-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ON0K5VGU2dKYiia2ADfPDjR+rAgocIlRzN5ZYYqU8XmmgbhIJv32vGTfIeTDZom2 msNdwokDpj/TVNBQrNZiig== /in/edgar/work/0001017813-00-000016/0001017813-00-000016.txt : 20001121 0001017813-00-000016.hdr.sgml : 20001121 ACCESSION NUMBER: 0001017813-00-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PATIENT INFOSYSTEMS INC CENTRAL INDEX KEY: 0001017813 STANDARD INDUSTRIAL CLASSIFICATION: [8090 ] IRS NUMBER: 161476509 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22319 FILM NUMBER: 773442 BUSINESS ADDRESS: STREET 1: 46 PRINCE ST CITY: ROCHESTER STATE: NY ZIP: 14607 BUSINESS PHONE: 7162427200 MAIL ADDRESS: STREET 1: 46 PRINCE ST CITY: ROCHESTER STATE: NY ZIP: 14607 10-Q 1 0001.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 10Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2000 ------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------------------------- Commission file number: 0-22319 -------------------------------------------- PATIENT INFOSYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 16-1476509 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 46 Prince Street, Rochester, NY 14607 (Address of principal executive offices) (Zip Code) (716) 242-7200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes [X] No [ ] As of November 13, 2000, 8,220,202 common shares were outstanding. PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements
PATIENT INFOSYSTEMS, INC. CNDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - --------------------------------------------------------------------------------------------------------------------------------- ASSETS September 30, 2000 December 31, 1999 ------------------ ----------------- CURRENT ASSETS: Cash and cash equivalents $ 127,791 $ 489,521 Accounts receivable 407,941 650,279 Prepaid expenses and other current assets 131,323 202,064 ------------------------------------------------------- Total current assets 667,055 1,341,864 PROPERTY AND EQUIPMENT, net 926,866 1,291,351 Debt issuance costs (net of accumulated amortization of $472,000 and $0) 385,500 382,500 Intangible assets (net of accumulated amortization of $120,220 and $38,055) 502,503 584,669 Other assets 200,000 244,011 ------------------------------------------------------- TOTAL ASSETS $ 2,681,924 $ 3,844,395 ======================================================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable $ 228,893 $ 496,533 Accrued salaries and wages 217,191 190,232 Borrowings from directors 375,000 - Line of credit 2,500,000 - Accrued expenses 104,429 22,767 Deferred revenue 157,731 218,200 ------------------------------------------------------- Total current liabilities $ 3,583,244 $ 927,732 ------------------------------------------------------- LINE OF CREDIT - 500,000 STOCKHOLDERS' EQUITY (DEFICIT): Common stock - $.01 par value: shares authorized: 20,000,000; issued and outstanding: September 30, 2000 - 8,220,202; December 31, 1999 - 8,040,202 82,202 80,402 Preferred stock - $.01 par value: shares authorized: 5,000,000 Series C, 9% cumulative, convertible issued and outstanding September 30, 2000 - 100,000 1,000 - Additional paid-in capital 24,016,798 21,968,536 Accumulated other comprehensive income 1,805 1,805 Accumulated deficit (25,003,125) (19,634,080) ------------------------------------------------------- Total stockholders' equity (deficit) $ (901,320) $ 2,416,663 ------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,681,924 $ 3,844,395 ======================================================= See notes to unadudited condensed consolidated financial statements.
PATIENT INFOSYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - ---------------------------------------------------------------------------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES Operations Fees $ 385,304 $ 845,964 $ 1,517,598 $ 2,682,720 Development Fees 13,246 - 34,446 - Licensing Fees 35,000 30,000 80,826 30,000 ----------------------------------------------------------------------------- Total revenues 433,550 875,964 1,632,870 2,712,720 ----------------------------------------------------------------------------- COSTS AND EXPENSES Cost of sales 982,638 1,447,869 3,466,670 4,162,140 Sales and marketing 234,942 626,725 816,965 1,921,364 General and administrative 590,073 422,124 1,743,360 1,381,205 Research and development 73,997 284,838 237,196 712,285 ----------------------------------------------------------------------------- Total costs and expenses 1,881,650 2,781,556 6,264,191 8,176,994 ----------------------------------------------------------------------------- OPERATING LOSS (1,448,100) (1,905,592) (4,631,321) (5,464,274) Investment loss - (7,697) - (335,202) Other income (expense) (62,667) 30,754 (142,723) 160,326 ----------------------------------------------------------------------------- NET LOSS (1,510,767) (1,882,535) (4,774,044) (5,639,150) CONVERTIBLE PREFERRED STOCK DIVIDENDS (22,500) - (595,000) - ----------------------------------------------------------------------------- NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (1,533,267) $ (1,882,535) $ (5,369,044) $ (5,639,150) ============================================================================= NET LOSS PER SHARE - BASIC AND DILUTED $ (0.19) $ (0.23) $ (0.66) $ (0.70) ============================================================================= WEIGHTED AVERAGE COMMON SHARES 8,209,040 8,033,400 8,106,779 8,030,003 ============================================================================= See notes to unadudited condensed consolidated financial statements.
