<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For Period Ended September 30, 2000
------------------------------------------------
[ ] 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 333-76427
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Panoramic Care Systems, Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE 84-1165714
------------------------ -------------------------
(State of Incorporation) (IRS Employer ID Number)
11432 Tesson Ferry Road St Louis, MO 63123
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(Address of principle executive offices) (city) (state) (zip code)
(314) 849-2700
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Registrant's telephone number including area code
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 past 90 days.
YES NO X
--- ---
Transitional Small Business Disclosure format (check one):
YES NO X
--- ---
The number of shares outstanding of the Registrant's $0.001 par value common
stock on November 15, 2000 was 8,618,035.
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PANORAMIC CARE SYSTEMS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 15
PART II. OTHER INFORMATION 16
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PANORAMIC CARE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 5,566 $ 119,684
Accounts receivable:
Trade, net of allowance for doubtful accounts 308,718 337,022
Prepaid expense and other 74,628 46,796
----------- -----------
Total current assets 388,912 503,502
PROPERTY AND EQUIPMENT, AT COST: 844,571 702,836
Less accumulated depreciation (491,807) (347,370)
----------- -----------
Net property and equipment 352,764 355,466
SECURITIES AVAILABLE FOR SALE -- 526,941
CAPITALIZED SOFTWARE COSTS, net of accumulated
amortization of $247,195 and $106,360, respectively 316,146 456,981
----------- -----------
Other assets 10,105 10,103
Deferred taxes -- 16,095
TOTAL ASSETS $ 1,067,927 $ 1,869,088
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 503,441 $ 341,926
Bank line of credit 264,158 232,819
Accrued liabilities 206,125 313,245
Accrued bonus 112,500 --
Accrued 401k liability 69,028 25
Notes payable 25,000 12,929
Current portion - long term debt 24,123 --
Current portion - capital lease obligation 90,678 105,230
----------- -----------
Total current liabilities 1,295,053 1,006,174
CAPITAL LEASE OBLIGATIONS, less current maturities 6,519 75,030
LONG-TERM DEBT, less current maturities 15,434 88,977
STOCKHOLDERS' EQUITY
Common stock, par value $.001 per share; authorized 50,000,000 shares;
8,618,035 and 8,375,000 issued and outstanding September 30, 2000
and December 31, 1999, respectively 8,618 8,375
Additional paid-in capital 3,724,195 2,408,193
Accumulated other comprehensive earnings, net -- 151,018
Accumulated deficit (3,981,892) (1,868,679)
----------- -----------
Total stockholders' equity (249,079) 698,907
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,067,927 $ 1,869,088
----------- ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
PANORAMIC CARE SYSTEMS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Software license fees $ 318,991 $ 671,864 $ 1,548,508 $ 2,353,614
Services 444,373 367,004 1,436,822 1,020,928
Royalties -- 894 -- 894
----------- ----------- ----------- -----------
Total revenues 763,364 1,039,762 2,985,330 3,375,436
OPERATING EXPENSES
Cost of license fees 16,599 66,954 60,462 103,750
Cost of service 446,634 92,907 779,705 370,690
Product development 3,435 -- 16,960 --
General and administrative 1,436,703 1,046,951 2,884,072 3,059,626
Sales and Marketing 765,508 213,881 1,322,941 552,213
Engineering 70,486 37,160 179,184 127,648
----------- ----------- ----------- -----------
2,739,365 1,457,853 5,243,324 4,213,927
Operating loss (1,976,001) (418,091) (2,257,994) (838,491)
OTHER INCOME (EXPENSE):
Loss on sale of fixed assets -- -- (3,033)
Misc Income -- 1,959 2,830
Interest and dividend income 7,881 19,355 22,398 32,329
Gain (loss) on sale of securities -- (1,011) 172,389 --
Interest expense (14,253) (8,388) (29,580) (17,047)
----------- ----------- ----------- -----------
Total other income (expense) (6,372) 11,915 165,207 15,079
Income before taxes (1,982,373) (406,176) (2,092,787) (823,412)
Income tax benefit (expense) 17,165 (20,427) 58,027
NET INCOME (LOSS) $(1,982,373) $ (389,011) $(2,113,214) $ (765,385)
=========== =========== =========== ===========
BASIC AND DILUTED LOSS
PER COMMON SHARE: $ (0.23) $ (0.05) $ (0.25) $ (0.11)
=========== =========== =========== ===========
BASIC AND DILUTED
WEIGHTED AVERAGE
SHARES OUTSTANDING 8,586,344 8,146,163 8,476,898 7,136,379
