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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: June 30, 2001
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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)
(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 August 7, 2001, 10,956,024 common shares were outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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(unaudited)
ASSETS June 30, 2001 December 31, 2000
CURRENT ASSETS:
Cash and cash equivalents $ 4,320 $ 28,231
Accounts receivable 241,683 411,436
Prepaid expenses and other current assets 114,905 166,167
--------------------------------------
Total current assets 360,908 605,834
PROPERTY AND EQUIPMENT, net 659,234 827,050
Debt issuance costs (net of accumulated amortization of $866,433 and $664,750) 26,802 192,750
Intangible assets (net of accumulated amortization of $227,899 and $156,113) 394,824 466,610
Other assets 200,000 200,000
--------------------------------------
TOTAL ASSETS $ 1,641,768 $ 2,292,244
======================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 143,632 $ 233,545
Accrued salaries and wages 205,499 176,158
Borrowings from directors 2,601,000 1,171,000
Line of credit 2,500,000 -
Accrued expenses 467,852 238,561
Deferred revenue 122,809 161,961
--------------------------------------
Total current liabilities 6,040,792 1,981,225
--------------------------------------
LINE OF CREDIT - 2,500,000
STOCKHOLDERS' DEFICIT:
Common stock - $.01 par value: shares authorized:
20,000,000; issued and outstanding: June 30,
2001 - 10,956,024; December 31, 2000 - 8,220,202 109,560 82,202
Preferred stock - $.01 par value: shares authorized: 5,000,000
Series C, 9% cumulative, convertible
issued and outstanding - 100,000 1,000 1,000
Additional paid-in capital 24,377,848 24,016,798
Accumulated other comprehensive income 1,805 1,805
Accumulated deficit (28,889,237) (26,290,786)
--------------------------------------
Total stockholders' deficit (4,399,024) (2,188,981)
--------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,641,768 $ 2,292,244
======================================
See notes to unaudited condensed consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
REVENUES
Operations Fees $ 303,406 $ 548,113 $ 647,648 $ 1,132,294
Development Fees 27,061 17,200 56,346 21,200
Licensing Fees 27,500 33,427 54,000 45,826
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Total revenues 357,967 598,740 757,994 1,199,320
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COSTS AND EXPENSES
Cost of sales 613,417 1,205,857 1,320,709 2,371,919
Sales and marketing 204,271 271,550 429,190 685,661
General and administrative 378,017 407,578 731,449 882,512
Financing Costs 356,807 192,750 549,557 279,250
Research and development 42,106 77,647 95,431 163,199
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Total costs and expenses 1,594,618 2,155,382 3,126,337 4,382,541
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OPERATING LOSS (1,236,651) (1,556,642) (2,368,343) (3,183,221)
INTEREST EXPENSE (101,535) (44,604) (185,939) (63,499)
OTHER INCOME (EXPENSE) 627 (27,125) 831 (16,557)
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NET LOSS (1,337,559) (1,628,371) (2,553,452) (3,263,277)
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CONVERTIBLE PREFERRED STOCK DIVIDENDS (22,500) (22,500) (45,000) (572,500)
---------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,360,059) $ (1,650,871) $ (2,598,452) $ (3,835,777)
=====================================================================
NET LOSS PER SHARE - BASIC AND DILUTED $ (0.15) $ (0.20) $ (0.30) $ (0.48)
=====================================================================
WEIGHTED AVERAGE COMMON SHARES 8,919,357 8,071,095 8,569,779 8,070,095
=====================================================================
See notes to unaudited condensed consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------
Six Months Six Months
Ended Ended
June 30, 2001 June 30, 2000
OPERATING ACTIVITIES:
Net loss $ (2,553,452) $ (3,263,277)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 473,383 557,880
(Gain) loss on sale of property (305) 18,750
Compensation expense related to issuance of stock and warrants 352,673 1,042
Decrease in accounts receivable, net 169,753 48,181
Decrease in prepaid expenses and other current assets 25,500 50,144
Decrease in other assets - 37,723
Decrease in accounts payable (89,913) (310,762)
Increase (decrease) in accrued salaries and wages 29,341 (29,238)
Increase in accrued expenses 184,291 16,070
Decrease in deferred revenue (39,152) (34,687)
---------------------------------------
Net cash used in operating activities (1,447,880) (2,908,174)
INVESTING ACTIVITIES:
Property and equipment additions (6,831) (11,599)
Proceeds form the sale of property 800 18,240
---------------------------------------
Net cash (used in) provided by investing activities (6,031) 6,641
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock, net - 1,012,983
Borrowing from directors 1,430,000 -
Line of credit borrowings - 2,000,000
---------------------------------------
Net cash provided by financing activities 1,430,000 3,012,983
---------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (23,911) 111,450
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,231 489,521
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,320 $ 600,971
=======================================
Supplemental disclosures of non-cash information
Dividend delared on Class C Convertible Preferred Stock $ 45,000 $ 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.