PATIENT INFOSYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------- Nine Months Nine Months Ended Ended September 30, 2000 September 30, 1999 OPERATING ACTIVITIES: Net loss $ (4,774,044) $ (5,639,150) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 896,544 374,130 Loss on disposal of fixed assets 21,842 335,202 Loss on investments - (58,935) Compensation expense related to issuance of stock warrants 1,042 - Decrease in accounts receivable, net 242,338 10,830 Decrease in prepaid expenses and other current assets 70,741 17,740 Decrease (Increase) in other assets 44,011 (3,994) (Decrease) Increase in accounts payable (267,640) 157,716 Increase in accrued salaries and wages 26,959 11,621 Increase (Decrease) in accrued expenses 36,662 (35,700) Decrease in deferred revenue (60,469) (10,960) ----------- ----------- Net cash used in operating activities (3,762,014) (4,841,500) ----------- ----------- INVESTING ACTIVITIES: Property and equipment additions (17,976) (550,807) Proceeds from sale of fixed assests 18,240 - Purchases of available-for-sale securities - (21,073) Maturities of available-for-sale securities - 1,050,747 Purchase of HealthDesk Intellectual Property, net - (595,048) ----------- ----------- Net cash provided by (used in) investing activities 264 (116,181) ----------- ----------- FINANCING ACTIVITIES: Proceeds from issuance of common and preferred stock, net 1,025,020 18,576 Borrowings from directors 375,000 - Line of credit borrowings 2,000,000 - ----------- ----------- Net cash provided by financing activities 3,400,020 18,576 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS 188,270 (4,939,105) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 489,521 6,316,955 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 127,791 $ 1,377,850 ================= ================= Supplemental disclosures of cash flow information Cash paid and received for income taxes, net $ - $ 32,041 ================= ================= Supplemental disclosures of non-cash information Fair value of stock purchase warrants issued in conjunction with guarantees by certain board members of borrowings on the line of credit $ 475,000 $ - ================= ================= Dividends declared on Class C Convertible Preferred Stock $ 45,000 $ - ================= ================= Value of beneficial conversion feature on Class C Convertible Preferred Stock recognized as a dividend $ 550,000 $ - ================= ================= See notes to unadudited condensed consolidated financial statements.
PATIENT INFOSYSTEMS, INC. Notes to Consolidated Financial Statements 1. The unadudited condensed consolidated financial statements for the three and nine-month periods ended September 30, 2000 and September 30, 1999 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. Certain prior period amounts have been reclassified to conform to current period presentations. The unadudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1999. The results of operations for the three and nine-month periods ended September 30, 2000 are not necessarily indicative of the results for the entire year ending December 31, 2000. 2. Intangible assets represent the intellectual property (i.e.: tradenames, trademarks, licenses and brandnames) acquired from HealthDesk Corporation. Until March 31, 2000, this asset was being amortized over 15 years using the straight-line method. As a result of a further evaluation of this asset, it has been decided to alter the amortization based upon having a remaining life of 4 years starting April 1, 2000 using a straight-line method. The net asset value for this intellectual property was $502,503 at September 30, 2000 and reflects the change in amortization effective April 1, 2000. 3. On March 31, 2000, the Company completed a private placement of 100,000 shares of newly issued Series C 9% Cumulative Convertible Preferred Stock ("Series C"), raising $1,000,000 in total proceeds. These shares can be converted into Common Stock at a rate of 8 shares of Common Stock to 1 share of Series C Preferred Stock. Each Series C share has voting rights equivalent to 8 shares of Common Stock (800,000 shares). The proceeds from this issuance have been used to support the Company's operations. The fair market value of the Company's Common Stock at the time of issuance of Series C Preferred Stock was $1.9375 per share. The Series C Shares are convertible at a price equal to $1.25 per share of Common Stock resulting in a discount, or beneficial conversion feature, of $0.6875 per share. The incremental fair value of $550,000 for the 100,000 shares of Series C Preferred issued is deemed to be the equivalent of a preferred stock dividend. The Company recorded the deemed dividend at the date of issuance by offsetting charges and credits to additional paid in capital of $550,000, without any effect on total stockholders' equity. The amount increased the loss applicable to common stockholders in the calculation of basic net loss per share for the three and nine-month periods ended September 30, 2000. Form 10-Q/A amendments to the Company's three and six month periods ended March 31, 2000 and June 30, 2000 respectively were filed simultaneously with this Form 10-Q to reflect the adjustment to paid-in capital, reclassifications consistent with current presentation and net less per share for such periods. No adjustment was made to any other information in such filings. 