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
PANORAMIC CARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $(2,113,214) $ (765,385)
Adjustments to reconcile net loss to net cash from operating activities:
Issuance of warrants for consulting services 53,104 --
Depreciation & software amortization 285,274 144,213
Provision for doubtful accounts -- 30,000
Loss on sale of investments -- 3,033
Deferred tax expense 16,095
Realized gain on sale of securities available for sale (172,389) --
(Increase) decrease in accounts receivable 28,304 (370,985)
Increase in prepaid expenses (27,832) (111,478)
Increase in accounts payable 161,515 47,424
Increase (decrease) in accrued liabilities 74,383 (17,861)
Increase in officer note -- (160,600)
Increase in accrued bonus -- 1,137,000
----------- -----------
Net cash provided by (used in) operating activities (1,694,760) (64,639)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchased securities available for sale (76,874)
Proceeds from sale of securities available for sale 548,310
Purchase of property plant and equipment (141,736) (201,806)
Capitalized software costs -- (316,837)
----------- -----------
Net cash used in investing activities 406,574 (595,517)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from short-term debt 56,339 85,064
Repayment of long-term debt (49,420) (158,416)
Proceeds (payment) of Margin debt (12,929) 9,440
Distributions to shareholders (225,000) --
Principal payments on capital on lease obligations (83,064) (21,475)
Proceeds from issuance of special warrants, net of offering costs 1,334,976 1,081,171
Proceeds from exercise of warrants 203,616 --
IPO issuance costs (50,450) --
Stock subscriptions receivable -- 99,400
----------- -----------
Net cash provided by financing activities 1,174,068 1,095,184
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (114,118) 435,028
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 119,684 459,724
----------- -----------
CASH AND EQUIVALENTS, END OF PERIOD $ 5,566 $ 894,752
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
PANORAMIC CARE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER TOTAL
PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT INCOME EQUITY
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 8,375,000 $ 8,375 $ 2,408,193 ($1,868,679) $ 151,018 $ 698,907
Issuance of stock pursuant to exercise of warrant 243,035 243 203,373 -- -- 203,616
Issuance of special warrants pursuant to private
placement net, of offering costs, February and
April 2000 -- -- 1,334,976 -- -- 1,334,976
IPO issuance costs -- -- (50,450) -- -- (50,450)
Cash Dividend paid by pooled company (225,000) -- -- (225,000)
Issuance of options for consulting services -- -- 53,104 -- -- 53,104
Recognition of other comprehensive income -- -- -- -- (151,018) (151,018)
Net loss for the Nine months ended
September 30, 2000 -- -- -- (2,113,214) -- (2,113,214)
---------- ----------- ----------- ----------- ----------- -----------
BALANCE, September 30, 2000 8,618,035 $ 8,618 $ 3,724,196 ($3,981,893) $ -- $ (249,079)
========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
PANORAMIC CARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION - BASIS OF PRESENTATION
These statements reflect all adjustments, consisting of normal
recurring adjustments, which in the opinion of management, are
necessary for fair presentation of the information contained therein.
The Company follows the same accounting policies in preparation of
interim reports.
The accompanying consolidated interim financial statements include the
accounts of Panoramic Care Systems, Inc. and its wholly-owned
subsidiaries, Management-Data, Inc. ("MDI"), (collectively PCS or the
"Company") and have been prepared by the Company, without audit, in
accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-QSB and
Article 10 of Regulation S-X. The consolidated balance sheet as of
September 30, 2000 and the consolidated statements of operations for
the three and nine months ended September 30, 2000 and 1999, and the
consolidated statements of cash flows for nine months ended September
30, 2000 and 1999, are unaudited but include all adjustments
(consisting of normal recurring adjustments) which the Company
considers necessary for a fair presentation of the financial position
at such date and the operating results and cash flows for those
periods. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information normally included in financial
statements and related footnotes prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the rules and regulations of the Securities and Exchange Commission.
