work phases associated with the Company’s audit services:
A portion of the Company’s revenue is derived from consulting, training and coding services provided. Revenue from these revenue streams is recognized after services are performed based on the quoted and agreed upon fee contained in its contracts.
For our education
products sold on a self-study standalone basis or in multiple element contracts which include training and the product and training are separable elements (see below) revenue is recognized for the product upon passing of title which occurs once the end user is granted access to our online curriculum courses.
On July 15th the Company issued a general release for one of its products Visualizer ™. Additional product releases are anticipated to be for general availability during the 4th quarter of 2013. Software sales on a standalone basis will be recognized upon delivery of the software when evidence of the purchase arrangement exists and the price is determinable, and when collectability is reasonably assured.
Arrangements with customers may involve multiple elements including software products, education products, training, software product maintenance, coding services, coding audit services and other consulting services. Training on education products will occur after the education product sale. Education products are sold and may be used as a self-study product, although most of our customers elect to purchase our training services and therefore most of our contracts to date are multiple element contracts including one price for the education product and related training. We allocate the selling price to each element as discussed below. Training and maintenance on software products will generally occur after the software product sale. Other services may occur before or after the product sales and may not relate to the products. Revenue recognition for multiple element arrangement is as follows:
Each element is accounted for separately when each element has value to the customer on a standalone basis and there is Company specific objective evidence of selling price of each deliverable. For revenue arrangements with multiple deliverables, the Company allocates the total customer arrangement to the separate units of accounting based on their relative selling prices as determined by the price of the items when sold separately. Once the selling price is allocated, the revenue for each element is recognized using the general and specific criteria under GAAP as discussed above for elements sold in non-multiple element arrangements. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement are combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue is then determined for those combined deliverables as a single unit of accounting. The Company has historically sold its services with established rates which it believes is Company specific objective evidence of selling price. For the new software products, management has established selling prices which qualifies as Company specific objective evidence of selling price. Generally all elements in multiple element arrangements with Company customers qualify as separate units of account for revenue recognition purposes. |
||||||||||||
Cost of Revenues | Cost of Revenues
Cost of revenues includes labor costs for services and education development costs. There were no depreciation or amortization costs in 2013 or 2012 that were allocable to cost of sales. In future periods, amortization of capitalized software costs will be included in costs of revenues. |
||||||||||||
Earnings Per Share | Earnings Per Share
The Company computes and presents earnings or losses per share in accordance with FASB ASC Topic 260, Earnings per share. Basic earnings or losses per share are computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings or loss per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options and warrants using the average market prices during the period.
As the Company incurred a net loss in all periods presented, all potentially dilutive securities were excluded from the computation of diluted loss per share since the effect of including them is anti-dilutive. There were no dilutive securities outstanding at June 30, 2013 and 2012 respectively |
||||||||||||
Recent Accounting Pronouncements | Recent Accounting Pronouncements
We have implemented all new accounting standards that are in effect and that may impact our unaudited condensed consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations. |
Stockholders' Equity (Details) (USD $)
|
0 Months Ended | 1 Months Ended | 3 Months Ended | 6 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 21, 2013
