UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-22319
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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)
(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 May 15, 2000, 8,050,202 common shares were outstanding.
EXPLANATORY NOTE:
The Company hereby amends Part I of its quarterly report Form 10-Q for the
period ended March 31, 2000 to reflect the restatement of its Unaudited
Condensed Consolidated Financial Statements as of and for the three-month period
ended March 31, 2000. The restatement does not reflect any change to the
Company's revenue or net loss but does reflect a change to earnings per share.
See Note 8 to the Unaudited Condensed Consolidated Financial Statements.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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ASSETS March 31, 2000 December 31, 1999
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As Restated,
see Note 8
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,072,176 $ 489,521
Accounts receivable 688,565 650,279
Prepaid expenses and other current assets 156,728 202,064
-------------------------------------------
Total current assets 2,917,469 1,341,864
PROPERTY AND EQUIPMENT, net 1,184,322 1,291,351
Debt issuance costs (net of accumulated amortization of $86,500 and 771,000 382,500
Intangible assets (net of accumulated amortization of $48,434 and 574,290 584,669
Other assets 225,150 244,011
-------------------------------------------
TOTAL ASSETS $ 5,672,231 $ 3,844,395
===========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 226,786 $ 496,533
Accrued salaries and wages 337,856 190,232
Line of credit 2,500,000 -
Accrued expenses 33,566 22,767
Deferred revenue 316,224 218,200
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Total current liabilities 3,414,432 927,732
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LINE OF CREDIT - 500,000
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value: shares authorized:
20,000,000; issued and outstanding: March 31,
2000 - 8,040,202; December 31, 1999 - 8,040,202 80,402 80,402
Preferred stock - $.01 par value: shares authorized: 5,000,000
Series C, 9% cumulative, convertible
issued and outstanding March 31, 2000 - 100,000 1,000 -
Additional paid-in capital 23,993,578 21,968,536
Accumulated other comprehensive income 1,805 1,805
Accumulated deficit (21,818,986) (19,634,080)
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Total stockholders' equity 2,257,799 2,416,663
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,672,231 $ 3,844,395
===========================================
See notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended
March 31,
2000 1999
---- ----
As Restated,
see Note 8
<S> <C> <C>
REVENUES
Operations Fees $ 584,181 $ 833,812
Development Fees 4,000 -
Licensing Fees 12,399 -
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Total revenues 600,580 833,812
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COSTS AND EXPENSES
Cost of sales 1,278,175 1,449,926
Sales and marketing 310,473 570,322
General and administrative 552,959 455,283
Research and development 85,552 118,419
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Total costs and expenses 2,227,159 2,593,950
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OPERATING LOSS (1,626,579) (1,760,138)
OTHER INCOME (EXPENSE) (8,327) 46,411
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NET LOSS (1,634,906) (1,713,727)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (550,000) -
-------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (2,184,906) $ (1,713,727)
===========================================
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.27) $ (0.21)
===========================================
WEIGHTED AVERAGE COMMON SHARES 8,040,202 8,023,423
===========================================
See notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
As Restated,
see Note 8
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,634,906) $ (1,713,727)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 223,911 115,952
Compensation expense related to issuance of stock warrants 1,042 2,915
(Increase) decrease in accounts receivable, net (38,286) 436,553
(Increase) decrease in prepaid expenses and other current assets 45,336 (12,841)
Decrease in other assets 18,861 34,294
Decrease in accounts payable (269,747) (10,090)
Increase in accrued salaries and wages 147,624 128,330
Increase in accrued expenses 10,799 31,037
Increase in deferred revenue 98,024 20,057
-------------------------------------------
Net cash used in operating activities (1,397,342) (967,520)
INVESTING ACTIVITIES:
Property and equipment additions (20,003) (306,953)
Purchases of available-for-sale securities - (10,847)
Purchase of HealthDesk Intellectual Property, net - (608,166)
-------------------------------------------
Net cash used in investing activities (20,003) (925,966)
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock, net 1,000,000 1,801
Line of credit borrowings 2,000,000 -
-------------------------------------------
Net cash provided by financing activities 3,000,000 1,801
-------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,582,655 (1,891,685)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 489,521 6,316,955
-------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,072,176 $ 4,425,270
===========================================
Supplemental disclosures of cash flow information
Cash paid and received for income taxes, net $ - $ 20,600
===========================================
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 $ -
===========================================
Value of beneficial conversion feature on Class C Convertible
Preferred Stock recognized as a dividend $ 550,000 $ -
===========================================
See notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
PATIENT INFOSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. The unaudited condensed consolidated financial statements for the three
month periods ended March 31, 2000 and March 31, 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.
The unaudited condensed consolidated financial statements should be read in
conjunction with the unaudited condensed consolidated 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, 1999. The
results of operations for the three months ended March 31,2000 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,
which are being amortized over 15 years using the straight-line method.
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 will be used to support the Company's operation.
4. In December 1999, the Company established a credit facility for $1,500,000
guaranteed by Derace Schaffer and John Pappajohn, two 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 March 31, 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 March 31, 2000
is approximately $475,000 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.