Results for any interim period are not necessarily indicative of
results for any other interim period or for the entire year. In the
opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present
fairly the financial position as of September 30, 2000 and the
consolidated results of operations and consolidated statement of cash
flows for the periods presented. These statements reflect all
adjustments, consisting of normal recurring adjustments, which in the
opinion of management, are necessary for fair presentation of
information contained therein. The results of operations for the nine
month periods ending September 30, 2000 and 1999 are not necessarily
indicative of results to be expected for the full year.
The consolidated financial statements of the Company for the three
months and nine months ended September 30, 2000 and the audited
consolidated financial statements ending December 31, 1999 have been
restated to give retroactive effect to the acquisition of MDI on August
25, 2000 which have been accounted for using the pooling of interests
method and, as a result, the financial position, results of operations
and cash flows are presented as if the combining companies had been
consolidated for all periods presented and the consolidated statement
of stockholders' equity reflect the accounts of Panoramic as if the
additional common stock issued in connection with the mergers had been
issued for all periods presented.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's Annual Report on Form 10-KSB for the year ended December
31, 1999 and the Company's Current Report on Form 8-K and 8-K/A filed
with the Securities & Exchange Commission on September 9, 2000 and
November 7, 2000, respectively filed with the Securities and Exchange
Commission.
As part of the acquisition of MDI the Company began doing business as
MDI Technologies, Inc. to better brand its common products under one
common name. The Company will be seeking shareholder approval for this
name change at a shareholder meeting when appropriate.
2. BUSINESS ACQUISITIONS
Effective August 25, 2000, the Company completed the acquisition
(the"Acquisition") of MDI located in St. Louis, Missouri which provided
for the exchange of all of the outstanding stock of MDI for 3,500,000
shares of PCS common stock. The acquisition has been accounted for as a
pooling of interests. Acquisition costs of the combined entity totaled
approximately $ 329,410 and are directly related to the acquisition and
where expensed during the third quarter, which include bankers fees,
audit fees, legal fees, and printing fees.
Pooling Company Nature of Operations Merger Date
Management-Data, Inc. Long-term care software August 25, 2000
7
<PAGE> 8
Revenue and net loss of PCS, MDI as consolidated for the periods
presented are as follows:
<TABLE>
<S> <C>
REVENUE:
Nine Months Ended September 30, 2000
PCS through August 25, 2000 $ --
MDI through August 25, 2000 2,764,409
-----------
Subtotal 2,764,409
PCS/MDI from August 25 to September 30, 2000 220,921
-----------
PCS, consolidated 2,985,330
===========
NET LOSS:
PCS through August 25, 2000 (1,344,564)
MDI through August 25, 2000 (535,880)
-----------
Subtotal (1,880,444)
PCS/MDI from August 25 to September 30, 2000 (232,770)
-----------
PCS, consolidated (2,113,214)
===========
</TABLE>
Intercompany payables of approximately $328,750 have been eliminated
during the period.
3. TRADE RECEIVABLES
The following information summarizes trade receivables:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
<S> <C> <C>
Accounts Receivable 338,718 367,022
Less allowance for doubtful accounts (30,000) (30,000)
------------- -------------
$ 308,718 $ 337,022
============= =============
</TABLE>
The Company has no costumers that comprised 10% or more of the sales
through the nine month ending September 30, 2000. The Company had one
customer that represented 11% or $ 54,746 of the total accounts
receivables as of September 30, 2000. This customer currently has a
scheduled payment plan and is current on this payment plan and it is
felt that the account is collectable.
4. REVENUE RECOGNITION
The Company's revenue is derived from the licensing of computer
software and from service revenues consisting of maintenance and
support, training and consulting. License fee revenues are recognized
when the license agreement has been signed, the software has been
shipped, the fees are fixed and determinable and collection is
probable. Revenue from software maintenance and support is recognized
ratably over the contract period. Software maintenance and support is
8
<PAGE> 9
billed monthly at the time the support is due from the customer for the
current months services and is due 30 days from billing. The Company
then establishes a reserve for the collectability of that maintenance
and support receivable. All costs associated with licensing of software
products, support and update services, and training and consulting
services are expensed as incurred.
5. COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss), net of tax, are listed
below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income (loss) $(1,998,468) $ (389,011) $(2,113,214) $ (765,385)
Other comprehensive income (loss):
Reclass adjustment for realization of
previous unrealized gains -- -- 151,080 --
----------- ----------- ----------- -----------
Comprehensive income (loss) $(1,998,468) $ (389,011) $(2,264,294) $ (765,385)
=========== =========== =========== ===========
</TABLE>
6. NET INCOME (LOSS) PER SHARE
Basic earnings (loss) per share are calculated by dividing the net loss
by the weighted average common shares outstanding during the period.
For purposes of computing diluted earnings per share, dilutive
securities are not included when the effect is anti-dilutive.
Options to employees to purchase 532,417 shares and warrants to
purchase 1,701,764 shares of common stock were not included in the
computation of diluted earnings per share because their effect was
anti-dilutive for the period ending September 30, 2000.
9
<PAGE> 10
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-QSB that are not historical or
current facts are "forward-looking statements" made pursuant to the
safe harbor provisions of Section 27A of the Securities Act of 1933
("The ACT") and Section 21E of the Securities Exchange Act of 1934.
These statement often can be identified by the use of terms such as
"may," "will," "expect," "believes," "anticipate," "estimate,"
"approximate" or "continue," or the negative thereof. The Company
intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, which
speak only as of the date made. Any forward-looking statements
represent management's best judgment as to what may occur in the
future. However, forward- looking statements are subject to risks,
uncertainties and important factors beyond the control of the Company
that could cause actual results and events to differ materially from
historical results of operations and events and those presently
anticipated or projected. These factors include adverse economic
conditions, entry of new and stronger competitors, inadequate capital,
unexpected costs and failure to capitalize upon access to new markets.
You should understand that various factors, in addition to those
discussed elsewhere in this document and in the documents referred to
in this document, could affect the future results of the Company and
could cause results to differ materially from those expressed in such
forward-looking statements. The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events
or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion and analysis of Panoramic Care
Systems, Inc.'s consolidated financial condition and results of
operations for the three months and nine months ended September 30,
2000 and 1999. We also discuss certain factors that may affect our
prospective financial condition and results of operations. This section
should be read in conjunction with the Condensed Financial Statements
and the Company's 10-KSB and the Current Report on Form 8-K and 8-K/A
filed on September 9, 2000 and November 6, 2000, respectively filed
with the Securities and Exchange Commission and is available from the
Company at no charge.
On August 25, 2000, the Company completed the acquisition of
Management-Data, Inc. (MDI). This resulted in the Company expanding its
software offerings to include the fully functional line of software
provided by MDI. In September, the Company closed its offices in
Colorado and moved the Corporate headquarters to St. Louis, MO, the
location of MDI. The Company began utilizing a common name and is now
doing business as MDI Technologies, Inc. to build a better brand
awareness of the combined product offerings of PCS and MDI. Upon
completion of the acquisition, the Company has begun to integrate PCS'
Integrity software, with its Clinical Pathways, into MDI's software
suite. This will provide the Company with what we perceive to be a
leading edge application. This unique program is the only
clinically-based reimbursement system in the long-term care industry.
In July 2000, the Company released PREVIEW software in beta.
PREVIEW provides users with projected revenue and cost information for
each patient during the admission process. This tool is designed to
capture both demographic information from the MDI platform, and costs
from PCS Clinical Pathway system. The product then compares these
results to the provider reimbursement rate. This comprehensive
comparison will provide facilities with valuable information to better
control costs in a capitated-rate environment. The product will be the
first in a series of combined Application Service Providers ("ASP")
offerings delivered by the Company to its customers exclusively via the
ASP. The Company currently has 8 customers in beta using the product
with initial response to the product being very positive. PREVIEW'S
expected final release is November 2000.