PATIENT INFOSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements for the period
ended June 30, 2001
1. The accompanying condensed consolidated financial statements for the three
and six month periods ended June 30, 2001 and 2000 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.
These unaudited condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto, together with management's discussion and analysis of financial
condition and results of operations contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000. Certain
reclassifications of 2000 amounts have been made to conform to 2001
presentations. The results of operations for the three and six months ended
June 30, 2001 are not necessarily indicative of the results for the entire
year ending December 31, 2001.
2. 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. Additional warrants to purchase an
aggregate of 250,000 shares of Common Stock for $2.325 per share, were
granted to Dr. Schaffer and Mr. Pappajohn for their guarantee of this
additional line of credit. The estimated fair value of the warrants at
March 31, 2000 was 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 fully amortized $857,500 of debt
issuance costs as of March 31, 2001, the scheduled expiration date for the
line of credit agreement.
On March 28, 2001, the Company entered into an Amended and Restated Credit
Agreement with Wells Fargo Bank Iowa, N.A., which extended the term of the
credit facility to March 31, 2002 under substantially the same terms. Dr.
Schaffer and Mr. Pappajohn also guaranteed this extension. In consideration
for their extended guarantees, the Company re-priced the 625,000 warrants
previously granted in connection with prior guarantees to $0.05 per share,
effective April 1, 2001. The net value of these re-priced warrants is
$35,735. The Company is amortizing this amount as debt issuance cost using
a straight-line method over the 12-month period ending March 31, 2002. The
estimated fair value of the re-priced warrants was also determined using
the Black Scholes method.
3. The Company borrowed $1,430,000 for working capital from Mr. Pappajohn
during the six month period ended June 30, 2001. From June 30, 2001 through
August 10, 2001, the Company borrowed an additional $330,000 from Mr.
Pappajohn. Through August 10, 2001, a total of $2,931,000 has been borrowed
from Mr. Pappajohn and Dr. Schaffer, all of which is secured by the assets
of the Company. There can be no assurances that Mr. Pappajohn will continue
to make funds available to the Company. If such funds are not available,
the Company will cease operations.
On June 6, 2001, the Company issued a total of 2,319,156 shares of
unregistered Common Stock to Mr. Pappajohn and Dr. Schaffer as compensation
for their continued financial support of the Company. Based upon recent
trading of the Company's Common Stock at the time of issuance, the Company
assigned a fair market value of $0.15 per share or a total of $347,873 to
these unregistered shares and realized this amount as an operating expense
in June of 2001.
4. For the three-month periods ended June 30, 2001 and 2000, the calculations
for the basic and diluted loss per share were based upon loss attributable
to common stockholders of $1,360,059 and $1,650,871, respectively, and a
weighted average number of common shares of 8,919,357 and 8,071,095
respectively.
For the six-month periods ended June 30, 2001 and 2000, the calculations
for the basic and diluted loss per share were based upon loss attributable
to common stockholders of $2,598,452 and $3,835,777, respectively, and a
weighted average number of common shares of 8,569,779 and 8,070,095
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, 2001 and 2000 because the effect would
have been antidilutive due to the net loss in those periods.
5. 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 a net loss of for the three and
six month periods ended June 30, 2001 of $1,337,559 and $2,553,452,
respectively, and had an accumulated deficit of $28,889,237 at June 30,
2001. 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 ability to continue 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.
6. The Company holds an investment of Common Stock in a private company (the
"Investment") that is recorded at its historical cost of $200,000. The
Company has been made aware that the private company to which the
Investment relates is seeking an opportunity to be sold for a valuation
that would result in the Investment exceeding its carrying cost. No
assurance can be given that such sale, if any, will be at this valuation.