4. In December 1999, the Company established a credit facility for $1,500,000 guaranteed by Derace Schaffer and John Pappajohn, directors of the Company. In consideration for their guarantees, the Company granted to Dr. Schaffer and Mr. Pappajohn warrants to purchase an aggregate of 375,000 shares of common stock for $1.5625 per share. In March 2000, the facility was increased by $1,000,000 under substantially the same terms, also guaranteed by the same Board members. Because this line of credit is due and payable on March 31, 2001, amounts outstanding at September 30, 2000 and December 31, 1999 are reported as current and long-term liabilities, respectively. Additional warrants to purchase an aggregate of 250,000 shares of Common Stock for $2.325 per share, were granted to Dr. Derace Schaffer and Mr. John Pappajohn for their guarantee of this additional line of credit. The warrants are included in the debt issuance costs in the balance sheet. The estimated fair value of the warrants at September 30, 2000 is approximately $857,500 based on the application of the Black Scholes option pricing model which incorporates current stock price, expected stock price volatility, expected interest rates, and the expected holding period of the warrant. In August 2000, the Company borrowed $125,000 and in September 2000 an additional $62,500 from Mr. John Pappajohn. Proceeds from these loans were used to support the Company's operations. The interest on these loans is 9.5% per year. In August 2000, the Company borrowed $125,000 and in September 2000 an additional $62,500 from Dr. Derace Schaffer. Proceeds from these loans were used to support the Company's operations. The interest on these loans is 9.5% per year. The loans from Mr. Pappajohn and Dr. Schaffer are demand Notes and intended to be secured by the assets of The Company. 5. The calculations for the basic and diluted loss per share were based upon loss attributable to common stockholders of $1,533,267 and $1,882,535 with a weighted average number of common shares of 8,209,040 and 8,033,400 for the three-month periods ended September 30, 2000 and 1999 respectively and $5,369,044 and $5,639,150 with a weighted average number of common shares of 8,106,779 and 8,030,003 for the nine-month periods ended September 30, 2000 and 1999 respectively. Options and warrants to purchase shares of Common Stock were outstanding but not included in the computation of diluted loss per share for the three and six-month periods ended June 30, 2000 and 1999 because the effect would have been antidilutive due to the net loss in those periods. 6. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. We have appointed a team to implement SFAS 133 on a global basis for the Company. This team has been implementing an SFAS 133 compliant risk management information system, globally educating both financial and non-financial personnel, inventorying embedded derivatives and addressing various other SFAS 133 related issues. We will adopt SFAS 133 and the corresponding amendments under SFAS 138 on January 1, 2001. SFAS 133, as amended by SFAS 138, is not expected to have a material impact on the Company's condensed consolidated financial position, results of operations or cash flows. In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," which supercedes SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This standard is effective for transfers occurring after March 31, 2001, with certain disclosure requirements effective for the year ending December 31, 2000. The Company does not believe the adoption of this standard will have a significant impact on the Company's condensed consolidated financial position, results of operations or cash flows. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101, as amended, is required to be adopted by the Company no later than the fourth quarter of fiscal year 2000. Although the Company has not fully assessed the implications of SAB 101, management does not believe the adoption of SAB 101 will have a significant impact on the Company's condensed consolidated financial position, results of operations or cash flows. 7. The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying unaudited condensed consolidated financial statements, the Company incurred an operating loss for the nine-month period ended September 30, 2000 of $4,631,321 and had an accumulated deficit of $19,634,080 at December 31, 1999. These factors, among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependant upon its ability to generate sufficient cash flow to meet its obligations. Management is currently assessing the Company's operating structure for the purpose of reducing ongoing expenses, increasing sources of revenue and is negotiating the terms of additional debt or equity financing. 8. Subsequent Event - In October 2000, the Company borrowed $125,000 and in November 2000 an additional $25,000 from Mr. John Pappajohn. Proceeds from these demand loans were used to support the Company's operations. The interest on these loans is 9.5% per year. In October 2000, the Company borrowed $125,000 from Dr. Derace Schaffer. Proceeds from these demand loans were used to support the Company's operations. The interest on these loans is 9.5% per year. The Company anticipates that it will need to borrow additional funds before it can secure additional capital through the issuance of additional securities. The Company's current directors have no obligation to continue to provide funds There can be no assurances given that the company can borrow the additional amounts needed or that the Company can sell additional securities. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management's discussion and analysis provides a review of the Company's operating results for the three and nine month periods ended September 30, 2000 and September 30, 1999 and its financial condition at September 30, 2000. The focus of this review is on the underlying business reasons for significant changes and trends affecting the revenues, net earnings and financial condition of the Company. This review should be read in conjunction with the accompanying unaudited condensed consolidated financial statements. In an effort to give investors a well-rounded view of the Company's current condition and future opportunities, this Quarterly Report on Form 10-Q includes forecasts by the Company's management about future performance and results. Because they are forward-looking, these forecasts involve uncertainties. These uncertainties include the Company's working capital shortfalls, risks of market acceptance of or preference for the Company's systems and services, competitive forces, the impact of, and changes in, government regulations, general economic factors in the healthcare industry and other factors discussed in the Company's filings with the Securities and Exchange Commission including the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Results of Operations Revenues Revenues consist of revenues from operations, development and licensing fees. Revenues decreased from $875,964 during the three months ended September 30, 1999 to $433,550 during the three months ended September 30, 2000, or 51%. Revenues decreased from $2,712,720 during the nine months ended September 30, 1999 to $1,632,870 during the nine months ended September 30, 2000, or 40%.
Three Months Ended Nine Months Ended September 30, September 30, Revenues 2000 1999 2000 1999 - -------- ---- ---- ---- ---- Operations Fees Disease Management and Compliance $ 164,935 $ 319,787 $ 493,559 $ 875,240 Surveys 54,089 286,236 315,976 1,067,411 Demand Management 146,603 205,424 619,859 597,427 Other 19,677 34,517 88,204 142,642 ------------------------------ ------------------------------- Total Operations Fees 385,304 845,964 1,517,598 2,682,720 Development Fees 13,246 - 34,446 - Licensing Fees 35,000 30,000 80,826 30,000 ------------------------------ ------------------------------- Total Revenues $ 433,550 $ 875,964 $1,632,870 $2,712,720 ------------------------------ -------------------------------
Operations revenues are generated as the Company provides services to its customers. Operations revenues decreased from $845,964 during the three months ended September 30, 1999 to $385,304 during the three months ended September 30, 2000. Operations revenues decreased from $2,682,720 during the nine months ended September 30, 1999 to $1,517,598 during the nine months ended September 30, 2000. Operations revenues continue to be the primary source of revenue for the Company. Operations revenues declined because the Company had fewer projects after two of the Company's primary customers eliminated products for which the Company provided services and a major pharmaceutical client completed two initiatives. These clients have not provided the Company with new assignments to replace the completed projects. Demand Management revenues increased over the nine-month period due to increases in the membership of the existing clients and the addition of a new customer. Demand Management revenues decreased over the three-month period ended September 30, 2000 due to the elimination of a Medicaid product by one of the Company's customers. The Company continues to provide this customer with Demand Management services for it's commercial product. Development revenue represents the amounts that the Company charges its customers for the development of its customized programs. There were $13,246 and $34,446 of development revenues in the three and nine-month periods ended September 30, 2000 respectively. The Company has entered into new development agreements but anticipates that revenue from program development will remain immaterial in the future. License revenues recognized from the Case Management Support System for the three and nine-month period ended September 30, 2000 were $35,000 and $80,826 respectively. The Company has not entered into any new licensing agreements for its Case Management Support System and the revenue for the current period reflects ongoing revenue from the existing agreements. Costs and Expenses Cost of sales include salaries and related benefits, services provided by third parties, and other expenses associated with the implementation and delivery of the Company's standard and customized population, demand, and disease management programs. Cost of sales for the three months ended September 30, 2000 was $982,638 as compared to $1,447,869 for the three-month period ended September 30, 1999. For the nine months ended September 30, 2000, cost of sales was $3,466,670, as compared to $4,162,140 for the nine months ended September 30, 1999. The decrease in these costs primarily reflects a response to the decreased level of population and disease management operational activities and other cost reductions undertaken by the Company's management. The Company's gross margin continues to be negative. The Company anticipates that revenue must substantially increase before it will begin to recognize economies of scale. No assurance can be given that revenues will increase or that, if they do, they will exceed expenses. Sales and marketing expenses consist primarily of salaries, related benefits, travel costs, sales materials and other marketing related expenses. Sales and marketing expenses for the three months ended September 30, 2000 were $234,942 as compared to $626,725 for the three-month period ended September 30, 1999. For the nine months ended September 30, 2000, sales and marketing expenses were $816,965, as