The Company sells computer software and provides consulting
services to healthcare professionals to assist in identifying,
estimating, and managing costs and expenses related to the provision of
patient care services in extended-stay healthcare facilities. PCS
software, Integrity, uses patient symptoms and diagnoses to develop a
detailed treatment plan and forecast expected costs of treatment to the
healthcare provider. MDI software, On-Line Advantage, is designed for
the increasingly complicated regulated reporting needs of the long-term
care setting. The suite of products includes modules that provide all
aspects of financial reporting, including general ledger, accounts
receivable, accounts payable
10
<PAGE> 11
and payroll. Clinical products include MDS, Care Plans, Physicians'
Orders and Vitals Charting programs. These integrated clinical and
accounting programs provide for open communication for accurate
Medicare billing under the Perspective Payment System for reimbursement
(PPS). Other programs include QuickAdmit, an admissions application
that streamlines the admissions process, and Touch Time, a time and
attendance software that integrates with the payroll system.
In August, the Company signed a letter of intent to acquire
Continuex Corporation of Bellevue Washington. Continuex provides
software applications to the long-term care industry and services
approximately 200 customers in the Pacific Northwest region of the U.S.
If consummated, this acquisition will allow the Company to quickly gain
additional market share. Continuex clients will be converted to MDI's
software platform which will allow the Company to support the clients
from a centralized call center. The acquisition is dependent on the
completion of a funding round currently contemplated to close in
November 2000.
The Company will continue to aggressively expand its market
share of long-term care facilities by building its infrastructure and
transitioning to an Application Service Provider (ASP) model for
delivering software. The Company has intentionally increased its
expenditures in this time period in an attempt to increase market
share. From May 2000 through October 2000, the Company increased its
employee base from 26 to 48 personnel in all areas including R&D,
Support staff, Sales and Marketing. During this period, the Company
added 6 new sales staff for a total of 7 regional sales
representatives, a Director of National Accounts, a Director of Sales
and a Director of Marketing. With this growth, the Company has focused
on expanding its position as an ASP to deliver On-Line Advantage
software over the Internet. With this new delivery system, the Company
has contracted with 50 facilities (over 150 users) using this service
since January 2000. MDI has successfully operated with a limited
recurring revenue model for the past 18 years through Support Service
contracts. By increasing recurring revenues via a subscription ASP
model, management believes that it is better positioned to purse
long-term profitability.
MDI developed its applications with the aim of: (i) automating
access to all pertinent data; (ii) providing standardized guidance as
to when and where to most appropriately deliver each service a patient
requires; and (iii) automating the documentation to assure timely
reimbursement and compliance.
MDI is attempting to achieve four goals with it's product:
1. Minimize costs by effectively managing the
clinical and financial services delivered;
2. Reduce the administrative time associated
with regulatory and guideline compliance;
3. Provide users with the ability to accurately
diagnose and track services delivered to
assist in delivering adequate quality of
care, efficiently; and
4. Enable the sharing of information between
care-giving facilities.
In an effort to continue as a leading edge provider of
industry application to the long term care market and to leverage the
combined companies technology, the Company is developing the Enhanced
Clinical Option ("ECO"), which will incorporate the PCS Clinical
Pathways product into the MDI On-Line Advantage suite of products. This
module, when released, will be the only true clinical pathways product
designed for the long-term care marketplace using both diagnoses and
resident symptoms. The Company believes that by expending resources in
this area, the Company will be able to offer additional features not
currently available from its competitors.
The Company's progress, in terms of re-inventing itself into
an ASP provider, is proceeding ahead of projections. The acceptance
level of the ASP delivery system, with new customers as well as
existing customers who are converting to this model, is currently
outpacing the Company's projections. The Company realizes that an
increase in acceptance will generate less immediate revenues and more
long-term recurring revenues. This is consistent with the Company's
long-term goals and objectives.
Our limited operating history in the development and delivery of
software application over the Internet, makes it difficult or
impossible to predict our revenues and operating results. We believe
that our prospects should be considered in light of the risks and
difficulties encountered by the Company transitioning its revenue to
that of a recurring revenue model through the deliver of its software
applications over the Internet. The Company is dependent, to an extent,
on the continued rollout of broadband telecommunication services to
both rural and metropolitan areas in order to successfully implement
this strategy/ The Company is also reliant on the successful build out
of an ASP platform internally or the strategic partnering with an
existing ASP in the Internet space. Additionally, the Company must be
successful in the acquisition and integration of these acquisitions
into the Company's infrastructure. We may not be successful in
addressing these risks and difficulties.
