UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
-------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 August 14, 2000, 8,220,202 common shares were outstanding.
EXPLANATORY NOTE:
The Company hereby amends Part I of its quarterly report Form 10-Q for the
period ended June 30, 2000 to reflect the restatement of its Unaudited Condensed
Consolidated Financial Statements as of and for the three and six-month periods
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 June 30, 2000 December 31, 1999
As Restated,
see Note 8
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $600,972 $489,521
Accounts receivable 602,098 650,279
Prepaid expenses and other current assets 151,920 202,064
----------------------------------------
Total current assets 1,354,990 1,341,864
PROPERTY AND EQUIPMENT, net 1,033,603 1,291,351
Debt issuance costs (net of accumulated amortization of $279,250 and $0) 578,250 382,500
Intangible assets (net of accumulated amortization of $84,328 and $38,055) 538,396 584,669
Other assets 206,288 244,011
----------------------------------------
TOTAL ASSETS $3,711,527 $3,844,395
========================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $185,771 $496,533
Accrued salaries and wages 160,994 190,232
Line of credit 2,500,000 -
Accrued expenses 61,337 22,767
Deferred revenue 183,513 218,200
----------------------------------------
Total current liabilities 3,091,615 927,732
----------------------------------------
LINE OF CREDIT - 500,000
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value: shares authorized:
20,000,000; issued and outstanding: June 30,
2000 - 8,133,602; December 31, 1999 - 8,040,202 81,336 80,402
Preferred stock - $.01 par value: shares authorized: 5,000,000
Series C, 9% cumulative, convertible
issued and outstanding June 30, 2000 - 100,000 1,000 -
Additional paid-in capital 24,005,626 21,968,536
Accumulated other comprehensive income 1,805 1,805
Accumulated deficit (23,469,855) (19,634,080)
----------------------------------------
Total stockholders' equity 619,912 2,416,663
----------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,711,527 $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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
As Restated, As Restated,
see Note 8 see Note 8
REVENUES
<S> <C> <C> <C> <C>
Operations Fees $548,113 $1,002,943 $1,136,294 $1,836,756
Development Fees 17,200 - $17,200 -
Licensing Fees 33,427 - $45,826 -
-----------------------------------------------------------------------
Total revenues 598,740 1,002,943 1,199,320 1,836,756
-----------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 1,205,857 1,354,673 2,484,032 2,714,271
Sales and marketing 271,550 724,316 582,023 1,294,639
General and administrative 600,328 503,797 1,153,287 959,081
Research and development 77,647 218,698 163,199 427,447
-----------------------------------------------------------------------
Total costs and expenses 2,155,632 2,801,484 4,382,541 5,395,438
-----------------------------------------------------------------------
OPERATING LOSS (1,556,642) (1,798,541) (3,183,221) (3,558,682)
Investment Loss - (293,211) - (327,505)
Other Income (Expense) (71,729) 48,866 (80,056) 129,571
-----------------------------------------------------------------------
NET LOSS (1,628,371) (2,042,886) (3,263,277) (3,756,616)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (22,500) - (572,500) -
-----------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $(1,650,871) $(2,042,886) $(3,835,777) $(3,756,616)
=======================================================================
NET LOSS PER SHARE - BASIC AND DILUTED $(0.20) $(0.25) $(0.48) $(0.47)
=======================================================================
WEIGHTED AVERAGE COMMON SHARES 8,071,095 8,028,186 8,070,095 8,024,125
=======================================================================
See notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-----------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, 2000 June 30, 1999
As Restated,
see Note 8
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(3,263,277) $(3,756,616)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 557,880 238,733
Loss on disposal of fixed assets 18,750 -
Loss on investments - 327,505
Compensation expense related to issuance of stock warrants 1,042 6,874
(Increase) Decrease in accounts receivable, net 48,181 (363,571)
Decrease in prepaid expenses and other current assets 50,144 48,904
Decrease in other assets 37,723
(Decrease) in accounts payable (310,762) (21,625)
Increase (Decrease) in accrued salaries and wages (29,238) 219,940
Increase in accrued expenses 16,070 3,759
Increase (Decrease) in deferred revenue (34,687) 340,628
