U.S. Securities and Exchange Commission
Washington D.C. 20549
FORM 10Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF
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 April 30, 1998, 8,020,042 common shares were outstanding.
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
PATIENT INFOSYSTEMS, INC.
CONDENSED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS March 31, 1998 December 31, 1997
- ------ -------------- -----------------
<S> <C> <C>
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents .................................................................. $ 157,643 $ 779,317
Available-for-sale securities .............................................................. 11,666,856 12,232,335
Accounts receivable ........................................................................ 418,953 412,956
Prepaid expenses and other current assets .................................................. 354,977 405,507
------------ ------------
Total current assets ................................................................. 12,598,429 13,830,115
PROPERTY AND EQUIPMENT, net .................................................................. 995,856 958,965
OTHER ASSETS ................................................................................. 447,393 247,393
------------ ------------
TOTAL ASSETS ................................................................................. $ 14,041,678 $ 15,036,473
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................................... $ 160,099 $ 89,674
Accrued salaries and wages ................................................................. 207,400 320,272
Accrued expenses ........................................................................... 94,312 79,236
Deferred revenue ........................................................................... 159,163 67,549
Accrued loss on development contracts ...................................................... 30,997 30,997
------------ ------------
Total current liabilities ............................................................ 651,971 587,728
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value: shares authorized:
20,000,000; issued and outstanding: March 31,
1998 - 8,017,162; December 31, 1997 - 8,011,522 ......................................... 80,172 80,115
Additional paid-in capital ................................................................. 21,553,345 21,550,009
Unrealized gain (loss) on available-for-sale securities .................................... (2,333) 5,060
Accumulated Deficit ........................................................................ (8,241,477) (7,186,439)
------------ ------------
Total stockholders' equity ........................................................... 13,389,707 14,448,745
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................................... $ 14,041,678 $ 15,036,473
============ ============
</TABLE>
See notes to condensed financial statements.
<PAGE>
PATIENT INFOSYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
REVENUES ..................................................................... $ 290,354 $ 523,477
----------- -----------
COSTS AND EXPENSES:
Cost of sales .............................................................. 385,287 351,070
Sales and marketing ........................................................ 422,422 389,499
General and administrative ................................................. 634,266 428,393
Research and development ................................................... 75,081 160,762
----------- -----------
Total costs and expenses ............................................. 1,517,056 1,329,724
----------- -----------
OPERATING LOSS ............................................................... (1,226,702) (806,247)
INTEREST INCOME .............................................................. 171,664 217,723
----------- -----------
NET LOSS ..................................................................... $(1,055,038) $ (588,524)
=========== ===========
NET LOSS PER SHARE - BASIC
AND DILUTED ............................................................... $ (.13) $ (.07)
=========== ===========
WEIGHTED AVERAGE COMMON
AND POTENTIAL COMMON SHARES ................................................ 8,013,631 7,942,475
=========== ===========
</TABLE>
See notes to condensed financial statements.
<PAGE>
PATIENT INFOSYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss .................................................................................... $ (1,055,038) $ (588,524)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ........................................................... 83,231 65,268
Amortization of premiums and discounts on available-for-sale securities ................. (44,751) (50,420)
Compensation expense related to issuance of stock warrants .............................. 2,609 --
(Increase) decrease in accounts receivable .............................................. (5,997) 190,071
(Increase) in accrued interest receivable ............................................... (2,859) (37,077)
Decrease in prepaid expenses and other current assets .................................. 53,390 54,409
Increase in accounts payable ............................................................ 70,425 301,118
(Decrease) increase in accrued salaries and wages ....................................... (112,872) 96,736
Increase (decrease) in accrued expenses ................................................. 15,076 (89,464)
Increase (decrease) in deferred revenue ................................................. 91,614 (288,634)
(Decrease) in accrued loss on development contracts ..................................... -- (33,836)
------------ ------------
Net cash used in operating activities ............................................. (905,172) (380,353)
------------ ------------
INVESTING ACTIVITY:
Property and equipment additions ............................................................ (120,122) (106,158)
Purchases of available-for-sale securities ................................................. (3,509,164) (9,972,279)
Maturities of available-for-sale securities ................................................. 4,112,000 --
Increase in other assets .................................................................... (200,000) --
------------ ------------
Net cash provided by (used in) investing activities ................................. 282,714 (10,078,437)
------------ ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock, net ................................... 784 2,243,509
Decrease in accrued initial public offering costs ........................................... -- (446,568)
------------ ------------
Net cash provided by financing activities ......................................... 784 1,796,941
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS ........................................................ (621,674) (8,661,849)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ......................................................................... 779,317 15,666,609
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ............................................................................... $ 157,643 $ 7,004,760
============ ============
Supplemental disclosures of cash flow information
Cash paid and received for income taxes, net ............................................... $ 3,081 $ (18,220)
============ ============
</TABLE>
See notes to condensed financial statements.