compared to $1,921,364 for the nine months ended September 30, 1999. Spending in this area has decreased due to the resignation or termination of several members of the sales staff. The Company anticipates expansion of the Company's sales and marketing staff and, if funds become available, that it will continue to invest in the sales and marketing process in future periods. General and administrative expenses include the costs of corporate operations, finance and accounting, human resources and other general operating expenses of the Company. General and administrative expenses for the three months ended September 30, 2000 were $590,073, as compared to $422,124 for the three-month period ended September 30, 1999. For the nine months ended September 30, 2000, general and administrative expense was $1,743,360, as compared to $1,381,205 for the nine months ended September 30, 1999. These expenditures have been incurred to maintain the corporate infrastructure necessary to support anticipated program operations. The increase in these costs was due to amortization of $857,500 in debt issuance cost for the establishment of a $2,500,000 line of credit. This cost is a non-cash item related to the fair market value of warrants to purchase the Company's common stock, which were issued to two directors in consideration for their guarantee of the debt. The amortization expense recorded was $192,750 and $472,000 for the three and nine-month periods ended September 30, 2000. Without this amortization, general and administrative expenses decreased to $397,323 and $1,271,360 for the three and nine-month periods ended September 30, 2000. This full impact of the cost reduction efforts was only partially reflected in these costs due to a one-time write-off of $87,685 in trade receivables during the nine month period ended September 30, 2000, which is no longer considered collectable. When the debt issuance costs are fully amortized, the Company expects the General and Administrative costs to remain relatively constant in future periods. Research and development expenses consist primarily of salaries and related benefits and administrative costs associated with the development of certain components of the Company's integrated information capture and delivery system, the Company's standardized disease management programs and the Company's Internet based technology products. Research and development expenses for the three months ended September 30, 2000 were $73,997, as compared to $284,838 for the three months ended September 30, 1999. For the nine months ended September 30, 2000, research and development expenses were $237,196, as compared to $712,285 for the nine months ended September 30, 1999. This reduction reflects a shift in technology staffing to support existing operations rather than research and development activities. It is anticipated that as the Company evolves its technology infrastructure, that modest increases in research and development expense will be required. The Company recorded no investment loss for the three months ended September 30, 2000 as compared to a loss of $7,697 for the three-month period ended September 30, 1999. There was no investment loss recorded for the nine months ended September 30, 2000 as compared to $335,202 for the nine months ended September 30, 1999. In 1999, the Company's investment loss included its investment in Patient Infosystems Canada, Inc. and a one-time write-off of it's investment in the Pulse Group. The Company recorded a loss of $62,667 and $142,723 in other expenses for the three and nine-month periods ended September 30, 2000 respectively, as compared to a gain of $30,754 and $160,326 for the three and nine-month periods ended September 30, 1999 respectively The Company generates interest income from cash balances and investments and pays interest on debt. The net interest expense recorded was $58,080 and $121,580 for the three and nine-month periods ended September 30, 2000 as compared to a net gain of $30,754 and $160,326 for the same periods of 1999 due to the reduction of cash for which the Company was paid interest and the increase of interest expenses on debt. The balance of the loss of $4,587 and $21,143 for the three and nine-month periods ending September 30, 2000 primarily relate to a loss on the sale or abandonment of certain fixed assets. The Company had a net loss attributable to the Common shareholders after preferred stock dividends of $1,533,267 for the three months ended September 30, 2000, as compared to a net loss of $1,882,535 for the three months ended September 30, 1999. This represents a net loss per share of $0.19 for the third quarter of 2000, as compared to a net loss of $0.23 per share in the third quarter of 1999. The net loss attributable to Common shareholders for the nine-month period ended September 30, 2000 is $5,369,044 as compared to $5,639,150 for the same period of 1999. This represents a net loss per share of $0.66 for the first three quarters of 2000, as compared to a net loss of $0.70 per share in the first three quarters of 1999. The preferred stock dividends include accrued dividends of $45,000 and a beneficial conversion feature for the 100,000 shares of Series C Stock of $550,000. Liquidity and Capital Resources At September 30, 2000 the Company had a working capital deficit of $2,916,189 as compared to working capital of $414,132 at December 31, 1999. Also at September 30, 2000, the Company had a stockholders deficit of $901,320. Through September 30, 2000 these amounts reflect the effects of the Company's continuing losses as well as borrowings against Notes totaling $375,000 and its $2,500,000 line of credit, $500,000 of which was considered to be a long-term liability at December 31, 1999 and Notes totaling $375,000 held by Dr. Derace Schaffer and Mr. John Pappajohn who are Directors of the Company. Since its inception, the Company has primarily funded its operations, working capital needs and capital expenditures from the sale of equity securities. The Company completed an initial public offering of its common stock on January 8, 1997, at which time it generated net proceeds to the Company of $16,314,048. On March 31, 2000, the Company completed a private placement of 100,000 shares of newly issued Series C 9% Cumulative Convertible Preferred Stock ("Series C"), raising $1,000,000 in total proceeds. These shares can be converted into Common Stock at a rate of 8 shares of Common Stock to 1 share of Series C Preferred Stock. Each Series C share has voting rights equivalent to 8 shares of Common Stock (800,000 shares). The proceeds from this issuance have been used to support the Company's operations. The fair market value of the Company's Common Stock at the time of issuance of Series C Preferred Stock was $1.9375 per share. The Series C Shares are convertable at a price equal to $1.25 per share of Common Stock resulting in a discount, or beneficial conversion feature, of $0.6875 per share. The incremental fair value of $550,000 for the 100,000 shares of Series C Preferred issued is deemed to be the equivalent of a preferred stock dividend. The Comapany recorded the deemed dividend at the date of issuance by offsetting charges and credits to additional paid-in capital of $550,000, without any effect on total stockholders' equity. The amount increased the loss applicable to common stockholders in the calculation of basic net loss per share for the three and nine-month periods ended September 30, 2000. Form 10-Q/A amendments to the Company's three and six month periods ended March 31, 2000 and June 30, 2000 respectively were filed simultaneously with this Form 10-Q to reflect the adjustment to paid-in capital, reclassifications consistent with current presentation and net loss per share for such periods. No adjustment was made to any other information included in such filings. In December 1999, the Company established a credit facility for $1,500,000 guaranteed by Derace Schaffer and John Pappajohn, directors of the Company. In consideration for their guarantees, the Company granted to Dr. Schaffer and Mr. Pappajohn warrants to purchase an aggregate of 375,000 shares of common stock for $1.5625 per share. In March 2000, the facility was increased by $1,000,000 under substantially the same terms, also guaranteed by the same Board members. Because this line of credit is due and payable on March 31, 2001, amounts outstanding at September 30, 2000 and December 31, 1999 are reported as current and long-term liabilities, respectively. Additional warrants to purchase an aggregate of 250,000 shares of Common Stock for $2.325 per share, were granted to Dr. Derace Schaffer and Mr. John Pappajohn for their guarantee of this additional line of credit. In August 2000, the Company borrowed $125,000 and in September 2000 an additional $62,500 from Mr. John Pappajohn. Proceeds from these loans were used to support the Company's operations. The interest on these loans is 9.5% per year. In August 2000, the Company borrowed $125,000 and in September 2000 an additional $62,500 from Dr. Derace Schaffer. Proceeds from these loans were used to support the Company's operations. The interest on these loans is 9.5% per year. The loans from Mr. Pappajohn and Dr. Schaffer are demand Notes and intended to be secured by the assets of The Company. The Company anticipates that it will need to borrow additional funds before it can secure additional capital through the issuance of additional securities. The Company's current directors have no obligation to continue to provide funds There can be no assurances given that the company can borrow the additional amounts needed or that the Company can sell additional securities. The Company has expended substantial amounts to expand its operational capabilities and strengthen its infrastructure, which at the same time has increased its administrative and technical costs. In addition, the Company's cash has been steadily depleted as a result of operating losses. The Company anticipates that its losses will continue or increase and the Company's available capital has been limited to loans from certain of its directors which loans may not continue to be available. Accordingly, the Company has been required, and will for the foreseeable future continue to be required, to seek additional capital to maintain its operations. The Company is continuing its efforts to raise additional capital privately through the sale of convertible preferred stock or otherwise. However, no assurance can be given that the Company will be able to obtain additional financing on favorable terms, if at all. In addition, any additional financing, which includes the issuance of additional securities of the Company, may be dilutive to the Company's existing stockholders. If the Company is unable to identify additional capital, it will be required to cease operations. Nasdaq Listing Status The Company's securities were delisted from the Nasdaq Stock Market effective September 14, 2000. The Company's securities were immediately eligible to trade on the OTC Bulletin Board. Inflation Inflation did not have a significant impact on the Company's costs during the three and nine-month periods ended September 30, 2000 and September 30, 1999. The Company continues to monitor the impact of inflation in order to minimize its effects through pricing strategies, productivity improvements and cost reductions. Forward Looking Statements When used in this and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements made with the approval of an authorized executive officer of the Company, the words or phrases "will likely result," "expects," "plans," "will continue," "is anticipated," "estimated," "project," or "outlook" or similar expressions (including confirmations by an authorized executive officer of the Company of any such expressions made by a third party with respect to the Company) are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, each of which speak only as of the date made. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. These uncertainties include risks of market acceptance of or preference for the Company's systems and services, competitive forces, the impact of, and changes in, government regulations, general economic factors in the healthcare industry and other factors discussed in the Company's filings with the Securities and Exchange Commission. The Company has no obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements. Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of ineffectiveness. We have appointed a team to implement SFAS 133 on a global basis for the Company. This team has been implementing an SFAS 133 compliant risk management information system, globally educating both financial and non-financial personnel, inventorying embedded derivatives and addressing various other SFAS 133 related issues. We will adopt SFAS 133 and the corresponding amendments under SFAS 138 on January 1, 2001. SFAS 133, as amended by SFAS 138, is not expected to have a material impact on the Company's condensed consolidated financial position, results of operations or cash flows. In September 2000, the Financial Accounting Standards Board issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities," which supercedes SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This standard is effective for transfers occurring after March 31, 2001, with certain disclosure requirements effective for the year ending December 31, 2000. The Company does not believe the adoption of this standard will have a significant impact on the Company's condensed consolidated financial position, results of operations or cash flows. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements," which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101, as amended, is required to be adopted by the Company no later than the fourth quarter of fiscal year 2000. Although the Company has not fully assessed the implications of SAB 101, management does not believe the adoption of SAB 101 will have a significant impact on the Company's condensed consolidated financial position, results of operations or cash flows. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to changes in interest rates primarily in its cash transactions. The interest paid on the Company's outstanding line of credit is based upon the prime rate. The Company has the option of reducing its interest expenses by rolling the outstanding line of credit balance into notes that carry a rate equal to LIBOR plus 1.75%. In relation to the operations of Patient Infosystems Canada, fluctuations of foreign currency can impact the Company's net operating results. However, management believes that due to the relative size of its operations in Canada, such impact would be considered immaterial to the consolidated financial statements. The Company currently has no significant investments in foreign currency instruments. The balances the Company has in cash or cash equivalents are generally available without legal restrictions to fund ordinary business operations. The Company regularly invests excess operating cash, if any, in certificates of deposit and U.S. government bonds and other bonds that are subject to changes in short-term interest rates. Accordingly, the Company believes that the market risk arising from its holding of these financial instruments is minimal. The Company did not make any purchases of available-for-sale securities in the three months ended September 30, 2000. PART II - OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds Series C Preferred Stock On March 31, 2000, the Company received $1,000,000 in proceeds from a private sale of 100,000 shares of Series C Convertible Preferred Stock. The Series C Convertible Preferred carries a 9% cumulative dividend provision and can be converted into Common Stock at a rate of 8 shares of Common to 1 share of Preferred. Each share of Series C Convertible Preferred Stock has voting rights equal to the number of shares of Common Stock into which it can be converted. Item 5. Other Information Series D Preferred Stock On September 9, 2000, the Company issued a term sheet to specific private investors for the sale of 700,000 shares of Series D Convertible Preferred Stock. Proceeds of the proposed sale would be $7,000,000. The Series D Convertible Preferred Stock would accrue a 9% cumulative dividend and can be converted into Common Stock at a rate of 10 shares of Common to 1 share of Preferred Stock. Each share of Series D Convertible Preferred Stock would have voting rights equal to the number of shares of Common Stock into which it can be converted. No assurance can be given that any funds will be invested or that the terms of the Series D Convertible Preferred Stock will not change before the shares are sold. Intended Asset Aquisition On August 31, 2000, the Company executed a Letter of Intent to acquire substantially all the assets of American