------------------------------------
Net cash used in operating activities (2,889,933) (2,955,469)
INVESTING ACTIVITIES:
Property and equipment additions (11,599) (429,441)
Proceeds from sale of fixed assets 18,240 -
Purchases of available-for-sale securities - (21,073)
Maturities of available-for-sale securities - 1,050,747
Purchase of HealthDesk Intellectual Property, net - (605,427)
------------------------------------
Net cash (used in) investing activities 6,641 (5,194)
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock, net 1,012,984 1,801
Line of credit borrowings 2,000,000 -
------------------------------------
Net cash provided by financing activities 3,012,984 1,801
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 111,451 (2,958,862)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 489,521 6,316,955
------------------------------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 600,972 $ 3,358,093
====================================
Supplemental disclosures of cash flow information
Cash paid and received for income taxes, net $ - $ 30,721
====================================
Supplemental disclosures of non-cash information
Fair value of stock purchase warrants issued in conjunction with
guarantees by certain board members of borrowings on the line
of credit $ 475,000 $ -
====================================
Dividends declared on Class C Convertible Preferred Stock $ 22,500 $ -
====================================
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 Consolidated Financial Statements
1. The unaudited condensed consolidated financial statements for the three and
six-month periods ended June 30, 2000 and June 30, 1999 are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation
of the financial position and operating results for the interim periods.
The unaudited condensed consolidated financial statements and notes thereto
should be read in conjunction 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 and six-month periods ended June 30,
2000 are not necessarily indicative of the results for the entire year
ending December 31, 2000.
2. Intangible assets represent the intellectual property (i.e.: tradenames,
trademarks, licenses and brandnames) acquired from HealthDesk Corporation.
Until March 31, 2000, this asset was being amortized over 15 years using
the straight-line method. As a result of a further evaluation of this
asset, it has been decided to alter the amortization based upon having a
remaining life of 48 months starting April 1, 2000 using a straight-line
method. The net asset value for this intellectual property was $574,290 and
$538,396 on March 31 and June 30, 2000 respectively, which reflects the
change in amortization effective April 1, 2000.
3. On March 31, 2000, the Company completed a private placement of 100,000
shares of newly issued Series C 9% Cumulative Convertible Preferred Stock
("Series C"), raising $1,000,000 in total proceeds. These shares can be
converted into Common Stock at a rate of 8 shares of Common Stock to 1
share of Series C Preferred Stock. Each Series C share has voting rights
equivalent to 8 shares of Common Stock (800,000 shares). The proceeds from
this issuance have been used to support the Company's operations.
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 June 30, 2000 and
December 31, 1999 are reported as current and long-term liabilities,
respectively. Additional warrants to purchase an aggregate of 250,000
shares of Common Stock for $2.325 per share, were granted to Dr. Derace
Schaffer and Mr. John Pappajohn for their guarantee of this additional line
of credit. The warrants are included in the debt issuance costs in the
balance sheet. The estimated fair value of the warrants at March 31, 2000
is approximately $857,500 based on the application of the Black Scholes
option pricing model which incorporates current stock price, expected stock
price volatility, expected interest rates, and the expected holding period
of the warrant.
5. The calculations for the basic and diluted loss per share were based upon
loss attributable to common stockholders of $1,650,871 and $2,042,886 with
a weighted average number of common shares of 8,071,095 and 8,028,186 for
the three-month periods ended June 30, 2000 and 1999 respectively and
$3,835,777 and $3,756,616 with a weighted average number of common shares
of 8,070,095 and 8,024,125 for the six-month periods ended June 30, 2000
and 1999 respectively. Options and warrants to purchase shares of Common
Stock were outstanding but not included in the computation of diluted loss
per share for the three and six-month periods ended June 30, 2000 and 1999
because the effect would have been antidilutive due to the net loss in
those periods.
6. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities". In June 2000, the FASB
issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify
four areas causing difficulties in implementation. The amendment included
expanding the normal purchase and sale exemption for supply contracts,
permitting the offsetting of certain intercompany foreign currency
derivatives and thus reducing the number of third party derivatives,
permitting hedge accounting for foreign-currency denominated assets and
liabilities, and redefining interest rate risk to reduce sources of
ineffectiveness. We have appointed a team to implement SFAS 133 on a global
basis for the Company. This team has been implementing an SFAS 133
compliant risk management information system, globally educating both
financial and non-financial personnel, inventorying embedded derivatives
and addressing various other SFAS 133 related issues. We will adopt SFAS
133 and the corresponding amendments under SFAS 138 on January 1, 2001.
SFAS 133, as amended by SFAS 138, is not expected to have a material impact
on the Company's condensed consolidated financial position, results of
operations or cash flows.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," which supercedes SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This standard is effective for transfers occurring after
March 31, 2001, with certain disclosure requirements effective for the year
ending December 31, 2000. The Company does not believe the adoption of this
standard will have a significant impact on the Company's condensed
consolidated financial position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101,
as amended, is required to be adopted by the Company no later than the
fourth quarter of fiscal year 2000. Although the Company has not fully
assessed the implications of SAB 101, management does not believe the
adoption of SAB 101 will have a significant impact on the Company's
condensed consolidated financial position, results of operations or cash
flows.
7. The accompanying unaudited condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. As shown in the accompanying unaudited condensed consolidated
financial statements, the Company incurred an operating loss for the
six-month period ended June 30, 20000 of $3,183,221 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 and six-month period ended
June 30, 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 $279,250 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 and six-month
periods ended June 30, 2000. Accordingly, the accompanying financial
statements have been restated to give effect to the beneficial conversion
feature, the preferred dividends of $22,500 and the reclassifications. A
summary of the significant effects of the restatement is as follows:
<TABLE>
<CAPTION>
As Previously As
Reported Restated
----------------------------------
<S> <C> <C>
At June 30, 2000:
Additional paid-in capital 23,455,626 24,005,626
Accumulated deficit (22,919,855) (23,469,855)
For the three-month period ended June 30, 2000:
General and administrative 407,578 600,328
Other expenses (264,479) (71,729)
Net loss (1,628,371) (1,628,371)
Convertable preferred stock dividends - 22,500
Net loss attributable to common shareholders (1,628,371) (1,650,871)
Net loss per share - Basic and diluted (0.20) (0.20)
For the six-month period ended June 30, 2000:
General and administrative 874,037 1,153,287
Other expenses (359,306) (80,056)
Net loss (3,263,277) (3,263,277)
Convertible oreferred stock dividends - 572,500
Net loss attributable to common shareholders (3,263,277) (3,835,777)
Net loss per share - Basic and diluted (0.40) (0.48)
</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 and six month periods ended June 30, 2000 and
June 30, 1999 and its financial condition at June 30, 2000. The focus of this
review is on the underlying business reasons for significant changes and trends
affecting the revenues, net earnings and financial condition of the Company.
This review should be read in conjunction with the accompanying unaudited
condensed consolidated financial statements.
In an effort to give investors a well-rounded view of the Company's current
condition and future opportunities, this Quarterly Report on Form 10-Q includes
forecasts by the Company's management about future performance and results.