The market value of the Investment is not readily determinable. Management
believes that an impairment of the Investment, if any, is temporary.
7. On June 29, 2001, Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations" was issued by the Financial Accounting
Standards Board (FASB). SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June 30,
2001. Goodwill and certain intangible assets will remain on the balance
sheet and not be amortized. On an annual basis, and when there is a reason
to suspect that their values have diminished or impaired, these assets must
be tested for impairment, and write-downs may be necessary. The Company is
required to implement SFAS No. 141 on July 1, 2001 and it has not
determined the impact, if any, that this statement will have on its
consolidated financial position or the results of operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
issued by the FASB. SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this statement. The Company is required to implement
SFAS No. 142 by January 1, 2002 and has not determined the impact, if any,
that this statement will have on its consolidated financial position or
results of operations.
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, 2001 and
2000 and its financial condition at June 30, 2001. 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 ability to continue its operations as a
result of, among other things, continuing losses, working capital shortfalls,
uncertainties with respect to sources of capital, risks of market acceptance of
or preference for the Company's systems and services, competitive forces, the
impact of, 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, 2000.
Results of Operations
Revenues
Revenues consist of revenues from operations, development fees and
licensing fees. Revenues decreased from $598,740 and $1,199,320 during the three
and six month periods ended June 30, 2000 to $357,967 and $757,994 during the
three and six month periods ended June 30, 2001, or 40% and 37% respectively.
Three Months Ended Six Months Ended
June 30, June 30,
Revenues 2001 2000 2001 2000
Operations Fees
Disease Management and Compliance $ 116,597 $ 152,867 $ 253,774 $ 328,624
Surveys 36,059 131,478 86,180 261,887
Demand Management 132,750 240,494 271,694 473,256
Other 18,000 23,274 36,000 72,527
----------------------------- ----------------------------------
Total Operations Fees 303,406 548,113 647,648 1,136,294
Development Fees 27,061 17,200 56,346 17,200
Licensing Fees 27,500 33,427 54,000 45,826
----------------------------- ----------------------------------
Total Revenues $ 357,967 $ 598,740 $ 757,994 $1,199,320
----------------------------- ----------------------------------
Operations revenues are generated as the Company provides services to its
customers. Operations revenues decreased from $548,113 and $1,136,294 during the
three and six month periods ended June 30, 2000 to $303,406 and $647,648 during
the three and six month periods ended June 30, 2001, respectively. Operations
revenues continue to be the primary source of revenue for the Company.
Operations revenues declined because of the termination of assignments for the
conduct of surveys as a result of the elimination of a Medicare product by two
of the Company's primary customers and the completion of several compliance
programs that have not been replaced by new programs.
The Company's revenue has continued to decline. The Company has established
relationships with several new customers and entered into a joint marketing
relationship with one of its strategic partners. While revenues from these
relationships have been realized and are expected to grow, no assurances can be
given that such revenues will be material to the Company's results of operations
and financial condition. The Company has identified other possible new
customers, but there can be no assurance that such prospects will contribute
revenue in the near term, if at all.
Development fee revenues increased from $17,200 to $27,061 and from $17,200
to $56,346 for the three and six month periods ended June 30, 2000 and 2001,
respectively. This increase was due to increased focus on development of new
programs. Development fee revenue represents the amounts that the Company
charges its customers for the development or customization programs for which it
anticipates on-going operations revenues. The Company has entered into new
development agreements but anticipates that revenue from program development
will remain constant in the future.
License fee revenues recognized from the Case Management Support System
decreased to $27,500 from $33,427 for the three-month periods ended June 30,
2001 and 2000 respectively. License Revenue increased to $54,000 from $45,826
for the six month periods ended June 30, 2001 and 2000 respectively. These
changes are due to the negotiated schedule of fees in the ongoing contracts. 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 and six months ended
June 30, 2001 was $613,417 and $1,320,709 respectively as compared to $1,205,857
and $2,371,919 (a decrease of 49% and 44% respectively) for the three and six
month periods ended June 30, 2000. The decrease in these costs primarily
reflects a response to the decreased level of population and disease management
operational activities. The Company's gross margin continues to be negative. The
Company anticipates that revenue must increase before it will recognize
economies of scale. No assurance can be given that revenues will increase or
that, if they do, they will exceed costs and 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 and six month periods ended June 30,
2001 were $204,271 an $429,190 as compared to $271,550 and $685,661 for the
three and six month periods ended June 30, 2000. Spending in this area has
decreased due to the termination of staff and renegotiation of certain
compensation plans. The Company anticipates expansion of the Company's sales and
marketing staff and expects it will be required to invest in the sales and
marketing process, and that such expenses related to sales and marketing may
increase in future periods.
