UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2000
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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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
46 Prince Street, Rochester, NY 14607
(Address of principal executive offices)
(Zip Code)
(716) 242-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes [X] No [ ]
As of November 13, 2000, 8,220,202 common shares were outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
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<CAPTION>
PATIENT INFOSYSTEMS, INC.
CNDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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ASSETS September 30, 2000 December 31, 1999
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CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 127,791 $ 489,521
Accounts receivable 407,941 650,279
Prepaid expenses and other current assets 131,323 202,064
-------------------------------------------------------
Total current assets 667,055 1,341,864
PROPERTY AND EQUIPMENT, net 926,866 1,291,351
Debt issuance costs (net of accumulated amortization of $472,000 and $0) 385,500 382,500
Intangible assets (net of accumulated amortization of $120,220 and
$38,055) 502,503 584,669
Other assets 200,000 244,011
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TOTAL ASSETS $ 2,681,924 $ 3,844,395
=======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 228,893 $ 496,533
Accrued salaries and wages 217,191 190,232
Borrowings from directors 375,000 -
Line of credit 2,500,000 -
Accrued expenses 104,429 22,767
Deferred revenue 157,731 218,200
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Total current liabilities $ 3,583,244 $ 927,732
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LINE OF CREDIT - 500,000
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - $.01 par value: shares authorized:
20,000,000; issued and outstanding: September 30,
2000 - 8,220,202; December 31, 1999 - 8,040,202 82,202 80,402
Preferred stock - $.01 par value: shares authorized: 5,000,000
Series C, 9% cumulative, convertible
issued and outstanding September 30, 2000 - 100,000 1,000 -
Additional paid-in capital 24,016,798 21,968,536
Accumulated other comprehensive income 1,805 1,805
Accumulated deficit (25,003,125) (19,634,080)
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Total stockholders' equity (deficit) $ (901,320) $ 2,416,663
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 2,681,924 $ 3,844,395
=======================================================
See notes to unadudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Operations Fees $ 385,304 $ 845,964 $ 1,517,598 $ 2,682,720
Development Fees 13,246 - 34,446 -
Licensing Fees 35,000 30,000 80,826 30,000
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Total revenues 433,550 875,964 1,632,870 2,712,720
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COSTS AND EXPENSES
Cost of sales 982,638 1,447,869 3,466,670 4,162,140
Sales and marketing 234,942 626,725 816,965 1,921,364
General and administrative 590,073 422,124 1,743,360 1,381,205
Research and development 73,997 284,838 237,196 712,285
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Total costs and expenses 1,881,650 2,781,556 6,264,191 8,176,994
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OPERATING LOSS (1,448,100) (1,905,592) (4,631,321) (5,464,274)
Investment loss - (7,697) - (335,202)
Other income (expense) (62,667) 30,754 (142,723) 160,326
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NET LOSS (1,510,767) (1,882,535) (4,774,044) (5,639,150)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (22,500) - (595,000) -
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NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (1,533,267) $ (1,882,535) $ (5,369,044) $ (5,639,150)
=============================================================================
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.19) $ (0.23) $ (0.66) $ (0.70)
=============================================================================
WEIGHTED AVERAGE COMMON SHARES 8,209,040 8,033,400 8,106,779 8,030,003
=============================================================================
See notes to unadudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine Months Nine Months
Ended Ended
September 30, 2000 September 30, 1999
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (4,774,044) $ (5,639,150)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 896,544 374,130
Loss on disposal of fixed assets 21,842 335,202
Loss on investments - (58,935)
Compensation expense related to issuance of stock warrants 1,042 -
Decrease in accounts receivable, net 242,338 10,830
Decrease in prepaid expenses and other current assets 70,741 17,740
Decrease (Increase) in other assets 44,011 (3,994)
(Decrease) Increase in accounts payable (267,640) 157,716
Increase in accrued salaries and wages 26,959 11,621
Increase (Decrease) in accrued expenses 36,662 (35,700)
Decrease in deferred revenue (60,469) (10,960)
----------- -----------