Because they are forward-looking, these forecasts involve uncertainties. These
uncertainties include the Company's working capital shortfalls, risks of market
acceptance of or preference for the Company's systems and services, competitive
forces, the impact of, and changes in, government regulations, general economic
factors in the healthcare industry and other factors discussed in the Company's
filings with the Securities and Exchange Commission including the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
As discussed in Note 8 to the unaudited condensed consolidated financial
statements, the unaudited condensed consolidated financial statements as of and
for the three and six-months ended June 30, 2000 have been restated. The
restatement does not reflect any change to the Company's revenue or net loss but
does reflect a change to earnings per share. The accompanying discussion and
analysis gives effect to the restatement.
Results of Operations
Revenues
Revenues consist of revenues from operations, development and licensing
fees. Revenues decreased from $1,002,943 during the three months ended June 30,
1999 to $598,740 during the three months ended June 30, 2000, or 40%. Revenues
decreased from $1,836,756 during the six months ended June 30, 1999 to
$1,199,320 during the six months ended June 30, 2000, or 35%.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Revenues 2000 1999 2000 1999
Operations Fees
<S> <C> <C> <C> <C>
Disease Management and Compliance $152,867 $408,689 $324,624 $557,467
Surveys 131,478 325,054 261,887 779,161
Demand Management 240,494 193,290 473,256 392,003
Other 23,274 75,910 72,527 108,125
------------------------- --------------------------
Total Operations Fees 548,113 1,002,943 1,132,294 1,836,756
Development Fees 17,200 - 21,200 -
Licensing Fees 33,427 - 45,826 -
------------------------- --------------------------
Total Revenues $598,740 $1,002,943 $1,199,320 $1,836,756
------------------------- --------------------------
</TABLE>
Operations revenues are generated as the Company provides services to its
customers. Operations revenues decreased from $1,002,943 during the three months
ended June 30, 1999 to $548,113 during the three months ended June 30, 2000.
Operations revenues decreased from $1,836,756 during the six months ended June
30, 1999 to $1,132,294 during the six months ended June 30, 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. This resulted from the internal elimination of a Medicare product by
one of the Company's primary customers and the completion of two compliance
initiatives on the part of a major pharmaceutical client. These clients have not
provided the Company with new assignments to replace the completed projects.
Demand Management revenues increased 24% and 21% over the three and six month
periods respectively due to increases in the membership of existing clients and
the addition of a new customer.
Development revenue represents the amounts that the Company charges its
customers for the development of its customized programs. There were $17,200 and
$21,200 of development revenues in the three and six months ended June 30, 2000.
The Company has entered into new development agreements but anticipates that
revenue from program development will remain immaterial in the future.
License revenues recognized from the Case Management Support System for the
three and six-month period ended June 30, 2000 were $33,427 and $45,826
respectively. The Company has not entered into any new licensing agreements for
its Case Management Support System and the revenue for the current period
reflects ongoing revenue from the existing agreements.
Costs and Expenses
Cost of sales include salaries and related benefits, services provided by
third parties, and other expenses associated with the implementation and
delivery of the Company's standard and customized population, demand, and
disease management programs. Cost of sales for the three months ended June 30,
2000 was $1,205,857 as compared to $1,354,673 for the three-month period ended
June 30, 1999. For the six months ended June 30, 2000, cost of sales was
$2,484,032, as compared to $2,714,271 for the six months ended June 30, 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
substantially increase before it will begin to recognize economies of scale. No
assurance can be given that revenues will increase or that, if they do, they
will exceed expenses.
Sales and marketing expenses consist primarily of salaries, related
benefits, travel costs, sales materials and other marketing related expenses.
Sales and marketing expenses for the three months ended June 30, 2000 were
$271,550 as compared to $724,316 for the three-month period ended June 30, 1999.
For the six months ended June 30, 2000, sales and marketing expenses were
$582,023, as compared to $1,294,639 for the six months ended June 30, 1999.
Spending in this area has decreased due to the resignation or termination of
several members of the sales staff. The Company anticipates expansion of the
Company's sales and marketing staff and expects it will continue to invest in
the sales and marketing process in future periods.
