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: June 30, 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 July 31, 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 June 30, 1998 December 31, 1997
- ------ ------------- -----------------
<S> <C> <C>
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents .................................................... $ 821,244 $ 779,317
Available-for-sale securities ................................................ 9,971,547 12,232,335
Accounts receivable .......................................................... 897,511 412,956
Prepaid expenses and other current assets .................................... 323,722 405,507
------- -------
Total current assets ................................................... 12,014,024 13,830,115
PROPERTY AND EQUIPMENT, net .................................................... 1,017,194 958,965
OTHER ASSETS ................................................................... 447,393 247,393
------- -------
TOTAL ASSETS ................................................................... $ 13,478,611 $ 15,036,473
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................. $ 208,795 $ 89,674
Accrued salaries and wages ................................................... 368,157 320,272
Accrued expenses ............................................................. 24,034 79,236
Deferred revenue ............................................................. 134,031 67,549
Accrued loss on development contracts ........................................ 30,997 30,997
------ ------
Total current liabilities .............................................. 766,014 587,728
------- -------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value: shares authorized:
20,000,000; issued and outstanding: June 30,
1998 - 8,020,042; December 31, 1997 - 8,011,522 ........................... 80,200 80,115
Additional paid-in capital ................................................... 21,558,924 21,550,009
Unrealized gain (loss) on available-for-sale securities ...................... (5,033) 5,060
Accumulated deficit .......................................................... (8,921,494) (7,186,439)
---------- ----------
Total stockholders' equity ............................................. 12,712,597 14,448,745
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 13,478,611 $ 15,036,473
============ ============
</TABLE>
See notes to condensed financial statements.
<PAGE>
PATIENT INFOSYSTEMS, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES ......................................................... $ 874,119 $ 570,330 $ 1,164,473 $ 1,093,806
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales .................................................. 549,271 534,491 934,558 886,143
Sales and marketing ............................................ 412,279 394,148 834,701 803,660
General and administrative ..................................... 679,245 573,558 1,313,511 984,934
Research and development ....................................... 67,984 179,985 143,065 337,169
------ ------- ------- -------
Total costs and expenses ................................. 1,708,779 1,682,182 3,225,835 3,011,906
--------- --------- --------- ---------
OPERATING LOSS ................................................... (834,660) (1,111,852) (2,061,362) (1,918,100)
INTEREST INCOME .................................................. 154,643 218,946 326,307 436,670
------- ------- ------- -------
NET LOSS ......................................................... $ (680,017) $ (892,906) $(1,735,055) $(1,481,430)
=========== =========== =========== ===========
NET LOSS PER SHARE - BASIC
AND DILUTED ................................................... $ (.08) $ (.11) $ (.22) $ (.19)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON
AND POTENTIAL COMMON SHARES .................................... 8,019,789 7,971,802 8,016,727 7,957,220
========= ========= ========= =========
</TABLE>
See notes to condensed financial statements
<PAGE>
PATIENT INFOSYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ..................................................................... $ (1,735,055) $ (1,481,430)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................................ 172,115 142,161
Amortization of premiums and discounts on available-for-sale securities .. (97,025) (118,014)
Compensation expense related to issuance of stock warrants ............... 5,218 9,040
(Increase) in accounts receivable ........................................ (484,555) (19,573)
Decrease (increase) in accrued interest receivable ....................... 30,109 (117,046)
Decrease (increase) in prepaid expenses and other current assets ......... 51,676 (45,915)
Increase in accounts payable ............................................. 119,121 199,916
Increase in accrued salaries and wages ................................... 47,885 99,812
(Decrease) in accrued expenses ........................................... (55,202) (80,151)
Increase (decrease) in deferred revenue .................................. 66,481 (173,298)
(Decrease) in accrued loss on development contracts ...................... -- (9,243)
------ ------
Net cash used in operating activities ................................ (1,879,232) (1,593,741)
---------- ----------
INVESTING ACTIVITY:
Property and equipment additions ............................................. (230,345) (264,699)
Purchases of available-for-sale securities .................................. (6,797,236) (14,539,161)
Maturities of available-for-sale securities .................................. 9,144,959 1,493,000
Increase in other assets ..................................................... (200,000) (250,000)
-------- --------
Net cash provided by (used in) investing activities .................. 1,917,378 (13,560,860)
--------- -----------
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock, net .................... 3,781 2,237,599
Decrease in accrued initial public offering costs ............................ -- (446,568)
----- --------
Net cash provided by financing activities ............................ 3,781 1,791,031
----- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................... 41,927 (13,363,570)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .......................................................... 779,317 15,666,609
------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD ................................................................ $ 821,244 $ 2,303,039
============ ============
Supplemental disclosures of cash flow information
Cash paid for income taxes, net ............................................. $ 5,016 $ 11,500
============ ============
</TABLE>
See notes to condensed financial statements.