5. The calculations for the basic and diluted loss per share were based upon
loss attributable to common stockholders of $2,184,906 and $1,713,727 and a
weighted average number of common shares of 8,040,202 and 8,023,423 for the
three-month periods ended March 31, 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-month
periods ended March 31, 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 March 31, 20000 of $1,626,579 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 to the issuance of the Company's unaudited condensed
consolidated financial statements for the three month period ended March
31, 2000, the Company's management determined that the effective price at
which the preferred shares referred to in Note 3 could be converted into
common shares at the date of issuance ($1.25) was less than the current
market price of the common stock ($1.9375) on that same date, resulting in
a discount, or beneficial conversion feature, of $0.6875 per share. The
resulting discount is analogous to a dividend and should have been
recognized as a return to the preferred shareholders. In addition, debt
amortization expense of $86,500 was reclassified from other expense to
general and administrative expense and development fee revenue of $4,000
was reclassified from operating fee revenue for the three-month period
ended March 31, 2000. Accordingly, the accompanying financial statements
have been restated to give effect to the beneficial conversion feature and
the reclassifications. A summary of the significant effects of the
restatement is as follows:
<TABLE>
<CAPTION>
As Previously As
Reported Restated
----------------------------------
At March 31, 2000:
<S> <C> <C>
Additional paid-in capital 23,443,578 23,993,578
Accumulated deficit (21,268,986) (21,818,986)
For the three-month period ended March 31, 2000:
General and administrative 466,459 522,959
Other expense (94,827) (8,327)
Net loss (1,634,906) (1,634,906)
Convertable preferred stock dividends - 550,000
Net loss attributable to common shareholders (1,634,906) (2,184,906)
Net loss per share - Basic and diluted (0.20) (0.27)
</TABLE>
<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, 2000 and March 31,
1999 and its financial condition at March 31, 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 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 short falls, 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.
As discussed in Note 8 to the unaudited condensed consolidated financial
statements, the unaudited condensed consolidated financial statements as of and
for the three-months ended March 31, 2000 have been restated. The accompanying
discussion and analysis gives effect to the restatement. The restatement does
not reflect any change to the Company's revenue or net loss but does reflect a
change to earnings per share.
Results of Operations
Revenues
Revenues consist of revenues from operations, development and licensing
fees. Revenues decreased from $833,812 during the three months ended March 31,
1999 to $600,580 during the three months ended March 31, 2000, or 28%.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Revenues 2000 1999
-------- ---- ----
<S> <C> <C>
Operations Fees
Disease Management and Compliance $ 171,757 $ 148,778
Surveys 130,409 454,107
Demand Management 232,762 198,713
Other 49,253 32,215
------------------------------
Total Operations Fees 584,181 833,812
Development Fees 4,000 -
Licensing Fees 12,399 -
------------------------------
Total Revenues $ 600,580 $ 833,812
------------------------------
</TABLE>
Operations revenues are generated as the Company provides services to its
customers. Operations revenues decreased from $833,812 during the three months
ended March 31, 1999 to $584,181 during the three months ended March 31, 2000.
Operations revenues continue to be the primary source of revenue for the
Company. The decrease in operations revenues reflected reduced revenues from the
conduct of surveys that resulted from the elimination of a Medicare product by
one of the Company's primary customers. Demand Management revenues increased 17%
due to marginal increases in the membership of existing clients and the addition
of McClelland Air Force Base as a new customer.
The Company has identified possible new customers, but there can be no
assurance that such prospects will contribute revenue in the near term, if at
all.
Development revenue represents the amounts that the Company charges its
customers for the development of its customized programs. There was $4,000 in
development revenues in the three months ended March 31, 2000 as compared to no
development revenue for the same period of 1999. 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 Systems for
the three months ended March 31, 2000 were $12,399. 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 March 31,
2000 consisting of costs associated with the operation of the Company's programs
was $1,278,175 as compared to $1,449,926 for the three month period ended March
31, 1999. The decrease in these costs primarily reflects a response to the
decreased level of population and disease management operational activities. The
Company's gross margin continues to be negative. The Company anticipates that
revenue must increase before it will 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 March 31, 2000 were
$310,473 as compared to $570,322 for the three-month period ended March 31,
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 expects it will continue to invest in
the sales and marketing process, and that such expenses related to sales and
marketing may 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, 2000 were $552,959, as compared to $455,283 for the
three-month period ended March 31, 1999. These expenditures have been incurred
to maintain the corporate infrastructure necessary to support anticipated
program operations. The increase in these costs during the period reflected a
single severance payment of $58,763 to Donald A. Carlberg who resigned as Chief
Executive Officer effective March 30, 2000 and 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 $86,500 for
the three-month period ended March 31, 2000. Without these charges, general and
administrative costs would have decreased $47,587 to $407,696 as compared to the
same period of 1999. The Company expects that general and administrative
expenses will 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,
as well as development of the Company's standardized disease management programs
and the Company's Internet based technology products. Research and development
expenses for the three months ended March 31, 2000 were $85,552, as compared to
$118,419 for the three months ended March 31, 1999.