General and administrative expenses include the costs of corporate
operations, finance and accounting, human resources and other general operating
expenses of the Company. General and administrative expenses for the three
months ended June 30, 2000 were $600,328, as compared to $503,797 for the
three-month period ended June 30, 1999. For the six months ended June 30, 2000,
general and administrative expenses was $1,153,287, as compared to $959,081 for
the six months ended June 30, 1999. These expenditures have been incurred to
maintain the corporate infrastructure necessary to support anticipated program
operations. The increase in these costs was due to amortization of $857,500 in
debt issuance cost for the establishment of a $2,500,000 line of credit. This
cost is a non-cash item related to the fair market value of warrants to purchase
the Company's common stock, which were issued to two directors in consideration
for their guarantee of the debt. The amortization expense recorded was $192,750
and $279,250 for the three and six-month periods ended June 30, 2000. Without
this amortization, general and administrative expenses decreased to $407,578 and
$874,037 for the three and six-month periods ended June 30, 2000. This full
impact of the cost reduction efforts was only partially reflected in these costs
due to a one-time write-off of $87,685 in trade receivables during the six month
period ended June 30, 2000, which are no longer considered collectable. When the
debt issuance costs are fully amortized, the Company expects the general and
administrative costs to remain relatively constant in future periods.
Research and development expenses consist primarily of salaries and related
benefits and administrative costs associated with the development of certain
components of the Company's integrated information capture and delivery system,
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 June 30, 2000 were $77,647, as compared to
$218,698 for the three months ended June 30, 1999. For the six months ended June
30, 2000, research and development expenses were $163,199, as compared to
$427,447 for the six months ended June 30, 1999. This reduction reflects a shift
in technology staffing to support existing operations rather than research and
development activities. It is anticipated that as the Company evolves its
technology infrastructure, that modest increases in research and development
expense will be required.
The Company recorded no investment loss for the three months ended June 30,
2000 as compared to a loss of $293,211 for the three-month period ended June 30,
1999. There was no investment loss recorded for the six months ended June 30,
2000 as compared to $327,505 for the six months ended June 30, 1999. In 1999,
the Company's investment loss included its investment in Patient Infosystems
Canada, Inc. and a one time write-off of it's investment in the Pulse Group.
The Company recorded a loss of $71,729 and $80,056 in other expenses for
the three and six-month periods ended June 30, 2000 respectively, as compared to
a gain of $48,866 and $129,571 for the three and six-month periods ended June
30, 1999 respectively The Company generates interest income from cash balances
and investments and pays interest on debt. The net interest expense recorded was
$44,604 and $63,499 for the three and six-month periods ended June 30, 2000 as
compared to a net gain of $47,279 and $126,489 for the same periods of 1999 due
to the reduction of cash for which the Company was paid interest and the
increase of interest expenses on debt. The balance of the loss of $27,125 and
$16,557 for the three and six-month periods ended June 30, 2000 primarily relate
to a loss on the sale or abandonment of certain fixed assets.
The Company had a net loss attributable to the Common shareholders after
preferred stock dividends of $1,650,871 for the three months ended June 30,
2000, as compared to a net loss of $2,042,886 for the three months ended June
30, 1999. This represents a net loss per share of $0.20 for the second quarter
of 2000, as compared to a net loss of $0.25 per share in the second quarter of
1999. The net loss attributable to Common shareholders for the six-month period
ended June 30, 2000 is $3,835,777 as compared to $3,756,616 for the same period
of 1999. This represents a net loss per share of $0.48 for the first two
quarters of 2000, as compared to a net loss of $0.47 per share in the first two
quarters of 1999. The preferred stock dividends include accrued dividends of
$22,500 and a beneficial conversion feature for the 100,000 shares of Series C
Stock of $550,000.
