SEC Company Response from US MEDSYS CORP (CIK 0001095963) — Sep 8, 2005

US MEDSYS CORP (CIK 0001095963)
Date: Sept. 8, 2005 · CIK: 0001095963 · Accession: 0001144204-05-028295

View on Edgar

AI Filing Summary & Sentiment

Date

June 30, 2005

Author

Not clearly detected

Form

CORRESP

Company

US MEDSYS CORP (CIK 0001095963)

Letter

Securities and Exchange Commission Division of Corporation Finance Attention: Re: US MedSys Corp. Form 10-KSB for the fiscal year ended June 30, 2005 Form 10-QSB for the fiscal quarter ended March 31,

Dear Mr. Rosenberg:

This letter responds to the letter of comments issued to U.S. MedSys Corp. dated July 6, 2005, regarding the above filings. The comments correspond to the numbers in the July 6th letter.

We refer in this letter to U.S. MedSys’s Form 10-QSB/A - No. 1 for the fiscal quarter ended March 31, 2005, which will be filed once approval on the contents of this letter is approved by your office. All of the information contained in such filing is current as of March 31, 2005, but has not been updated for any events occurring since the date that U.S. MedSys filed the Form 10-QSB for the nine months ended March 31, 2005.

Form 10-KSB for the fiscal year ended June 30, 2004

Notes to Consolidate Financial Statements

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation, page F-6

You disclose PMC/Foot Care Network LLC as a fifty-one percent owned subsidiary. Please tell us how you accounted for and reported the minority interest of this entity in your consolidated financial statements.

There is no minority interest recorded on the balance sheet. The minority owner has no contributed capital in the subsidiary and is under no obligation to contribute additional capital, so 100% of the operating loss was attributed to the Company as majority owner in accordance with ARB 51.

Revenue Recognition, page F-6

You disclose revenue from test site users of your medical equipment is recognized on a “shared-revenue basis.” Please explain to us the meaning of a “shared-revenue basis” to clarify how you generate revenue and reconcile your revenue recognition policy to relevant accounting literature. Tell us how you can reasonably estimate amounts for disallowed insurance carrier billings considering revenues commenced in the fourth quarter of fiscal 2004.

The shared revenue statement meant a sharing of the collected revenue on an equal basis. This was related to scanners placed in wound care walk in centers. Based on our contract to place these units we would share on a 50/50 basis on collected revenues from billings sent by the centers to insurance carriers and self-insured plans. Revenue was recorded when actual billing took place at reimbursement rates that were related to the CPT billing codes approved by the insurers. Any disallowed reimbursements were written off using the direct method. This contractual arrangement doesn’t exist anymore since the units were taken back into our possession in September of 2004. The revenue related to the fourth quarter of fiscal 2004 is attributable to our diabetic supply division.

Form 10-QSB for the fiscal quarter ended March 31, 2005

Consolidated Statements of Operations, page F-3

Please tell us the nature of the discounts included in cost of goods sold and why you believe these amounts should be classified as a cost of goods sold.

This item was classified in cost of goods sold as an error. This will be reclassed from cost of goods sold to a deduction from gross sales, resulting in net sales

Please explain to us why you have presented a provision for excess or obsolete inventory as impairment in general and administrative expense and not in cost of goods sold.

This item was classified in general and administrative expense as an error. This will be reclassed from administrative expense to the cost of goods sold line item.

Notes to Unaudited Financial Statements

Note - Stockholders’ Equity, page F-5

Please tell us and disclose the terms of the conversion feature of the Series A preferred stock. Tell us how you accounted for the common stock purchase warrants issued to investors.

The terms of the conversion feature entitle the holder to convert each preferred share into 20 shares of common stock (subject to anti-dilution adjustments in the event of a distribution, combination, reorganization, recapilization, or a similar transaction), in accordance with the following schedule:

(i)

Each holder may convert up to one-third of the original number of shares of Series A Convertible Preferred Stock held by the holder into Common Stock at any time after 30 days after the date of issuance.

(ii)

Each holder may convert an additional one-third of the original number of shares of Series A Preferred Stock held by the holder into Common Stock at any time after six months after the date of issuance.

(iii)

Each holder may convert the balance of the original number of shares of series A Preferred Stock held by the holder into Common Stock at any time after one year after the date of issuance.

Additionally, the Series A Preferred Stock must be converted by the holder, at the discretion of the Board of Directors of the Corporation, if the common stock trades above $3.00 per share for 20 consecutive trading days.

The consideration received was allocated between the common stock and common stock warrants based on the relative fair values of each. Fair value for the common stock was based on quoted market prices, and the fair value of the warrants was based on an estimate using the Black-Scholes method.

Note - Investment in GMD, LLC, page F-5

You disclose having a 75% ownership position in GMD, LLC. Please tell us how you accounted for your investment in this entity and how you reported the minority interest in your consolidated financial statements.