Net cash used in operating activities (3,762,014) (4,841,500)
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INVESTING ACTIVITIES:
Property and equipment additions (17,976) (550,807)
Proceeds from sale of fixed assests 18,240 -
Purchases of available-for-sale securities - (21,073)
Maturities of available-for-sale securities - 1,050,747
Purchase of HealthDesk Intellectual Property, net - (595,048)
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Net cash provided by (used in) investing activities 264 (116,181)
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FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock, net 1,025,020 18,576
Borrowings from directors 375,000 -
Line of credit borrowings 2,000,000 -
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Net cash provided by financing activities 3,400,020 18,576
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NET DECREASE IN CASH AND CASH EQUIVALENTS 188,270 (4,939,105)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 489,521 6,316,955
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 127,791 $ 1,377,850
================= =================
Supplemental disclosures of cash flow information
Cash paid and received for income taxes, net $ - $ 32,041
================= =================
Supplemental disclosures of non-cash information
Fair value of stock purchase warrants issued in conjunction with
guarantees by certain board members of borrowings on the line
of credit $ 475,000 $ -
================= =================
Dividends declared on Class C Convertible Preferred Stock $ 45,000 $ -
================= =================
Value of beneficial conversion feature on Class C Convertible
Preferred Stock recognized as a dividend $ 550,000 $ -
================= =================
See notes to unadudited condensed consolidated financial statements.
</TABLE>
<PAGE>
PATIENT INFOSYSTEMS, INC.
Notes to Consolidated Financial Statements
1. The unadudited condensed consolidated financial statements for the three
and nine-month periods ended September 30, 2000 and September 30, 1999 are
unaudited and reflect all adjustments (consisting only of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and operating results for the
interim periods. Certain prior period amounts have been reclassified to
conform to current period presentations. The unadudited condensed
consolidated financial statements and notes thereto should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended December 31, 1999. The results of operations for the three and
nine-month periods ended September 30, 2000 are not necessarily indicative
of the results for the entire year ending December 31, 2000.
2. Intangible assets represent the intellectual property (i.e.: tradenames,
trademarks, licenses and brandnames) acquired from HealthDesk Corporation.
Until March 31, 2000, this asset was being amortized over 15 years using
the straight-line method. As a result of a further evaluation of this
asset, it has been decided to alter the amortization based upon having a
remaining life of 4 years starting April 1, 2000 using a straight-line
method. The net asset value for this intellectual property was $502,503 at
September 30, 2000 and reflects the change in amortization effective April
1, 2000.
3. On March 31, 2000, the Company completed a private placement of 100,000
shares of newly issued Series C 9% Cumulative Convertible Preferred Stock
("Series C"), raising $1,000,000 in total proceeds. These shares can be
converted into Common Stock at a rate of 8 shares of Common Stock to 1
share of Series C Preferred Stock. Each Series C share has voting rights
equivalent to 8 shares of Common Stock (800,000 shares). The proceeds from
this issuance have been used to support the Company's operations.
The fair market value of the Company's Common Stock at the time of issuance
of Series C Preferred Stock was $1.9375 per share. The Series C Shares are
convertible at a price equal to $1.25 per share of Common Stock resulting
in a discount, or beneficial conversion feature, of $0.6875 per share. The
incremental fair value of $550,000 for the 100,000 shares of Series C
Preferred issued is deemed to be the equivalent of a preferred stock
dividend. The Company recorded the deemed dividend at the date of issuance
by offsetting charges and credits to additional paid in capital of
$550,000, without any effect on total stockholders' equity. The amount
increased the loss applicable to common stockholders in the calculation of
basic net loss per share for the three and nine-month periods ended
September 30, 2000. Form 10-Q/A amendments to the Company's three and six
month periods ended March 31, 2000 and June 30, 2000 respectively were
filed simultaneously with this Form 10-Q to reflect the adjustment to
paid-in capital, reclassifications consistent with current presentation and
net less per share for such periods. No adjustment was made to any other
information in such filings.
4. In December 1999, the Company established a credit facility for $1,500,000
guaranteed by Derace Schaffer and John Pappajohn, directors of the Company.