<PAGE>
PATIENT INFOSYSTEMS, INC.
Notes to Condensed Financial Statements
1. The condensed financial statements for the three month periods ended March
31, 1998 and March 31, 1997 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. The condensed financial statements
should be read in conjunction with the financial statements and notes thereto,
together with management's discussion and analysis of financial condition and
results of operations contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997. The results of operations for the three months
ended March 31, 1998 are not necessarily indicative of the results for the
entire year ending December 31, 1998.
2. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This statement
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
marketable securities classified as available-for-sale. Annual financial
statements for prior periods will be reclassified, as required. The Company's
total comprehensive earnings were as follows:
Three Months Ended
March 31,
1998 1997
---- ----
Net loss $(1,055,038) $(588,524)
Other comprehensive earnings:
Unrealized loss on available-for-sale
securities (7,393) (22,359)
------ -------
Comprehensive earnings $(1,062,431) $(610,883)
=========== =========
3. In March 1998 the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". This statement provides guidance on accounting
for the costs of computer software developed or obtained for internal use. This
statement will be effective for fiscal years beginning after December 15, 1998.
Management is evaluating the impact of this SOP on the Company's financial
statements.
<PAGE>
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 month periods ended March 31, 1998 and March 31,
1997 and its financial condition at March 31, 1998. 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 condensed 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 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.
Overview
The Company was formed on February 22, 1995 and has a limited operating
history from which to evaluate its performance. Although the Company has
completed the development of its integrated information capture and delivery
system and is developing several disease state management programs for specific
diseases, further development activities may be necessary to implement these
programs. In October 1996 the Company began enrolling patients in its first
disease state management program, and even though over a year has passed, the
Company currently has patients enrolled in four of its disease-specific
programs. The enrollment of patients in the Company's programs has been limited
by several factors, including the limited ability of clients to provide the
Company with accurate information with respect to the specific patient
populations, including coding errors that necessitated extensive labor intensive
data processing prior to program implementation. In addition, the Company has
encountered resistance from patients and other sources of information to the
Company's systems.
In response to these market dynamics, the Company has taken several
tactical and strategic steps: formal designation of internal personnel at
customer sites to assist clients with implementation; closer integration of
Company systems personnel with clients to facilitate accurate data transfers;
and most importantly, promotion of a broader product line to enable clients to
enter the Company's disease management programs through a variety of channels.
The Company now sells two additional services, demand management services and
automated surveys (general health and disease-specific), both of which can
provide mechanisms for enrollment to the Company's disease management programs.
To date, preliminary data from patients and clients indicate generally high
levels of satisfaction. Through April 1998, an aggregate of approximately 42,000
persons have enrolled and participated in Company programs.
The Company has entered into services agreements to develop, implement and
operate programs for: (i) patients who have recently experienced certain
cardiovascular events; (ii) patients who have been diagnosed with primary
congestive heart failure; (iii) patients suffering from anorexia or cachexia
secondary to diagnosis of cancer or AIDS; and (iv) patients suffering from
chronic pain. In addition, the Company has entered into services agreements to
operate its disease management programs for patients suffering from asthma or
diabetes. These contracts provide for, and the Company anticipates future
contracts will provide for, fees paid by its customers based upon the number of
patients participating in each of its programs, as well as initial program
development fees from customers for the development of a disease-specific
program. To the extent that the Company has had limited enrollment of patients
in its programs, the Company's operations revenue has been, and may continue to
be limited. Moreover, as the Company has completed the development of its
primary disease management programs, it anticipates that development revenue
will also decline over the next twelve months unless and until the Company
enters into new development agreements. The Company's program development
contracts typically require payment from the customer at the time that the
contract is executed, with additional payments made as certain development
milestones are met. Development contract revenue is recognized on a percentage
of completion basis, in accordance with the ratio of total development cost
incurred to the estimated total development costs for the entire project.