There is no minority interest recorded. The minority owner has no contributed capital in the subsidiary and is under no obligation to contribute additional capital, so 100% of the operating loss was attributed to the Company as majority owner in accordance with ARB 51.

Note - Investment in NEODS, page F-5

You disclose as having acquired a 75% ownership position in NEODS. Please tell us the following:

Clarify how you accounted for your investment in this entity and reported the minority interest in your consolidated financial statements.

You refer to “impairment regulations stipulated in SFAS #123.” Please cite the specific paragraph of SFAS 123, or other authoritative literature, supporting your accounting and reporting for this impairment.

This is a typo. The footnote should state SFAS 144, and will be changed in our re-filing of the March 31, 2005 10QSB.

Note 5 - Revolving Credit Facilities, page F-6

Please disclose the fair value of the common stock issued to the lenders as a commitment to provide the credit facility. Disclose, and tell us, your basis for amortizing the cost of the shares over a ninety day period.

They were short term notes for ninety days. The fair value of the common stock related to this was calculated using the Black/Shoals formula. The footnote will be expanded to include this commentary.

Management’s Discussion and Analysis of Financial Condition and Results of Operations, page

You disclose in the second paragraph that the financial information furnished has been reviewed by an independent accountant. Please amend your filings to include a report of the accountant on the review, as required by Rule 310(b) of Regulation S-B.

Duly noted and this disclosure will be removed in the March 31, 2005 filings and future filings.

Critical Accounting Policies, Inventories, net, page 1

10.

Please tell us specific authoritative guidance supporting your accounting of inventories, wherein upon placing your systems into field locations, you then transfer “inventory” to “property and equipment” and then amortize over two to five years.

This is an Epi-Scan ultrasound technology. The company has adopted an amortization method that is consistent with computer technology on a GAAP basis.

Results of Operations, page 3

11.

Your reported cost of goods sold for the nine months ended March 31, 2005 is the same as that reported for the three months then ended; this does not appear to be consistent with the different amounts of revenue for the relevant periods. Please tell us why cost of goods sold is the same for both periods.

The revenue generated prior to the three months ending March 31, 2005 was “Rental” revenue from the use of the Scanners by a third party without any related Cost of goods sold. The costs associated with these rentals were reflected in depreciating the scanners. The above mentioned scanners have since been returned to the company.

Liquidity and Capital Resources, page 4

12.

You assert your operating cash flow together with your current cash reserves will be sufficient to fund your business plan and projected capital requirements though at least November 2005,” or approximately eight months of operations from March 31, 2005. Your cash on hand of approximately $1.5 million does not appear to be sufficient for your ongoing business operations based on the net cash used in operations of approximately $3.2 million for previous nine months and your disclosure that you are not currently seeking to raise capital through public or private equity or debt financing.

We believe your existing discussion appears to simply recite the items already disclosed on your Consolidated Statement of Cash Flows and is not commensurate with a robust discussion of your liquidity. Consistent with Section IV of SEC Release No. FR-72, please revise your discussion to provide meaningful insight into your cash requirements as well as your sources and uses of cash and other material factors necessary to an understanding of your cash flows and the indicative value of historical cash flows. Where there has been material variability in historical cash flows, focus on the underlying reasons for the changes, as well as on the reasonably likely impact on future cash flows and cash management decisions. Include a discussion and analysis of known trends and uncertainties.

In addressing your concerns stated above, we must first look at the loss which included non-cash charges of approximately $1.1 million. Our current burn rate on a consolidated level is about $230,000 per month. The statement that was made in the MD & A would then hold true. Especially given the fact that our disease management division continues to provide growth, and our NEODS division in Wilton, Maine will begin production in late September of 2005.

Off -Balance Sheet Arrangements, page 5

13.

You disclose you have a fifty-one percent interest in PMC/ Ocular Network LLC. Please tell us how you accounted for your investment in this entity and how you reported the minority interest in your consolidated financial statements.

There is no minority interest recorded. The investment of $250,000 paid to Nick Sconzo for the Ocular Network is carried as a Deferred Acquisition cost because NJ approval is still pending for the entity conducting business as a healthcare delivery system.

* * * *

In connection with responding to your comments, U.S. MedSys, Corp. is acknowledging that:

the company is responsible for the adequacy and accuracy of the disclosure in the filings;

staff comments of changes to disclosure in response to staff comments do not forecl

Show Raw Text

CORRESP
1
filename1.htm

September
2, 2005

Securities
and Exchange Commission

Division
of Corporation Finance

100
F
Street, N.E.

Washington,
D.C. 20549

Attention:

Mr.
Jim B. Rosenberg

Senior
Assistant Chief Accountant

Re:

US
MedSys Corp.