In consideration for their guarantees, the Company granted to Dr. Schaffer
and Mr. Pappajohn warrants to purchase an aggregate of 375,000 shares of
common stock for $1.5625 per share. In March 2000, the facility was
increased by $1,000,000 under substantially the same terms, also guaranteed
by the same Board members. Because this line of credit is due and payable
on March 31, 2001, amounts outstanding at September 30, 2000 and December
31, 1999 are reported as current and long-term liabilities, respectively.
Additional warrants to purchase an aggregate of 250,000 shares of Common
Stock for $2.325 per share, were granted to Dr. Derace Schaffer and Mr.
John Pappajohn for their guarantee of this additional line of credit. The
warrants are included in the debt issuance costs in the balance sheet. The
estimated fair value of the warrants at September 30, 2000 is approximately
$857,500 based on the application of the Black Scholes option pricing model
which incorporates current stock price, expected stock price volatility,
expected interest rates, and the expected holding period of the warrant.
In August 2000, the Company borrowed $125,000 and in September 2000 an
additional $62,500 from Mr. John Pappajohn. Proceeds from these loans were
used to support the Company's operations. The interest on these loans is
9.5% per year.
In August 2000, the Company borrowed $125,000 and in September 2000 an
additional $62,500 from Dr. Derace Schaffer. Proceeds from these loans were
used to support the Company's operations. The interest on these loans is
9.5% per year.
The loans from Mr. Pappajohn and Dr. Schaffer are demand Notes and intended
to be secured by the assets of The Company.
5. The calculations for the basic and diluted loss per share were based upon
loss attributable to common stockholders of $1,533,267 and $1,882,535 with
a weighted average number of common shares of 8,209,040 and 8,033,400 for
the three-month periods ended September 30, 2000 and 1999 respectively and
$5,369,044 and $5,639,150 with a weighted average number of common shares
of 8,106,779 and 8,030,003 for the nine-month periods ended September 30,
2000 and 1999 respectively. Options and warrants to purchase shares of
Common Stock were outstanding but not included in the computation of
diluted loss per share for the three and six-month periods ended June 30,
2000 and 1999 because the effect would have been antidilutive due to the
net loss in those periods.
6. In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities". In June 2000, the FASB
issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify
four areas causing difficulties in implementation. The amendment included
expanding the normal purchase and sale exemption for supply contracts,
permitting the offsetting of certain intercompany foreign currency
derivatives and thus reducing the number of third party derivatives,
permitting hedge accounting for foreign-currency denominated assets and
liabilities, and redefining interest rate risk to reduce sources of
ineffectiveness. We have appointed a team to implement SFAS 133 on a global
basis for the Company. This team has been implementing an SFAS 133
compliant risk management information system, globally educating both
financial and non-financial personnel, inventorying embedded derivatives
and addressing various other SFAS 133 related issues. We will adopt SFAS
133 and the corresponding amendments under SFAS 138 on January 1, 2001.
SFAS 133, as amended by SFAS 138, is not expected to have a material impact
on the Company's condensed consolidated financial position, results of
operations or cash flows.
In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities," which supercedes SFAS No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." This standard is effective for transfers occurring after
March 31, 2001, with certain disclosure requirements effective for the year
ending December 31, 2000. The Company does not believe the adoption of this
standard will have a significant impact on the Company's condensed
consolidated financial position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101,
as amended, is required to be adopted by the Company no later than the
fourth quarter of fiscal year 2000. Although the Company has not fully
assessed the implications of SAB 101, management does not believe the
adoption of SAB 101 will have a significant impact on the Company's
condensed consolidated financial position, results of operations or cash
flows.
7. The accompanying unaudited condensed consolidated financial statements have
been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. As shown in the accompanying unaudited condensed consolidated
financial statements, the Company incurred an operating loss for the
nine-month period ended September 30, 2000 of $4,631,321 and had an
accumulated deficit of $19,634,080 at December 31, 1999. These factors,
among others may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time.
The unaudited condensed consolidated financial statements do not include
any adjustments relating to the recoverability of assets and classification
of liabilities that might be necessary should the Company be unable to
continue as a going concern. The Company's continuation as a going concern
is dependant upon its ability to generate sufficient cash flow to meet its
obligations. Management is currently assessing the Company's operating
structure for the purpose of reducing ongoing expenses, increasing sources
of revenue and is negotiating the terms of additional debt or equity
financing.