|
May 29, 2013
|
May 19, 2013
|
Apr. 01, 2013
|
Jan. 15, 2013
|
Mar. 31, 2013
|
Feb. 28, 2013
|
Jan. 31, 2013
|
Jun. 30, 2013
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Stockholders' Equity (Textual) | |||||||||||
Common stock, gross proceeds | $ 300,000 | $ 50,000 | $ 250,000 | $ 13,000 | $ 618,000 | $ 818,337 | |||||
Common stock shares issued | 750,000 | 125,000 | 625,000 | 46,429 | 5,575,000 | ||||||
Sale price of stock, per share | $ 0.40 | $ 0.40 | $ 0.40 | $ 0.28 | $ 0.49 | ||||||
Stock issuance expense | 24,630 | ||||||||||
Stock issued for compensation, shares | 50,266 | ||||||||||
Term of Agreement | 1 year | ||||||||||
Additional expense in connection with financing transaction | 20,125 | ||||||||||
Prepaid expense in connection with financing transaction | 57,021 | 57,021 | |||||||||
Issuance of shares for cash | 80,500 | ||||||||||
Issuance of shares for cash, shares | 230,000 | ||||||||||
Issuance of stock for services to employees, shares | 54,847 | ||||||||||
Issuance of stock for services to employees, amount | $ 21,939 | ||||||||||
Share price, per share | $ 0.40 | $ 0.35 |
Research and Developement and Software (Details) (Software [Member], USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Software [Member]
|
||
Schedule of software's | ||
Software | $ 940,305 | $ 258,933 |
Accumulated amortization | ||
Software, net | $ 940,305 | $ 258,933 |
Accounts Receivable (Details Textual) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Accounts Receivable (Textual) | ||||
Bad debt expense on trade accounts receivable | $ 6,450 |
Factoring Agreement (Details) (USD $)
|
1 Months Ended | 3 Months Ended | 6 Months Ended | |
---|---|---|---|---|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2013
|
Dec. 31, 2012
|
|
Factoring Agreement (Textual) | ||||
Period of factoring agreement | 1 year | |||
Percentage of total receivable's face value exchanged under factoring agreement | 85.00% | |||
Aggregate amount under factoring agreement | $ 1,274,000 | |||
Advance received under factoring agreement | 1,083,000 | |||
Outstanding receivables purchased by factor | 635,000 | 635,000 | ||
Loan payable to factor | 552,439 | 552,439 | 827,075 | |
Factor fees | $ 31,000 |
Subsequent Events (Details) (USD $)
|
1 Months Ended | ||
---|---|---|---|
Apr. 01, 2013
|
Mar. 31, 2013
|
Aug. 09, 2013
Subsequent Event [Member]
|
|
Subsequent Events (Textual) | |||
Stock issued during period | $ 400,000 | ||
Stock issued during period, shares | 1,000,000 | ||
Share price, per share | $ 0.40 | $ 0.35 | $ 0.40 |
Long Term Debt and Notes Payable (Details) (USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Summary of Long Term debt | ||
Total | $ 200,639 | $ 218,970 |
Less current portion | (32,610) | (37,513) |
Total long term portion | 168,029 | 181,457 |
Bank term loan [Member]
|
||
Summary of Long Term debt | ||
Total | 23,229 | 38,897 |
Mortgage loan [Member]
|
||
Summary of Long Term debt | ||
Total | $ 177,410 | $ 180,073 |
Accounts Receivable (Details) (USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Summary of Accounts receivable | ||
Accounts receivable | $ 1,510,690 | $ 1,246,814 |
Allowance for doubtful accounts | ||
Total | $ 1,510,690 | $ 1,246,814 |
Summary of Significant Accounting Policies
|
6 Months Ended | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
|||||||||||||||||||||||
Summary of Significant Accounting Policies [Abstract] | |||||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the three months ended June 30, 2013 are not indicative of the results that may be expected for the year ending December 31, 2013 or for any other future period. These unaudited condensed consolidated financial statements and the unaudited notes thereto should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2013 (our “10-K”).
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Health Revenue Assurance Associates, Inc. and Dream Reachers, LLC. All significant inter-company transactions and balances are eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include valuation of accounts receivable, valuation of property and equipment, valuation and amortization period of software, valuation of beneficial conversion features in convertible debt, valuation of equity based instruments issued for other than cash, revenue recognition, and the valuation allowance on deferred tax assets.
Cash
For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company’s cash balances are maintained at various banks that are insured by the Federal Deposit Insurance Corporation subject to certain limitations.