Losses, if any, related to program development will be recognized in full as
identified. The Company's contracts call for a fixed program operational fee to
be paid by the customer for each patient enrolled for a series of program
services as defined in the contract. The timing of customer payments for the
delivery of program services varies by contract. Revenues from program
operations are recognized ratably as the program services are delivered. The
amount of the per patient fee varies from program to program depending upon the
number of patient contacts required, the complexity of the interventions and the
detail of the reports generated. The Company has not capitalized any costs
related to the development of software for use in its disease state management
programs since all of such software has been developed for internal use.
The sales cycle for the Company's programs is expected to extend for
periods of six to nine months from initial contact to contract execution. During
these periods, the Company may expend substantial time, effort and funds to
prepare a contract proposal and negotiate the contract. The Company may be
unable to consummate a commercial relationship after the expenditure of such
time, effort and financial resources.
The Company began to provide other services to customers in the healthcare
industry during 1997 which included new applications of its information capture
and delivery system. These consisted of patient surveys, health risk
assessments, nursing support lines and marketing support functions. It is
anticipated that the revenues generated from services other than those provided
in conjunction with disease state management programs will represent an
increasing percentage of total revenues as the Company continues to expand the
systems and services that it makes available to its customers.
Results of Operations
Revenues
The Company generated revenue of $290,354 for the three months ended March
31, 1998, as compared to $523,477 during the three months ended March 31, 1997.
A summary of these revenues by category is as follows:
Three Months Three Months
Ended Ended
Revenues March 31, 1998 March 31, 1997
-------- -------------- --------------
Development Fees $ 20,591 $406,084
Licensing Fees 162,500 87,500
Operational Fees 107,263 29,893
------- ------
Total Revenues $290,354 $523,477
======== ========
Development revenue represents the amounts that the Company charges its
customers for the development of the capability to deliver services in its
customized programs. The decrease in program development revenues from the first
quarter of 1997 to the first quarter of 1998 reflects the Company's completion
of the development of its primary disease management programs. The Company
anticipates that revenue from development fees will decline as the Company
develops more programs using its own resources.
Licensing revenue represents amounts that the Company charges its customers
for the right to enroll patients in or the right to market to other entities
certain of its programs, primarily the Company's standardized asthma and
diabetes programs. The increase in licensing revenues from the first quarter
1997 to the first quarter 1998 reflects the Company's licensing agreement with
ReCall Services, Inc., in the amount of $150,000, for the development and
operation of a database service bureau.
Operational revenues are the revenues generated as a result of providing
services to the Company's customers for their disease-specific programs.
Operational revenues increased from the first quarter 1997 to the first quarter
1998 primarily because initial patient enrollments in the Company's disease
state management programs began in the second quarter 1997 and patient
enrollments in the Company's disease state management programs and other
applications of its information capture and delivery system programs continue to
increase.
The Company has begun to provide other services to customers in the
healthcare industry which involve new applications of its information capture
and delivery system. These services include patient surveys, health risk
assessments, nursing support lines, physician education programs and marketing
support functions. As the Company expands its operations, it intends to continue
to emphasize operations revenues
Costs and Expenses
Cost of sales include salaries and related benefits, services provided by
third parties, and other expenses associated with the development of the
Company's customized disease state management programs, as well as the operation
of each of its disease state management programs. In addition, cost of sales
includes accrued losses on program development in accordance with the Company's
policy of recognizing such losses, if any, in full as identified. Cost of sales
was $385,287 for the three months ended March 31, 1998, and $351,070 for the
three months ended March 31, 1997. The increase in these costs reflects an
increased level of program operational activities, as well as the Company's
creation of the capacity necessary to handle anticipated increases in the number
of individuals to whom the Company provides services. The increased capacity is
now greater than the current usage. Accordingly, in order to maintain the
capacity for its anticipated growth, the Company will continue to have cost of
sales exceed revenues until patient enrollment increases.
Sales and marketing expenses for the three months ended March 31, 1998 were
$422,422, as compared to $389,499 for the three month period ended March 31,
1997. These costs consist primarily of salaries, related benefits, travel costs,
sales materials and other marketing related expenses. Spending in this area has
increased due to expansion of the Company's sales and marketing staff. It is
anticipated that the Company will continue to invest in the sales and marketing
process, and that such expenses will increase 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 March 31, 1998 were $634,266, as compared to $428,393 for the three
month period ended March 31, 1997. These expenditures have been incurred to
maintain the corporate infrastructure necessary to support anticipated program
operations. The increase in these costs was caused by the addition of required
administrative personnel. The Company expects that general and administrative
expenses will increase in future periods.