8. Subsequent Event - In October 2000, the Company borrowed $125,000 and in
November 2000 an additional $25,000 from Mr. John Pappajohn. Proceeds from
these demand loans were used to support the Company's operations. The
interest on these loans is 9.5% per year.
In October 2000, the Company borrowed $125,000 from Dr. Derace Schaffer.
Proceeds from these demand loans were used to support the Company's
operations. The interest on these loans is 9.5% per year.
The Company anticipates that it will need to borrow additional funds before
it can secure additional capital through the issuance of additional
securities. The Company's current directors have no obligation to continue
to provide funds There can be no assurances given that the company can
borrow the additional amounts needed or that the Company can sell
additional securities.
<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 nine month periods ended September 30, 2000
and September 30, 1999 and its financial condition at September 30, 2000. The
focus of this review is on the underlying business reasons for significant
changes and trends affecting the revenues, net earnings and financial condition
of the Company. This review should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements.
In an effort to give investors a well-rounded view of the Company's current
condition and future opportunities, this Quarterly Report on Form 10-Q includes
forecasts by the Company's management about future performance and results.
Because they are forward-looking, these forecasts involve uncertainties. These
uncertainties include the Company's working capital shortfalls, risks of market
acceptance of or preference for the Company's systems and services, competitive
forces, the impact of, and changes in, government regulations, general economic
factors in the healthcare industry and other factors discussed in the Company's
filings with the Securities and Exchange Commission including the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
Results of Operations
Revenues
Revenues consist of revenues from operations, development and licensing
fees. Revenues decreased from $875,964 during the three months ended September
30, 1999 to $433,550 during the three months ended September 30, 2000, or 51%.
Revenues decreased from $2,712,720 during the nine months ended September 30,
1999 to $1,632,870 during the nine months ended September 30, 2000, or 40%.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Revenues 2000 1999 2000 1999
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Operations Fees
Disease Management and Compliance $ 164,935 $ 319,787 $ 493,559 $ 875,240
Surveys 54,089 286,236 315,976 1,067,411
Demand Management 146,603 205,424 619,859 597,427
Other 19,677 34,517 88,204 142,642
------------------------------ -------------------------------
Total Operations Fees 385,304 845,964 1,517,598 2,682,720
Development Fees 13,246 - 34,446 -
Licensing Fees 35,000 30,000 80,826 30,000
------------------------------ -------------------------------
Total Revenues $ 433,550 $ 875,964 $1,632,870 $2,712,720
------------------------------ -------------------------------
</TABLE>
Operations revenues are generated as the Company provides services to its
customers. Operations revenues decreased from $845,964 during the three months
ended September 30, 1999 to $385,304 during the three months ended September 30,
2000. Operations revenues decreased from $2,682,720 during the nine months ended
September 30, 1999 to $1,517,598 during the nine months ended September 30,
2000. Operations revenues continue to be the primary source of revenue for the
Company. Operations revenues declined because the Company had fewer projects
after two of the Company's primary customers eliminated products for which the
Company provided services and a major pharmaceutical client completed two
initiatives. These clients have not provided the Company with new assignments to
replace the completed projects. Demand Management revenues increased over the
nine-month period due to increases in the membership of the existing clients and
the addition of a new customer. Demand Management revenues decreased over the
three-month period ended September 30, 2000 due to the elimination of a Medicaid
product by one of the Company's customers. The Company continues to provide this
customer with Demand Management services for it's commercial product.
Development revenue represents the amounts that the Company charges its
customers for the development of its customized programs. There were $13,246 and
$34,446 of development revenues in the three and nine-month periods ended
September 30, 2000 respectively. The Company has entered into new development
agreements but anticipates that revenue from program development will remain
immaterial in the future.
License revenues recognized from the Case Management Support System for the
three and nine-month period ended September 30, 2000 were $35,000 and $80,826
respectively. The Company has not entered into any new licensing agreements for
its Case Management Support System and the revenue for the current period
reflects ongoing revenue from the existing agreements.