11
<PAGE> 12
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
Net revenue for the three months ended September 30, 2000 was
$764,364. This was a decrease of $276,398 or 27% from $1,039,762 for
the three months ended September 30, 1999. Service revenues for the
three months ended September 30, 2000 totaled $444,373, an increase of
21% or $77,369 from the three months ended September 30, 1999. This
increase is the result of the recurring revenue stream from maintenance
support service contracts. The increase is the direct result of having
more software sites installed over the previous year, as well as the
Company's focus of delivering content via an ASP model. At September
30, 1999 the Company had 500 installed sites versus 700 at September
30, 2000 resulting in increased recurring revenues being billed.
Software license fees decreased $352,873 or 53% over the same three
month period in 1999. The software license fee decrease is associated
with a shift in new business from a "shrink wrap" or one time sale for
software license, to a monthly recurring sale or "subscription" model
through the ASP. This decrease will possibly continue for the short
term since the Company's objective is to focus on selling its software
through the ASP, and to increase the recurring revenue stream over the
long term with ongoing subscription fees, which are significantly
higher than the standard maintenance and service contract fees.
Cost of license fees and service, associated with installing
and maintaining license and services, in the current quarter was
$463,233 an increase of $303,372 or 190%. The increase is associated
with increased payroll due to the hiring of additional support and
training personnel totaling $41,000 and training manuals totaling
$10,000.
Sales, General and Administrative and Engineering Expenses
(SG&A and Engineering) increased $1,331,867 or 96% from $1,390,899 in
1999 to $2,722,766 for the quarter ending September 30, 2000. General
and Administrative expenses increased $389,752 mainly due to merger
costs for legal, accounting and banker fees of $329,000 and travel
expenditures of $50,000. Sales and Marketing increased $551,627 or 258%
over the same nine month period in 1999. This increase was mainly from
expenditures to announce the acquisition of MDI, and to brand the
combined Company's new image. In June 2000, the Company engaged an
advertising and creative/media company, resulting in the Company
incurring and additional $5,000 monthly fee to create a new logo,
business stationary and new marketing material. This included new
marketing materials, demonstration CD's and packages, and trade show
"give-aways". Marketing expense also includes a direct mail program,
targeting 19 states, that was launched in April 2000. Additionally, the
Company expended $100,000 to acquire new state-of-the art booth, with
an Internet cafe to promote the Company's ASP technology for industry
conventions. In the quarter, the Company attended two major, national
industry conventions. At one of the large national conventions the
Company hosted a $20,000 dinner for the 7,000 attendees. The Company
exhibited at twenty state conventions in the third quarter. The Company
expended advertising dollars in four major long-term care publications,
promoting the merged companies of PCS and MDI and the ASP services.
This advertising runs through December 2001. These expenses resulted in
$180,000 being expended over the same period in 1999, travel increasing
$30,000 and an increase in payroll of $82,000 from the addition of
sales representatives in the third quarter. Engineering increased
$33,326 or 90% over the same three month period in 1999 due to four
additional employees being hired in the quarter to develop additional
ASP based products for the long-term care market.
Other income and expenses decreased from an income of $11,915
in 1999 to an expense in 2000 of $6,372 mainly due to a decrease of
interest and dividend income of $11,474 or 59% and an increase of
interest expense of $5,865 or 70% due to increased leasing associated
with expenditures for equipment to grow the ASP aspects of the
Company's growth.
Net Loss was $ $1,982,373 for the three months ended September
30, 2000, compared to a $389,011 net loss for the same period in 1999,
or an increase of $1,593,362 over the same period. The net losses are
associated with the increased SG&A and engineering in completing the
merger with MDI in addition to the expansion of the Company's sales and
marketing and training/support to expand the growth of the Company's
ASP strategy. Additionally, the increase in the loss is associated with
the transition of "shrink wrap" software sales to ASP subscription
revenue model in which the Company has implemented 40 installs in
fiscal 2000 for the period ending September 30, 2000.