Form
10-KSB for the fiscal year ended June 30, 2005

Form
10-QSB for the fiscal quarter ended March 31,
2005

Dear
Mr.
Rosenberg:

This
letter responds to the letter of comments issued to U.S. MedSys Corp. dated
July
6, 2005, regarding the above filings. The comments correspond to the numbers
in
the July 6th
letter.

We
refer
in this letter to U.S. MedSys’s Form 10-QSB/A - No. 1 for the fiscal quarter
ended March 31, 2005, which will be filed once approval on the contents of
this
letter is approved by your office. All of the information contained in such
filing is current as of March 31, 2005, but has not been updated for any
events
occurring since the date that U.S. MedSys filed the Form 10-QSB for the nine
months ended March 31, 2005.

Form
10-KSB for the fiscal year ended June 30, 2004

Notes
to Consolidate Financial Statements

Note
1. Summary of Significant Accounting Policies

Principles
of Consolidation, page F-6

You
disclose PMC/Foot Care Network LLC as a fifty-one percent owned
subsidiary.
Please tell us how you accounted for and reported the minority
interest of
this entity in your consolidated financial
statements.

There
is no minority interest recorded on the balance sheet. The minority owner
has no
contributed capital in the subsidiary and is under no obligation to contribute
additional capital, so 100% of the operating loss was attributed to the Company
as majority owner in accordance with ARB 51.

Revenue
Recognition, page F-6

You
disclose revenue from test site users of your medical equipment
is
recognized on a “shared-revenue basis.” Please explain to us the meaning
of a “shared-revenue basis” to clarify how you generate revenue and
reconcile your revenue recognition policy to relevant accounting
literature. Tell us how you can reasonably estimate amounts for
disallowed
insurance carrier billings considering revenues commenced in the
fourth
quarter of fiscal 2004.

The
shared revenue statement meant a sharing of the collected revenue on an equal
basis. This was related to scanners placed in wound care walk in centers.
Based
on our contract to place these units we would share on a 50/50 basis on
collected revenues from billings sent by the centers to insurance carriers
and
self-insured plans. Revenue was recorded when actual billing took place at
reimbursement rates that were related to the CPT billing codes approved by
the
insurers. Any disallowed reimbursements were written off using the direct
method. This contractual arrangement doesn’t exist anymore since the units were
taken back into our possession in September of 2004. The revenue related
to the
fourth quarter of fiscal 2004 is attributable to our diabetic supply
division.

Form
10-QSB for the fiscal quarter ended March 31, 2005

Consolidated
Statements of Operations, page F-3

Please
tell us the nature of the discounts included in cost of goods sold
and why
you believe these amounts should be classified as a cost of goods
sold.

This
item
was classified in cost of goods sold as an error. This will be reclassed
from
cost of goods sold to a deduction from gross sales, resulting in net
sales

Please
explain to us why you have presented a provision for excess or
obsolete
inventory as impairment in general and administrative expense and
not in
cost of goods sold.

This
item was classified in general and administrative expense as an error. This
will
be reclassed from administrative expense to the cost of goods sold line
item.

Notes
to Unaudited Financial Statements

Note
2
- Stockholders’ Equity, page F-5

Please
tell us and disclose the terms of the conversion feature of the
Series A
preferred stock. Tell us how you accounted for the common stock
purchase
warrants issued to investors.

The
terms of the conversion feature entitle the holder to convert each preferred
share into 20 shares of common stock (subject to anti-dilution adjustments
in
the event of a distribution, combination, reorganization, recapilization,
or a
similar transaction), in accordance with the following schedule:

(i)

Each
holder may convert up to one-third of the original number of shares
of
Series A Convertible Preferred Stock held by the holder into Common
Stock
at any time after 30 days after the date of issuance.

(ii)

Each
holder may convert an additional one-third of the original number
of
shares of Series A Preferred Stock held by the holder into Common
Stock at
any time after six months after the date of issuance.

(iii)

Each
holder may convert the balance of the original number of shares
of series
A Preferred Stock held by the holder into Common Stock at any time
after
one year after the date of issuance.

Additionally,
the Series A Preferred Stock must be converted by the holder, at the discretion
of the Board of Directors of the Corporation, if the common stock trades
above
$3.00 per share for 20 consecutive trading days.

The
consideration received was allocated between the common stock and common
stock
warrants based on the relative fair values of each. Fair value for the common
stock was based on quoted market prices, and the fair value of the warrants
was
based on an estimate using the Black-Scholes method.

Note
3
- Investment in GMD, LLC, page F-5

You
disclose having a 75% ownership position in GMD, LLC. Please tell
us how
you accounted for your investment in this entity and how you reported
the
minority interest in your consolidated financial
statements.

There
is no minority interest recorded. The minority owner has no contributed capital
in the subsidiary and is under no obligation to contribute additional capital,
so 100% of the operating loss was attributed to the Company as majority owner
in
accordance with ARB 51.