<PAGE>
PATIENT INFOSYSTEMS, INC.
Notes to Condensed Financial Statements
1. The condensed financial statements for the three and six month periods
ended June 30, 1998 and June 30, 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 six months
ended June 30, 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:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C>
Net losses $(680,017) $(892,906) $(1,735,055) $(1,481,430)
Other comprehensive earnings:
Unrealized gains (losses) on
available-for-sale securities (2,700) 29,004 (10,093) 6,645
------ ------ ------- -----
Comprehensive earnings $(682,717) $(863,902) $(1,745,148) $(1,474,785)
========= ========= =========== ===========
</TABLE>
3. In March 1998 the Accounting Standards Executive Committee issued
Statement of Position 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 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 and six month periods ended June 30, 1998 and
June 30, 1997 and its financial condition at June 30, 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.
Results of Operations
Revenues
Revenues consist of revenues from development, licensing and operational
fees. Revenues increased from $570,330 during the three months ended June 30,
1997 to $874,119 during the three months ended June 30, 1998, or 53%, and
increased from $1,093,806 for the six months ended June 30, 1997 to $1,164,473
or 6% for the six months ended June 30, 1998.
Three Months Ended Six Months Ended
June 30, June 30,
Revenues 1998 1997 1998 1997
- -------- ---- ---- ---- ----
Development Fees $532,812 $197,020 $ 553,403 $ 603,104
Licensing Fees 6,945 195,834 169,445 283,333
Operational Fees 334,362 177,476 441,625 207,369
------- ------- ------- -------
Total Revenues $874,119 $570,330 $1,164,473 $1,093,806
======== ======== ========== ==========
Revenue from development fees increased from $197,020 during the second
quarter of 1997 to $532,812 during the second quarter of 1998, or 170% and
decreased from $603,104 during the first six months of 1997 to $553,403, or 8%,
during the first six months of 1998. Development revenues include clinical,
technical and operational design or modification and customization of the
Company's primary disease management programs. The increase in development fees
from the three months ended 1998 as compared to the three months ended 1997 was
a result of development activities conducted during the quarter under new
arrangements, of which approximately $485,000 was derived from services provided
to a single customer.
Revenue from licensing fees decreased from $195,834 in the second quarter
of 1997 to $6,945 during the second quarter of 1998, or 96% and decreased from
$283,333 during the first six months of 1997 to $169,445, or 40%, during the
first six months of 1998. Licensing revenue represents amounts the Company
charges its customers, a one-time fee basis, for the right to enroll patients in
or the right to license other entities certain of its programs, primarily, but
not limited to, the Company's standardized asthma and diabetes programs. During
the second quarter of 1997 the Company had received $150,000 under a one time
licensing agreement. The Company has not entered into any such agreements during
the second quarter of 1998.
Revenue from operational fees increased from $177,476 during the second
quarter of 1997 to $334,362 during the second quarter of 1998, or 88%, and
increased from $207,369 during the first six months of 1997 to $441,625, or
113%, during the first six months of 1998. The increase in operational revenues
are due to increases in membership levels in the Company's disease management
programs and primarily from the Company's nurse triage demand management
programs. The nurse triage demand management programs operate from the Company's
medical call center which was established in May 1998 in Wayne, PA. The medical
call center is staffed by registered nurses on a 24 hour, 7 day a week schedule.
Revenues from the Company's contracts is recognized ratably in accordance with
contract terms on the basis of per-member and/or per enrollment fees. The
Company anticipates that operational revenues will continue to increase over the
next twelve months to the extent that enrollments increase.
The Company also provides other services to customers in the healthcare
industry which involve new applications of its information capture and delivery
systems. These services include patient surveys, health risk assessments,
patient satisfaction surveys, physician education programs and marketing support
functions. As the Company expands its operations, it intends to emphasize
operational revenue to the exclusion of development 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. Cost of sales was $549,271 for
the three months ended June 30, 1998, as compared to $534,491 for the three
months ended June 30, 1997. For the six months ended June 30, 1998, cost of
sales was $934,558, as compared to $886,143 for the six months ended June 30,
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.