Liquidity and Capital Resources
At June 30, 2000 the Company had a working capital deficit of $1,736,626 as
compared to working capital of $414,132 at December 31, 1999. Through June 30,
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 increasing
accumulated deficit and increasing to additional paid-in capital. Accordingly,
there was 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 six-month period ended June 30, 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 June 30, 2000 and December 31, 1999 are reported as
current and long-term liabilities, respectively. Additional warrants to purchase
an aggregate of 250,000 shares of Common Stock for $2.325 per share, were
granted to Dr. Derace Schaffer and Mr. John Pappajohn for their guarantee of
this additional line of credit. The estimated fair value of the warrants at
March 31, 2000 is approximately $857,500 based on the application of the Black
Scholes option pricing model which incorporates current stock price, expected
stock price volatility, expected interest rates, and the expected holding period
of the warrant.
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, and will for the foreseeable future continue to be required,
to seek additional capital to maintain its operations. The Company is continuing
its efforts to raise additional capital privately through the sale of
convertible preferred stock or otherwise. However, no assurance can be given
that the Company will be able to obtain additional financing on favorable terms,
if at all. In addition, any additional financing, which includes the issuance of
additional securities of the Company, may be dilutive to the Company's existing
stockholders. If the Company is unable to identify additional capital, it will
be required to 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
and must maintain a price of $1.00 per share. As of June 30, 2000, the Company's
net tangible assets were less than $4 million and the Company's stock has
continued to trade at a price less than $1.00. Accordingly, the Company expects
that its Common Stock may be delisted from the Nasdaq National Market. If its
shares are delisted from the Nasdaq National Market, the Company will seek to
have its Common Stock 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. The Company does
not satisfy the listing requirements of the Nasdaq Small Cap Market either. To
the extent that the Company is unable to raise additional equity, and its stock
price does not rise above $1, it will not be able to comply with the continued
listing requirements of the Nasdaq Small Cap Market.
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 bulletin
board 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
were 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 and six-month periods ended June 30, 2000 and June 30, 1999. The
Company continues to monitor the impact of inflation in order to minimize its
effects through pricing strategies, productivity improvements and cost
reductions.
Forward Looking Statements
When used in this and in future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "expects," "plans," "will continue," "is
anticipated," "estimated," "project," or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. These
uncertainties include risks of market acceptance of or preference for the
Company's systems and services, competitive forces, the impact of, and changes
in, government regulations, general economic factors in the healthcare industry
and other factors discussed in the Company's filings with the Securities and
Exchange Commission. The Company has no obligation to publicly release the
result of any revisions, which may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances occurring after the
date of such statements.
Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". In June 2000, the FASB issued
SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas
causing difficulties in implementation. The amendment included expanding the
normal purchase and sale exemption for supply contracts, permitting the
offsetting of certain intercompany foreign currency derivatives and thus
reducing the number of third party derivatives, permitting hedge accounting for
foreign-currency denominated assets and liabilities, and redefining interest
rate risk to reduce sources of ineffectiveness. We have appointed a team to
implement SFAS 133 on a global basis for the Company. This team has been
implementing an SFAS 133 compliant risk management information system, globally
educating both financial and non-financial personnel, inventorying embedded
derivatives and addressing various other SFAS 133 related issues. We will adopt
SFAS 133 and the corresponding amendments under SFAS 138 on January 1, 2001.
SFAS 133, as amended by SFAS 138, is not expected to have a material impact on
the Company's condensed consolidated financial position, results of operations
or cash flows.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," which supercedes SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This standard is effective for transfers occurring after March 31, 2001, with
certain disclosure requirements effective for the year ending December 31, 2000.
The Company does not believe the adoption of this standard will have a
significant impact on the Company's condensed consolidated financial position,
results of operations or cash flows.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101, as
amended, is required to be adopted by the Company no later than the fourth
quarter of fiscal year 2000. Although the Company has not fully assessed the
implications of SAB 101, management does not believe the adoption of SAB 101
will have a significant impact on the Company's condensed consolidated financial
position, results of operations or cash flows.
<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
June 30, 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
Principal Accounting Officer