Research and development expenses consist primarily of salaries and related
benefits and administrative costs allocated to the Company's research and
development personnel for development of certain components of its integrated
information capture and delivery system, as well as development of the Company's
standardized disease state management programs. Research and development
expenses for the three months ended March 31, 1998 were $75,081, and were
$160,762 for the three months ended March 31, 1997. The decrease in research and
development expenses from the first quarter of 1997 to the first quarter of 1998
reflects the Company's completion of the development of its primary disease
management programs.
Interest income was $171,664 for the three months ended March 31, 1998, as
compared to $217,723 for the three month period ended March 31, 1997. The
decrease in interest income reflects the use by the Company of its available
cash and the reduction of proceeds that can earn interest.
The Company had a net loss of $1,055,038 for the three months ended March
31, 1998, and a net loss of $588,524 for the three months ended March 31, 1997.
This represents a net loss per share of $.13 for the first quarter of 1998, as
compared to a net loss of $.07 per share in the first quarter of 1997.
Liquidity and Capital Resources
At March 31, 1998 the Company had working capital of $11,946,458 as
compared to working capital of $13,242,387 at December 31, 1997. Since its
inception the Company has primarily funded its operations, working capital needs
and capital expenditures from the sale of equity securities. The Company's
initial capitalization of $500,000 was completed in February 1995. The Company
received $1,800,000 from the sale of equity securities in a private placement
during the third quarter of 1995, and $3,000,000 from the sale of additional
equity securities in a private placement during the second quarter of 1996. On
December 19, 1996 the Company completed an initial public offering of its common
stock which generated net proceeds to the Company of $14,082,048. The
underwriters of the Company's initial public offering exercised their
over-allotment option on January 8, 1997 resulting in net proceeds to the
Company of $2,232,000. It is anticipated that any further losses will result in
further reductions of working capital.
The Company has been substantially dependent upon the public and private
sale of securities to fund its research and development activities and working
capital requirements. In order to implement additional programs using the
Company's integrated information capture and delivery system, the Company will
be required to devote substantial additional assets to the development of
technology, the construction of physical facilities and the acquisition of
telephone and computer equipment. The Company will also be required to retain
the services of employees in advance of obtaining contracts to provide services.
Inflation
Inflation did not have a significant impact on the Company's costs during
either the first quarter of 1998 or the first quarter of 1997. The Company
continues to monitor the impact of inflation in order to minimize its effects
through pricing strategies, productivity improvements and cost reductions.
Recent Accounting Pronouncements
In March 1998 the Accounting Standards Executive Committee issued Statement
of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". This statement provides guidance on accounting
for the costs of computer software developed or obtained for internal use. This
statement will be effective for fiscal years beginning after December 15, 1998.
Management is evaluating the impact of this SOP on the Company's financial
statements.
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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1998.
Exhibits:
(11) Statements of Computation of Per Share Earnings
See Page 10 of this Quarter Report on Form 10-Q.
(27) Financial Data Schedule
Filed electronically
Exhibit 11. Statement of Computation of Per Share Earnings
PATIENT INFOSYSTEMS, INC.
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1998 March 31, 1997
-------------- --------------
<S> <C> <C>
Net Loss $ (1,055,038) $ (588,524)
============ ==========
Weighted average common and
potential common shares 8,013,631 7,942,475
========= =========
Net Loss per share - Basic and Diluted $ (0.13) $ (0.07)
======== ========
</TABLE>
<PAGE>
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: May 14, 1998
PATIENT INFSYSTEMS, INC.
(Registrant)
/s/ Donald A. Carlberg May 14, 1998
- ---------------------- ------------
Donald A. Carlberg Date
Director, President and Chief Executive Officer
/s/ Lynda J. Bates May 14, 1998
- ------------------ ------------
Lynda J. Bates Date
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 157,643
<SECURITIES> 11,666,856
<RECEIVABLES> 418,953
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,598,429
<PP&E> 1,581,505
<DEPRECIATION> 585,649
<TOTAL-ASSETS> 14,041,678
<CURRENT-LIABILITIES> 651,971
<BONDS> 0
0
0
<COMMON> 80,172
<OTHER-SE> 13,309,535
<TOTAL-LIABILITY-AND-EQUITY> 14,041,678
<SALES> 290,354
<TOTAL-REVENUES> 290,354
<CGS> 385,287
<TOTAL-COSTS> 1,517,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,055,038)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,055,038)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,055,038)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