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RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Net revenue for the nine months ended September 30, 2000 was
$2,985,330 compared to revenues of $3,375,436 for the same period in
1999. This represents a decrease of $390,106 or 12% over the nine
months ending September 30, 1999. The decrease is associated with a
decrease in software license fee with an offset increase in services
fees. This shift is due the Company changing its focus to deliver of
its software in an ASP format, for increased recurring revenue, versus
the reliance on one-time software sales.
Cost of license fees and service expense, associated with
installing and maintaining license and services, was $840,167
increasing 77% or $365,727 over the same period in 1999. The largest
percentage of the increase was due to the addition of five support
personnel which resulted in additional salary and benefits of $116,000.
Other expenses included, training manuals and support materials of
$48,000, recruiting bonus of $17,000, a consulting firm for the ASP
system and training due to staff shortages totaling $53,000, and
additional travel totaling $25,000 in support of the additional
software installs over the same period in 1999.
Sales, General and Administrative and Engineering Expenses
(SG&A and Engineering) increased $663,670 or 18% from $3,739,487 for
the nine months in 1999 to $4,403,157 for the same nine months period
in the 2000. General and Administrative expenses decreased by $175,554
or 6% over the same nine month period in 1998. The largest decrease
pertains to a reduction in bonus expense by $615,000 and the departure
of a president in 1999 resulting in a reduction of $75,000. Consulting
expenses increased $55,000, travel expense increased by $50,000,
printing material increased $90,000, and merger expenses totaling
$329,000 in the quarter. Sales and marketing increased $770,728 or 140%
over the same nine month period in 1999. Salaries and benefits increase
$165,000 due in part to the increase in the third quarter by six sales
personnel and bonus paid to officers of MDI. Marketing events increased
by $207,000 due to the Company attempting to develop more market
awareness by attending more national conventions, advertising in
industry publications and a larger direct mail campaign in 2000 over
the same nine month period in 1999. Additionally, Sales and marketing
spent an additional $62,000 in travel over the same nine month period
in 1999 relating to marketing events attended and travel to assist
sales representatives in their sales activities. Engineering increased
$51,536 or 40% over the nine months ended September 30, 1998 due to
travel increasing $6,000, telephone increasing $7,000 and outside
consulting increasing $5,000.
Other income and expenses increased $150,128 over the nine
month period ending September 30, 1999 from $15,079 to $165,207 for the
nine months ended September 30, 2000. The largest portion of the
increase is associated with the sale of marketable securities resulting
in a $172,389 gain in 2000. Interest and dividend income decreased by
$9,931 the over same nine month period in 1999 due to the liquidation
of the marketable securities. Interest expense increased $12,533 or 10%
due to additional equipment being leased.
Net loss totaled $ $2,113,214 for the nine months ended
September 30, 2000, compared to $765,385 net loss for the same period
in 1999, or an increased loss of $1,347,829 over the same period. The
net loss is associated with the increased SG&A necessary to ramp
quarterly sales growth.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter, the Company completed a private
placement begun in December 1999, of 625,000 special warrants at $.56
to officers and friends of the Company. Each special warrant can be
converted, for no additional
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consideration, into one share of common stock with one-half warrant
attached and the exercise price of the warrant being $0.56 per share.
The Company accepted a subscription and issued 187,500 special warrants
to an officer of the Company resulting in the receipt of $104,887 net
of issuance costs of $113 in December 1999. The Company closed on
$245,000 or 437,500 special warrant to officers and friends of the
Company in February 2000. The Company received $242,165 net of issuance
costs.
In April 2000, the Company completed a private placement of
1,000,000 special warrants at $1.20. Each special warrant can be
converted, for no additional consideration, into one share of common
stock with one-half warrant attached and the exercise price of the
warrant being $1.38 per share. The Company issued 1,000,000 special
warrants and warrants to purchase 500,000 shares of the Company's
common stock at $1.20 in a private placement. The Company received net
proceeds of $1,092,810 after incurring issuance costs of $107,190.
During the nine months of 2000, warrant holders exercised
warrants resulting in the issuance of 243,035 common shares resulting
in proceeds to the Company of $203,616.
The Company currently has 532,417 stock options and 1,701,764
warrants outstanding. All the options and warrants are exercisable at a
price from, $.56 - $4.47 per share. If all stock options and warrants
were exercised, the Company would receive proceeds of $4,119,565. All
of these funds would be available to the Company as working capital.