Note
4
- Investment in NEODS, page F-5

You
disclose as having acquired a 75% ownership position in NEODS.
Please tell
us the following:

Clarify
how you accounted for your investment in this entity and reported
the
minority interest in your consolidated financial
statements.

There
is no minority interest recorded. The minority owner has no contributed capital
in the subsidiary and is under no obligation to contribute additional capital,
so 100% of the operating loss was attributed to the Company as majority owner
in
accordance with ARB 51.

You
refer to “impairment regulations stipulated in SFAS #123.” Please cite the
specific paragraph of SFAS 123, or other authoritative literature,
supporting your accounting and reporting for this
impairment.

This
is a typo. The footnote should state SFAS 144, and will be changed in our
re-filing of the March 31, 2005 10QSB.

Note
5 - Revolving Credit Facilities, page F-6

Please
disclose the fair value of the common stock issued to the lenders
as a
commitment to provide the credit facility. Disclose, and tell us,
your
basis for amortizing the cost of the shares over a ninety day
period.

They
were short term notes for ninety days. The fair value of the common stock
related to this was calculated using the Black/Shoals formula. The footnote
will
be expanded to include this commentary.

Management’s
Discussion and Analysis of Financial Condition and Results of Operations,
page
1

You
disclose in the second paragraph that the financial information
furnished
has been reviewed by an independent accountant. Please amend your
filings
to include a report of the accountant on the review, as required
by Rule
310(b) of Regulation S-B.

Duly
noted and this disclosure will be removed in the March 31, 2005 filings and
future filings.

Critical
Accounting Policies, Inventories, net, page 1

10.

Please
tell us specific authoritative guidance supporting your accounting
of
inventories, wherein upon placing your systems into field locations,
you
then transfer “inventory” to “property and equipment” and then amortize
over two to five years.

This
is an Epi-Scan ultrasound technology. The company has adopted an amortization
method that is consistent with computer technology on a GAAP basis.

Results
of Operations, page 3

11.

Your
reported cost of goods sold for the nine months ended March 31,
2005 is
the same as that reported for the three months then ended; this
does not
appear to be consistent with the different amounts of revenue for
the
relevant periods. Please tell us why cost of goods sold is the
same for
both periods.

The
revenue generated prior to the three months ending March 31, 2005 was “Rental”
revenue from the use of the Scanners by a third party without any related
Cost
of goods sold. The costs associated with these rentals were reflected in
depreciating the scanners. The above mentioned scanners have since been returned
to the company.

Liquidity
and Capital Resources, page 4

12.

You
assert your operating cash flow together with your current cash
reserves
will be sufficient to fund your business plan and projected capital
requirements though at least November 2005,” or approximately eight months
of operations from March 31, 2005. Your cash on hand of approximately
$1.5
million does not appear to be sufficient for your ongoing business
operations based on the net cash used in operations of approximately
$3.2
million for previous nine months and your disclosure that you are
not
currently seeking to raise capital through public or private equity
or
debt financing.

We
believe your existing discussion appears to simply recite the items already
disclosed on your Consolidated Statement of Cash Flows and is not commensurate
with a robust discussion of your liquidity. Consistent with Section IV of
SEC
Release No. FR-72, please revise your discussion to provide meaningful insight
into your cash requirements as well as your sources and uses of cash and
other
material factors necessary to an understanding of your cash flows and the
indicative value of historical cash flows. Where there has been material
variability in historical cash flows, focus on the underlying reasons for
the
changes, as well as on the reasonably likely impact on future cash flows
and
cash management decisions. Include a discussion and analysis of known trends
and
uncertainties.

In
addressing your concerns stated above, we must first look at the loss which
included non-cash charges of approximately $1.1 million. Our current burn
rate
on a consolidated level is about $230,000 per month. The statement that was
made
in the MD & A would then hold true. Especially given the fact that our
disease management division continues to provide growth, and our NEODS division
in Wilton, Maine will begin production in late September of
2005.

Off
-Balance Sheet Arrangements, page 5

13.

You
disclose you have a fifty-one percent interest in PMC/ Ocular Network
LLC.
Please tell us how you accounted for your investment in this entity
and
how you reported the minority interest in your consolidated financial
statements.

There
is no minority interest recorded. The investment of $250,000 paid to Nick
Sconzo
for the Ocular Network is carried as a Deferred Acquisition cost because
NJ
approval is still pending for the entity conducting business as a healthcare
delivery system.

*
* * *

In
connection with responding to your comments, U.S. MedSys, Corp. is acknowledging
that:

the
company is responsible for the adequacy and accuracy of the disclosure
in
the filings;

staff
comments of changes to disclosure in response to staff comments
do not
forecl

SecProbe.io