Sales and marketing expenses for the three months ended June 30, 1998 were
$412,279, as compared to $394,148 for the three months ended June 30, 1997. For
the six months ended June 30, 1998, cost of sales were $834,701, as compared to
$803,660 for the six months ended June 30, 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 June 30, 1998 were $679,245 as compared to $573,558 for the three
months ended June 30, 1997. For the six months ended June 30, 1998, general and
administrative expenses were $1,313,511 as compared to $984,934 for the six
months ended June 30, 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 an increase in the
Company's level of business activity, and the addition of required
administrative personnel. The Company expects that general and administrative
expenses will continue to 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 June 30, 1998 were $67,984 as compared to
$179,985 for the three months ended June 30, 1977. For the six months ended June
30, 1998, research and development expenses were $143,065 as compared to
$337,169 for the six months ended June 30, 1997. The decrease in research and
development expenses from the second quarter of 1997 to the second quarter of
1998 reflects the Company's completion of the development of its primary disease
management programs The Company anticipates that research and development
expenses will continue to decrease in future periods, as the Company continues
to expand its operations.
Interest income was $154,643 for the three months ended June 30, 1998, as
compared to $218,946 for the three months ended June 30, 1997. For the six
months ended June 30, 1998, interest income was $326,307 as compared to $436,670
for the six months ended June 30, 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 $680,017 for the three months ended June 30,
1998 as compared to $892,906 for the three months ended June 30, 1997. For the
six months ended June 30, 1998, the Company had a net loss of $1,735,055 as
compared to $1,481,430 for the six months ended June 30, 1997. This represents a
net loss per share of $.08 for the second quarter of 1998, as compared to a net
loss of $.11 per share in the second quarter of 1997. For the six months ended
June 30, 1998, the net loss per share is $.22 as compared to $.19 net loss per
share for the six months ended June 30, 1997.
Liquidity and Capital Resources
At June 30, 1998 the Company had working capital of $11,248,010 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. The
Company has continued to expend increasing amounts to expand its operational
capabilities including, increasing its administrative, sales and technical
costs. To the extent that revenues do not increase, the Company's losses will
increase, creating an increased burden on the Company's available capital.
Inflation
Inflation did not have a significant impact on the Company's costs during
the three and six month periods ended June 30, 1998 and June 30, 1997. 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.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of stockholders was held in Rochester, New
York at 9:30 a.m. local time on Thursday, June 25, 1998. Proxies for the meeting
were solicited pursuant to Regulation 14 under the Securities Exchange Act of
1934, as amended. There was no solicitation in opposition to the nominees for
election as directors as listed in the proxy statement, and all nominees were
elected.
Out of a total of 8,020,042 shares of the Company's common stock
outstanding and entitled to vote, 7,055,617 shares were present at the meeting
in person or by proxy, representing approximately 88 percent. Matters voted upon
at the meeting were as follows:
a) Election of six directors to serve on the Company's board of directors.
Drs. Schaffer, Kohrt, McNeil and Nash and Messrs. Carlberg and Pappajohn were
elected to serve until the next annual meeting of stockholders or until their
successors are duly elected and qualified. The vote tabulation with respect to
each nominee was as follows:
Nominee Votes For Votes Against
- ------- --------- -------------
Dr. Derace L. Schaffer 7,054,932 685
Donald A. Carlberg 7,054,932 685
Dr. Carl Kohrt 7,054,932 685
Dr. Barbara J. McNeil 7,054,932 685
Dr. David B. Nash 7,054,932 685
John Pappajohn 7,054,932 685
b) To ratify the selection of Deloitte & Touche, LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998. The selection
was approved with 7,041,552 votes for the selection, 13,065 against the
selection and 1,000 abstained from the selection.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 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 Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss ........................................... $ (680,017) $ (892,906) $(1,735,055) $(1,481,430)
----------- ----------- ----------- -----------
Weighted average common and
potential common shares ....................... 8,019,789 7,971,802 8,016,727 7,957,220
--------- --------- --------- ---------
Net Loss per share - Basic and Diluted ............. $ (0.08) $ (0.11) $ (0.22) $ (0.19)
=========== =========== =========== ==========
</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: August 14, 1998
PATIENT INFSYSTEMS, INC.
(Registrant)
/s/ Donald A. Carlberg August 14, 1998
- ---------------------- ---------------
Donald A. Carlberg Date
Director, President and Chief Executive Officer
/s/ Lynda J. Bates August 14, 1998
- ------------------ ---------------
Lynda J. Bates Date
Controller
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 821,244
<SECURITIES> 9,971,547
<RECEIVABLES> 897,511
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,014,024
<PP&E> 1,691,728
<DEPRECIATION> 674,534
<TOTAL-ASSETS> 13,478,611
<CURRENT-LIABILITIES> 766,014
<BONDS> 0
0
0
<COMMON> 80,200
<OTHER-SE> 12,632,397
<TOTAL-LIABILITY-AND-EQUITY> 13,478,611
<SALES> 1,164,473
<TOTAL-REVENUES> 1,164,473
<CGS> 934,558
<TOTAL-COSTS> 3,225,835
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,735,055)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,735,055)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,735,055)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22
</TABLE>