Costs and Expenses
Cost of sales include salaries and related benefits, services provided by
third parties, and other expenses associated with the implementation and
delivery of the Company's standard and customized population, demand, and
disease management programs. Cost of sales for the three months ended September
30, 2000 was $982,638 as compared to $1,447,869 for the three-month period ended
September 30, 1999. For the nine months ended September 30, 2000, cost of sales
was $3,466,670, as compared to $4,162,140 for the nine months ended September
30, 1999. The decrease in these costs primarily reflects a response to the
decreased level of population and disease management operational activities and
other cost reductions undertaken by the Company's management. The Company's
gross margin continues to be negative. The Company anticipates that revenue must
substantially increase before it will begin to recognize economies of scale. No
assurance can be given that revenues will increase or that, if they do, they
will exceed expenses.
Sales and marketing expenses consist primarily of salaries, related
benefits, travel costs, sales materials and other marketing related expenses.
Sales and marketing expenses for the three months ended September 30, 2000 were
$234,942 as compared to $626,725 for the three-month period ended September 30,
1999. For the nine months ended September 30, 2000, sales and marketing expenses
were $816,965, as compared to $1,921,364 for the nine months ended September 30,
1999. Spending in this area has decreased due to the resignation or termination
of several members of the sales staff. The Company anticipates expansion of the
Company's sales and marketing staff and, if funds become available, that it will
continue to invest in the sales and marketing process in future periods.
General and administrative expenses include the costs of corporate
operations, finance and accounting, human resources and other general operating
expenses of the Company. General and administrative expenses for the three
months ended September 30, 2000 were $590,073, as compared to $422,124 for the
three-month period ended September 30, 1999. For the nine months ended September
30, 2000, general and administrative expense was $1,743,360, as compared to
$1,381,205 for the nine months ended September 30, 1999. These expenditures have
been incurred to maintain the corporate infrastructure necessary to support
anticipated program operations. The increase in these costs was due to
amortization of $857,500 in debt issuance cost for the establishment of a
$2,500,000 line of credit. This cost is a non-cash item related to the fair
market value of warrants to purchase the Company's common stock, which were
issued to two directors in consideration for their guarantee of the debt. The
amortization expense recorded was $192,750 and $472,000 for the three and
nine-month periods ended September 30, 2000. Without this amortization, general
and administrative expenses decreased to $397,323 and $1,271,360 for the three
and nine-month periods ended September 30, 2000. This full impact of the cost
reduction efforts was only partially reflected in these costs due to a one-time
write-off of $87,685 in trade receivables during the nine month period ended
September 30, 2000, which is no longer considered collectable. When the debt
issuance costs are fully amortized, the Company expects the General and
Administrative costs to remain relatively constant in future periods.
Research and development expenses consist primarily of salaries and related
benefits and administrative costs associated with the development of certain
components of the Company's integrated information capture and delivery system,
the Company's standardized disease management programs and the Company's
Internet based technology products. Research and development expenses for the
three months ended September 30, 2000 were $73,997, as compared to $284,838 for
the three months ended September 30, 1999. For the nine months ended September
30, 2000, research and development expenses were $237,196, as compared to
$712,285 for the nine months ended September 30, 1999. This reduction reflects a
shift in technology staffing to support existing operations rather than research
and development activities. It is anticipated that as the Company evolves its
technology infrastructure, that modest increases in research and development
expense will be required.
The Company recorded no investment loss for the three months ended
September 30, 2000 as compared to a loss of $7,697 for the three-month period
ended September 30, 1999. There was no investment loss recorded for the nine
months ended September 30, 2000 as compared to $335,202 for the nine months
ended September 30, 1999. In 1999, the Company's investment loss included its
investment in Patient Infosystems Canada, Inc. and a one-time write-off of it's
investment in the Pulse Group.
The Company recorded a loss of $62,667 and $142,723 in other expenses for
the three and nine-month periods ended September 30, 2000 respectively, as
compared to a gain of $30,754 and $160,326 for the three and nine-month periods
ended September 30, 1999 respectively The Company generates interest income from
cash balances and investments and pays interest on debt. The net interest
expense recorded was $58,080 and $121,580 for the three and nine-month periods
ended September 30, 2000 as compared to a net gain of $30,754 and $160,326 for
the same periods of 1999 due to the reduction of cash for which the Company was
paid interest and the increase of interest expenses on debt. The balance of the
loss of $4,587 and $21,143 for the three and nine-month periods ending September
30, 2000 primarily relate to a loss on the sale or abandonment of certain fixed
assets.