Accounts Receivable and Factoring
Accounts receivable are stated at the amounts management expects to collect. An allowance for doubtful accounts is recorded using a specific identification method based on a combination of historical experience, aging analysis and information on specific accounts. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Management has determined that no allowance is required at June 30, 2013. The Company accounts for its factoring arrangements as either a sale or a secured financing based on the criteria in ASC 860 "Transfers and Servicing". Estimates of allowances for doubtful accounts are reflected as a recourse obligation, a liability, for factor arrangements treated as a sale with recourse or as a contra asset accounts receivable allowance account for arrangements accounted for as a secured financing.
Software
Costs incurred in connection with the development of software products are accounted for in accordance with the Financial Accounting Standards Board Accounting Standards Codification ("ASC") 985 Costs of Software to Be Sold, Leased or Marketed.” Costs incurred prior to the establishment of technological feasibility are charged to research and development expense. Software development costs are capitalized after a product is determined to be technologically feasible and is in the process of being developed for market and capitalization ceases after the general release of the software. Amortization of capitalized software development costs begins upon initial product shipment after general release. Capitalized software development costs are amortized over the estimated life of the related product (generally thirty-six months) using the straight-line method. The Company evaluates its software assets for impairment whenever events or change in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of software assets to be held and used is measured by a comparison of the carrying amount of the asset to the future net undiscounted cash flows expected to be generated by the asset. If such software assets are considered to be impaired, the impairment to be recognized is the excess of the carrying amount over the fair value of the software asset.
Software maintenance costs are charged to expense as incurred. Expenditures for enhanced functionality are capitalized. The cost of the software and the related accumulated amortization are removed from the accounts upon retirement of the software with any resulting loss being recorded in operations. No amortization expense was recorded in the accompanying unaudited consolidated financial statements as of June 30, 2013 since our first software product was released on July 15th.
Fair Value Measurements and Fair Value of Financial Instruments
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The Company classifies assets and liabilities recorded at fair value under the fair value hierarchy based upon the observability of inputs used in valuation techniques. Observable inputs (highest level) reflect market data obtained from independent sources, while unobservable inputs (lowest level) reflect internally developed market assumptions. The fair value measurements are classified under the following hierarchy:
The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Revenue Recognition
The Company recognizes services revenue based on the proportional performance method of recognizing revenue.
A portion of the Company’s revenue is generated from medical coding audit services. Auditing revenue is invoiced in accordance with the contract, generally at three benchmark time periods which coincide with when specific, obligatory field work services have been rendered and completed, the value of this portion of the contract price has been predetermined and agreed upon, and the client has received benefit or value in the form of the independent identification of system weaknesses and risk analysis. Further, collectability is reasonably assured due to the existence of a fixed fee contract and the size and financial health of the Company’s clients. Below is a description of the general benchmarks and work phases associated with the Company’s audit services:
A portion of the Company’s revenue is derived from consulting, training and coding services provided. Revenue from these revenue streams is recognized after services are performed based on the quoted and agreed upon fee contained in its contracts.
For our education products sold on a self-study standalone basis or in multiple element contracts which include training and the product and training are separable elements (see below) revenue is recognized for the product upon passing of title which occurs once the end user is granted access to our online curriculum courses.
On July 15th the Company issued a general release for one of its products Visualizer ™. Additional product releases are anticipated to be for general availability during the 4th quarter of 2013. Software sales on a standalone basis will be recognized upon delivery of the software when evidence of the purchase arrangement exists and the price is determinable, and when collectability is reasonably assured.