The Company recorded a loss of $8,327 for the three-month period ended
March 31, 2000 as opposed to a gain of $46,411 for the three-month period ended
March 31, 1999 in other income. The net decrease in these amounts is principally
due to the reduction of cash for which the Company was paid interest and the
increase of interest expenses on debt.
The Company had a net loss attributable to the Common shareholders after
preferred stock dividends of $2,184,906 for the three months ended March 31,
2000, as compared to a net loss of $1,713,727 for the three months ended March
31, 1999. This represents a net loss per share of $.27 for the first quarter of
2000, as compared to a net loss of $.21 per share in the first quarter of 1999.
The preferred stock dividends include a beneficial conversion feature for the
100,000 shares of Series C Stock of $550,000.
Liquidity and Capital Resources
At March 31, 2000 the Company had a working capital deficit of $496,963 as
compared to working capital of $414,132 at December 31, 1999. Through March 31,
2000 these amounts reflect the effects of the Company's continuing losses as
well as the borrowings against its $2,500,000 line of credit, $500,000 of which
was considered to be a long term liability at December 31, 1999. 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 Stock was $1.9375 per
share. The Series C Preferred Stock is convertible as 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 total amount of this beneficial conversion feature
($550,000) is deemed to be the equivalent of a preferred stock dividend. The
Company recorded the deemed dividend at the date of issuance by debiting
accumulated deficit and crediting additional paid-in capital, with no net effect
on total stockholders' equity. However, this amount increased the loss
applicable to common stockholders in the calculation of basic and diluted net
loss per share for the three-month period ended March 31, 2000 by approximately
$0.07.
In December 1999, the Company established a credit facility for $1,500,000
guaranteed by Derace Schaffer and John Pappajohn, two 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 March 31, 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 March
31, 2000 is approximately $475,000 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.
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. To the extent
that the Company anticipates that its losses will continue or increase, the
Company's available capital will continue to decline. Accordingly, the Company
has been 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 in a private placement to accredited
investors through the efforts of its officers and directors. No assurance can be
given that the Company will successfully raise the necessary funds. In addition,
the Company anticipates that as its losses continue, it will likely need to
raise additional funds during 2000. 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 curtail or cease operations.
Nasdaq Continued Listing Requirements
In order for the Company's Common Stock to continue to be quoted on the
Nasdaq National Market, it must have net tangible assets of at least $4 million.
As of March 31, 2000, the Company's net tangible assets were less than $4
million. Accordingly, the Company expects that its Common Stock may be delisted
from the Nasdaq National Market. Nevertheless, the Company intends to try to
satisfy the continuing listing criteria to be listed on the Nasdaq Small Cap
Market so that if its shares are delisted from the Nasdaq National Market, that
its Common Stock may be listed for trading on the Nasdaq Small Cap Market. No
assurance can be given that the liquidity of the Common Stock will not be
adversely affected if it is traded on the Nasdaq Small Cap Market ("Nasdaq"). In
order to satisfy continued listed criteria on the Nasdaq Small Cap Market, a
company must have, among other things, net tangible assets of at least $2
million and maintain a stock price in excess of $1 per share. Whether or not the
Company can be deemed to satisfy the listing requirements of the Nasdaq Small
Cap Market as of March 31, 2000, to the extent that the Company continues to
incur losses and is unable to raise additional equity, it will not be able to
maintain compliance with the continued listing requirements of the Nasdaq Small
Cap Market.
No assurance can be given that the Company's Common Stock will continue to
be listed on Nasdaq. If the failure to meet the maintenance criteria results in
the Company's Common Stock no longer being eligible for quotation on Nasdaq,
trading, if any, of the Common Stock would thereafter be conducted in the
non-Nasdaq over-the-counter market. As a result of such delisting, an investor
may find it more difficult to dispose of or to obtain accurate quotations as to
the market value of the Company's Common Stock. In addition, if the Common Stock
was to become delisted from Nasdaq and the trading price of the Common Stock was
less than $5.00 per share, trading in the Common Stock would be subject to the
requirements of certain rules promulgated under the Securities Exchange Act of
1934, as amended ("the "Exchange Act"), which require additional disclosure by
broker-dealers in conjunction with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on dealer-brokers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the dealer-broker must make a
special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed on broker-dealers by such requirements may discourage them from
effecting transactions in the Common Stock, which could severely limit the
liquidity of the Common Stock and the ability to sell the Common Stock in the
secondary market.
In the absence of an active trading market, purchasers of the Common Stock
may experience difficulty in selling their shares. The trading price of the
Common Stock is expected to be subject to significant fluctuations in response
to variations in quarterly operating results, changes in analysts' earnings
estimates and other factors. In addition, the stock market is subject to price
and volume fluctuations that affect the market prices for companies and that are
often unrelated to operating performance.
Inflation
Inflation did not have a significant impact on the Company's costs during
the three periods ended March 31, 2000 and March 31, 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.
<PAGE>
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 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
March 31, 1999 and 2000.
<PAGE>
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 6. Exhibits and Reports on Form 8-K
Exhibits:
--------
(a) (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 March 31, 2000
<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: 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
Principle Accounting Officer