The Company had a net loss attributable to the Common shareholders after
preferred stock dividends of $1,533,267 for the three months ended September 30,
2000, as compared to a net loss of $1,882,535 for the three months ended
September 30, 1999. This represents a net loss per share of $0.19 for the third
quarter of 2000, as compared to a net loss of $0.23 per share in the third
quarter of 1999. The net loss attributable to Common shareholders for the
nine-month period ended September 30, 2000 is $5,369,044 as compared to
$5,639,150 for the same period of 1999. This represents a net loss per share of
$0.66 for the first three quarters of 2000, as compared to a net loss of $0.70
per share in the first three quarters of 1999. The preferred stock dividends
include accrued dividends of $45,000 and a beneficial conversion feature for the
100,000 shares of Series C Stock of $550,000.
Liquidity and Capital Resources
At September 30, 2000 the Company had a working capital deficit of
$2,916,189 as compared to working capital of $414,132 at December 31, 1999. Also
at September 30, 2000, the Company had a stockholders deficit of $901,320.
Through September 30, 2000 these amounts reflect the effects of the Company's
continuing losses as well as borrowings against Notes totaling $375,000 and its
$2,500,000 line of credit, $500,000 of which was considered to be a long-term
liability at December 31, 1999 and Notes totaling $375,000 held by Dr. Derace
Schaffer and Mr. John Pappajohn who are Directors of the Company. Since its
inception, the Company has primarily funded its operations, working capital
needs and capital expenditures from the sale of equity securities. The Company
completed an initial public offering of its common stock on January 8, 1997, at
which time it generated net proceeds to the Company of $16,314,048.
On March 31, 2000, the Company completed a private placement of 100,000
shares of newly issued Series C 9% Cumulative Convertible Preferred Stock
("Series C"), raising $1,000,000 in total proceeds. These shares can be
converted into Common Stock at a rate of 8 shares of Common Stock to 1 share of
Series C Preferred Stock. Each Series C share has voting rights equivalent to 8
shares of Common Stock (800,000 shares). The proceeds from this issuance have
been used to support the Company's operations.
The fair market value of the Company's Common Stock at the time of issuance
of Series C Preferred Stock was $1.9375 per share. The Series C Shares are
convertable at a price equal to $1.25 per share of Common Stock resulting in a
discount, or beneficial conversion feature, of $0.6875 per share. The
incremental fair value of $550,000 for the 100,000 shares of Series C Preferred
issued is deemed to be the equivalent of a preferred stock dividend. The
Comapany recorded the deemed dividend at the date of issuance by offsetting
charges and credits to additional paid-in capital of $550,000, without any
effect on total stockholders' equity. The amount increased the loss applicable
to common stockholders in the calculation of basic net loss per share for the
three and nine-month periods ended September 30, 2000. Form 10-Q/A amendments to
the Company's three and six month periods ended March 31, 2000 and June 30, 2000
respectively were filed simultaneously with this Form 10-Q to reflect the
adjustment to paid-in capital, reclassifications consistent with current
presentation and net loss per share for such periods. No adjustment was made to
any other information included in such filings.
In December 1999, the Company established a credit facility for $1,500,000
guaranteed by Derace Schaffer and John Pappajohn, directors of the Company. In
consideration for their guarantees, the Company granted to Dr. Schaffer and Mr.
Pappajohn warrants to purchase an aggregate of 375,000 shares of common stock
for $1.5625 per share. In March 2000, the facility was increased by $1,000,000
under substantially the same terms, also guaranteed by the same Board members.
Because this line of credit is due and payable on March 31, 2001, amounts
outstanding at September 30, 2000 and December 31, 1999 are reported as current
and long-term liabilities, respectively. Additional warrants to purchase an
aggregate of 250,000 shares of Common Stock for $2.325 per share, were granted
to Dr. Derace Schaffer and Mr. John Pappajohn for their guarantee of this
additional line of credit.