Arrangements with customers may involve multiple elements including software products, education products, training, software product maintenance, coding services, coding audit services and other consulting services. Training on education products will occur after the education product sale. Education products are sold and may be used as a self-study product, although most of our customers elect to purchase our training services and therefore most of our contracts to date are multiple element contracts including one price for the education product and related training. We allocate the selling price to each element as discussed below. Training and maintenance on software products will generally occur after the software product sale. Other services may occur before or after the product sales and may not relate to the products. Revenue recognition for multiple element arrangement is as follows:
Each element is accounted for separately when each element has value to the customer on a standalone basis and there is Company specific objective evidence of selling price of each deliverable. For revenue arrangements with multiple deliverables, the Company allocates the total customer arrangement to the separate units of accounting based on their relative selling prices as determined by the price of the items when sold separately. Once the selling price is allocated, the revenue for each element is recognized using the general and specific criteria under GAAP as discussed above for elements sold in non-multiple element arrangements. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement are combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue is then determined for those combined deliverables as a single unit of accounting. The Company has historically sold its services with established rates which it believes is Company specific objective evidence of selling price. For the new software products, management has established selling prices which qualifies as Company specific objective evidence of selling price. Generally all elements in multiple element arrangements with Company customers qualify as separate units of account for revenue recognition purposes.
Cost of Revenues
Cost of revenues includes labor costs for services and education development costs. There were no depreciation or amortization
costs in 2013 or 2012 that were allocable to cost of sales. In future periods, amortization of capitalized software costs will be included in costs of revenues.
Earnings Per Share
The Company computes and presents earnings or losses per share in accordance with FASB ASC Topic 260, Earnings per share. Basic earnings or losses per share are computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding. Diluted earnings or loss per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares and common stock equivalents outstanding, calculated on the treasury stock method for options and warrants using the average market prices during the period.
As the Company incurred a net loss in all periods presented, all potentially dilutive securities were excluded from the computation of diluted loss per share since the effect of including them is anti-dilutive. There were no dilutive securities outstanding at June 30, 2013 and 2012 respectively.
Recent Accounting Pronouncements
We have implemented all new accounting standards that are in effect and that may impact our unaudited condensed consolidated financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations. |
Lines of Credit
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Lines Of Credit [Abstract] | |
LINES OF CREDIT | 5 – LINES OF CREDIT
Bank
The Company has a $150,000 revolving line of credit with a bank, effective in December 2008, for its general working capital needs. The line of credit is secured by all business assets, collateral, and personal guarantees. The line of credit has a maturity date of December 18, 2018. The interest rate per year is equal to the Bank’s Prime Rate plus 6.50 percent. The Bank’s prime rate of interest at June 30, 2013 was 3.25%. The balance due at June 30, 2013 was $137,500 with $25,863 reflected as a current portion. The first of seventy-two payments of $3,255 initiated January 18, 2013 and will continue through 2018.
Dell
The Company maintains a Dell Business Credit line of up to $50,000. Interest rates vary under the line based on difference types of payment plans. The balance due under the line as of June 30, 2013 was $48,928, which is included in line of credit, current portion in the accompanying unaudited condensed consolidated financial statements. |
Accounts Receivable
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2013
|
||||||||||||||||||||||||||||||||||||||||||||||
Accounts Receivable [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS RECEIVABLE | 3 - ACCOUNTS RECEIVABLE
Accounts receivable at June 30, 2013 and December 31, 2012 was as follows:
We had $6,450 and $0 in bad debt expense on trade accounts receivable for six months ended June 30, 2013 and 2012, respectively. (See Note 8)
|
Research and Developement and Software (Details 1) (Computer Software, Intangible Asset [Member], USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Computer Software, Intangible Asset [Member]
|
||
Schedule of estimated future amortization expense of software | ||
July 1, 2013 through December 31, 2013 | $ 156,717 | |
2014 | 313,435 | |
2015 | 313,435 | |
2016 | 156,718 | |
Software, net | $ 940,305 | $ 258,933 |
Long Term Debt and Notes Payable (Details 1) (USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Summary of notes payable | ||
Principal amount of notes payable | $ 1,670,204 | |
Unamortized discount | (808,131) | |
Notes payable, net of discount | 862,073 | |
Less current portion | (574,718) | (202,557) |
Total long term portion | $ 287,355 | $ 273,751 |