CareSource Corporation and Health Data Solutions (collectively known as "ACS/HDS"). The Company is negotiating the terms of a definitive agreement to complete this acquisition through the issuance of 7,500,000 shares of the Company's Common Stock, which is currently unregistered. Health Data Solutions provides modular software solutions that automate all aspects of claims processing, including formatting, re-pricing, adjudication, data transfer/EDI, payments, and data warehousing. The software can be hosted on the client's hardware, accessed via the Internet as an ASP, or operated by HDS in a fully outsourced environment. American CareSource provides coordination and case management of ancillary services through a national network of contracted providers in 30 different ancillary service categories. Item 6. Exhibits and Reports on Form 8-K Exhibits: - -------- (a) (10.40) Form of Promissory Notes payable to Dr. Schaffer and Mr. Pappajohn (11) Statements of Computation of Per Share Earnings (27) Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended September 30,2000 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 20, 2000 PATIENT INFOSYSTEMS, INC. (Registrant) Date: November 20, 2000 /s/ Roger L. Chaufournier ------------------ -------------------------------------------- Roger L. Chaufournier Director, President and Chief Executive Officer Date: November 20, 2000 /s/ Kent A. Tapper ------------------ -------------------------------------------- Kent A. Tapper Principal Accounting Officer EX-10 2 0002.txt FORM OF PROMISORY NOTES PAYABLE Exhibit 10.40 Form of Promissory Notes payable to Dr. Schaffer and Mr.Pappajohn THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. HOLDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. PROMISSORY NOTE August 21, 2000 Subject to the terms and conditions of this Note, and for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, Patient Infosystems, Inc., a Delaware corporation (the "Company"), hereby promises to pay to the order of John Pappajohn whose address is 2116 Financial Center, Des Moines, Iowa 50309 (the "Holder"), the principal amount of One Hundred Twenty-five Thousand Dollars ($125,000.00), plus simple interest accrued on unpaid principal from the date of this Note until paid at the rate of nine and one-half percent (9.5%) per annum. This Note may be one of a series of Promissory Notes (collectively, the "Bridge Notes") identical in substance to this Note except as to the Holder and principal amount. The following is a statement of the rights of the Holder and the terms and conditions to which this Note is subject, to which the Holder, by acceptance of this Note by its signature below, and the Company, by issuance of this Notes, agrees: 1. PAYMENT (a) Obligation. The outstanding principal under this Note and the accrued interest thereon will be due and payable on demand. All payments of principal and/or interest under this Note will be made at the address of the Holder set forth above or at such other address as is provided by the Holder to the Company in writing. (b) Prepayment. The Company may prepay this Note in whole or in part at any time without penalty. Prepayments will be applied to accrued but unpaid interest first and then to unpaid principal. Any prepayments made by the Company on any of the Bridge Notes will be made simultaneously on all Bridge Notes in identical amount (if all Bridge Notes are of the same principal amount) or an amount prorated among the Bridge Notes in proportion to the principal amounts of each Bridge Note (if the Bridge Notes are in different principal amounts). 2. TRANSFERABILITY. This Note is not transferable. 3. GOVERNING LAW. This Note will be governed by and construed in accordance with the laws of the State of Iowa, excluding that body of law relating to conflict of laws. 4. WAIVER. The Company hereby waives diligence, presentment, demand, protest and notice of dishonor. 5. COLLECTION EXPENSES. The Company promises and agrees to pay all costs of collection of this Note including, but not limited to, reasonable attorneys' fees, paid or incurred by the Holder on account of such collection, whether or not suit is filed with respect thereto and whether or not such costs are paid or incurred, or to be paid or incurred, prior to or after entry of judgment. IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the date first written above. Patient Infosystems, Inc. ------------------------------ By: Kent A. Tapper ACCEPTED: John Pappajohn - ---------------------- By: John Pappajohn EX-11 3 0003.txt COMPUTATION OF EPS Exhibit 11. Statement of Computation of Per Share Earnings
PATIENT INFOSYSTEMS, INC. Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---- ---- ---- ---- Net loss $ (1,510,767) $ (1,882,535) $ (4,774,044) $ (5,639,150) ------------- ------------- ------------- ------------- Convertible preferred stock dividends (22,500) - (595,000) - Net loss attributable to common shareholders $ (1,533,267) $ (1,882,535) $ (5,369,044) $ (5,639,150) ------------- ------------- ------------- ------------- Weighted average common shares 8,209,040 8,033,400 8,106,779 8,030,003 ------------- ------------- ------------- ------------- Net loss per share - Basic and diluted $ (0.19) $ (0.23) $ (0.66) $ (0.70) ============== ============= ============= =============
EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 127,791 0 407,940 50,000 0 667,054 2,578,337 1,651,471 2,681,923 3,583,243 0 0 1,000 82,202 23,466,798 2,681,923 1,632,870 1,632,870 3,466,670 5,792,191 0 0 121,580 (4,774,044) 0 (4,774,044) 0 0 0 (4,774,044) (.66) (.66)
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