In August 2000, the Company borrowed $125,000 and in September 2000 an
additional $62,500 from Mr. John Pappajohn. Proceeds from these loans were used
to support the Company's operations. The interest on these loans is 9.5% per
year.
In August 2000, the Company borrowed $125,000 and in September 2000 an
additional $62,500 from Dr. Derace Schaffer. Proceeds from these loans were used
to support the Company's operations. The interest on these loans is 9.5% per
year.
The loans from Mr. Pappajohn and Dr. Schaffer are demand Notes and intended
to be secured by the assets of The Company.
The Company anticipates that it will need to borrow additional funds before
it can secure additional capital through the issuance of additional securities.
The Company's current directors have no obligation to continue to provide funds
There can be no assurances given that the company can borrow the additional
amounts needed or that the Company can sell additional securities.
The Company has expended substantial amounts to expand its operational
capabilities and strengthen its infrastructure, which at the same time has
increased its administrative and technical costs. In addition, the Company's
cash has been steadily depleted as a result of operating losses. The Company
anticipates that its losses will continue or increase and the Company's
available capital has been limited to loans from certain of its directors which
loans may not continue to be available. Accordingly, the Company has been
required, and will for the foreseeable future continue to be required, to seek
additional capital to maintain its operations. The Company is continuing its
efforts to raise additional capital privately through the sale of convertible
preferred stock or otherwise. However, no assurance can be given that the
Company will be able to obtain additional financing on favorable terms, if at
all. In addition, any additional financing, which includes the issuance of
additional securities of the Company, may be dilutive to the Company's existing
stockholders. If the Company is unable to identify additional capital, it will
be required to cease operations.
Nasdaq Listing Status
The Company's securities were delisted from the Nasdaq Stock Market
effective September 14, 2000. The Company's securities were immediately eligible
to trade on the OTC Bulletin Board.
Inflation
Inflation did not have a significant impact on the Company's costs during
the three and nine-month periods ended September 30, 2000 and September 30,
1999. The Company continues to monitor the impact of inflation in order to
minimize its effects through pricing strategies, productivity improvements and
cost reductions.
<PAGE>
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, if any, in certificates of
deposit and U.S. government bonds and other bonds that are subject to changes in
short-term interest rates. Accordingly, the Company believes that the market
risk arising from its holding of these financial instruments is minimal. The
Company did not make any purchases of available-for-sale securities in the three
months ended September 30, 2000.
<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 5. Other Information
Series D Preferred Stock
On September 9, 2000, the Company issued a term sheet to specific private
investors for the sale of 700,000 shares of Series D Convertible Preferred
Stock. Proceeds of the proposed sale would be $7,000,000. The Series D
Convertible Preferred Stock would accrue a 9% cumulative dividend and can be
converted into Common Stock at a rate of 10 shares of Common to 1 share of
Preferred Stock. Each share of Series D Convertible Preferred Stock would have
voting rights equal to the number of shares of Common Stock into which it can be
converted. No assurance can be given that any funds will be invested or that the
terms of the Series D Convertible Preferred Stock will not change before the
shares are sold.
Intended Asset Aquisition
On August 31, 2000, the Company executed a Letter of Intent to acquire
substantially all the assets of American CareSource Corporation and Health Data
Solutions (collectively known as "ACS/HDS"). The Company is negotiating the
terms of a definitive agreement to complete this acquisition through the
issuance of 7,500,000 shares of the Company's Common Stock, which is currently
unregistered.
Health Data Solutions provides modular software solutions that automate all
aspects of claims processing, including formatting, re-pricing, adjudication,
data transfer/EDI, payments, and data warehousing. The software can be hosted on
the client's hardware, accessed via the Internet as an ASP, or operated by HDS
in a fully outsourced environment.
American CareSource provides coordination and case management of ancillary
services through a national network of contracted providers in 30 different
ancillary service categories.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
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(a) (10.40) Form of Promissory Notes payable to Dr. Schaffer and Mr. Pappajohn
(11) Statements of Computation of Per Share Earnings
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,2000
<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