CASH FLOW
During the nine months ending September 30, 2000, the Company
used cash from operations in the amount of $1,695,000 compared to
$65,000 in the prior year. This is the result of supporting increased
losses from operations and from the acquisition of MDI, related
acquisition fees incurred and expensed and the bonuses paid by the
owners of MDI during the first six months of operation. Additionally
the Company began expanding its personnel to more aggressively
penetrate the market and expand its customer base.
Cash generated from investing activities totaled $407,000
during the period ended September 30, 2000 compared to a use of $
596,000 in the prior year. The Company sold, in the first half of the
year, its securities available for sale resulting in $548,000 in funds
being generated. Additionally the Company acquired $142,000 in fixed
assets for the continued expansion of its ASP capabilities.
Cash generated by financing activities was $1,174,000 for the
period ended September 30, 2000 compared to $1,095,000 in the previous
year. The Company completed private placements resulting in receipt of
$1,335,000 net of issuance costs, received proceeds from the exercise
of warrants totaling $204,000 and incurred $51,000 in IPO expenses. The
Company had net debt decrease of $89,000 from the repayment of lease
obligation and long-term debt. This compares with cash generated from
initial public offering for the same period in 1999 resulting in
1,081,000 and net debt decrease of 85,000 for the same period in 1999.
The Company's net cash decreased $114,000 as a result of
increased losses and merger costs expensed in the third quarter.
Management believes the Company will utilize cash flow through 2000,
provided sufficient access to capital markets are available, due to
Company's focusing on shifting its objectives to become a deliverer of
software in an ASP format and the fixed assets required to expand in
this market space.
CAPITAL RESOURCES
The Company's cash flow has decreased over the last nine
months, due to the completion of the acquisition of MDI, bonus and
dividend payments by the shareholders of MDI prior to the completion of
the acquisition, merger costs expended in the third quarter, and
continued operating losses of PCS. In anticipation of the merger, MDI
began to expand its sales force and marketing efforts. MDI also
expanded it's software engineering department resulting in additional
losses in the third quarter. Also the shift from software licensing
fees to monthly recurring revenue for the ASP services reduced revenues
in the short term as the Company transitions to a recurring revenue
model. The Company will be required to raise additional funding through
external equity financing activities to fund the Company's plan to
execute on its vision of
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developing the best of breed software content, delivered via ASP, to
the long term care market. Management anticipates that the Company will
continue to invest significant resources in developing strategic
relationships and focusing on other acquisition targets.
Management believes that it has access to capital in the form
of additional equity financing, capital equipment leasing and bank
debt. Management anticipates it will continue to have access to
additional capital through these sources in amounts necessary to
support its growth plans. In the event that cash flow from operations,
together with the proceeds of any future financing, is insufficient to
meet the expenditures for acquisition debt and facility expansion, the
Company will be required to re-evaluate its planned expenditures and
redirect its resources in such manner as the board of directors and
management deems necessary.
The Company anticipates the need to spend between $750,000 to
$1,000,000 to expand its present ASP infrastructure to support the
sales activities of the Company. The Company is currently exploring in
conjunction with the possibility of building its own ASP
infrastructure, the potential of partnering with an ASP in hosting its
application on a third party ASP system versus building out its own
systems.
The Company will continue to capitalize software development
costs consistent with its strategy of the development of the software
for the marketplace.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27 Financial Data Schedule.
b) Reports on Form 8-K. During the quarter covered by
this report, the Company filed the following reports
on Form 8-K.
On September 9, 2000, the Company filed a Current
Report on Form 8-K dated August 25, 2000 that
reported the acquisition of Management-Data,
Inc.("MDI") including the filing of historical
financial statements of MDI and acquisition documents
of MDI as required by Item 7 Financial Statements and
Exhibits of Form 8-K.
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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.
(Registrant)
Date: November 20, 2000 /s/ Todd Spence
-------------------- ----------------------------------
Todd Spence
President, Chief Executive Officer
Date: November 20, 2000 /s/ Thomas Andrew
-------------------- ----------------------------------
Thomas Andrew
Chief Financial Officer and
Principal Accounting Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION
------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
18