General and administrative expenses include the costs of corporate
operations, finance and accounting, human resources and other general operating
expenses of the Company. General and administrative expenses for the three and
six month periods ended June 30, 2001 were $378,017 and $731,449, as compared to
$407,578 and $882,512 for the three and six month periods ended June 30, 2000.
These expenditures have been incurred to maintain the corporate infrastructure
necessary to support anticipated program operations. The decrease in these costs
is a result of reductions in staff and closing of facilities in Pennsylvania and
Canada. The Company expects that general and administrative expenses will remain
relatively constant in future periods.
Financing costs consist of expenses incurred to obtain sufficient working
capital to continue operations. These expense have primarily consisted of
compensation cost for shares of the Company's Common Stock as well as warrants
to purchase the Company's Common Stock. Financing costs were $356,807 and
$549,557 for the three and six month periods ended June 30, 2001 as compared to
$192,750 and $279,250 for the three and six month periods ended June 30, 2000.
The increase in financing costs is a result of the Company's continued
dependence on debt to obtain working capital. Financing costs are expected to
remain relatively constant until such time as the Company can reduce its
dependence on debt to fund its operations.
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 and six months ended June 30, 2001 were $42,106 and
$95,431, as compared to $77,647 and $163,199 for the same periods of 2000.
The Company recorded interest expenses of $101,535 and $185,939 for the
three and six month periods ended June 30, 2001 as compared to $44,604 and
$63,499 for the three and six month periods ended June 30, 2000. These expenses
are related the Company's debt and are expected to increase steadily until the
Company becomes less dependant on debt to fund its operations.
The Company recorded other income of $627and $831 for the three and six
month periods ended June 30, 2001 as compared to expenses $27,125 and $16,557
for the same periods of 2000, principally due to the sale of certain assets.
The Company had a net loss attributable to the common shareholders after
preferred stock dividends, of $1,360,059 and $2,598,452 for the three and six
months ended June 30, 2001 as compared to $1,650,871 and $3,835,777 for the
three and six month periods ended June 30, 2000 respectively. This represents a
net loss per common share of $.30 for the first half of 2001, as compared to a
net loss of $.48 per common share in the first half of 2000. The preferred stock
dividends in 2000 include a beneficial conversion feature for the 100,000 shares
of Series C Stock of $550,000.
Liquidity and Capital Resources
At June 30, 2001 the Company had a working capital deficit of $5,679,884 as
compared to $1,375,391 at December 31, 2000. The June 30, 2001 amounts reflect
the effects of the Company's continuing losses as well as increased borrowings,
$2,500,000 of which was considered to be a long-term liability at December 31,
2000 but is classified as a current liability at June 30, 2001. Since its
inception, the Company has primarily funded its operations, working capital
needs and capital expenditures from the sale of equity securities and borrowing
from directors.
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 were
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 additional paid-in capital. Accordingly,
there was no net effect on total stockholders' equity.
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. Additional warrants to purchase an aggregate of 250,000 shares of
Common Stock for $2.325 per share, were granted to Dr. Schaffer and Mr.
Pappajohn for their guarantee of this additional line of credit. The estimated
fair value of the warrants at March 31, 2000 was 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 completed the
amortization of $857,500 as debt issuance expense as of March 31, 2001.
On March 28, 2001, the Company entered into an Amended and Restated Credit
Agreement with Wells Fargo Bank Iowa, N.A., which extended the term of the
credit facility to March 31, 2002 under substantially the same terms. Dr.
Schaffer and Mr. Pappajohn also guaranteed this extension. In consideration for
their extended guarantees, the Company re-priced the 625,000 warrants previously
granted in connection with prior guarantees to $0.05 per share, effective April
1, 2001. The Company assigned a fair value of $35,735 to the warrants and
intends to fully amortize this deferred financing cost using the straight-line
method over the 12-month period ending March 31, 2002. The estimated fair value
of the re-priced warrants was determined as the difference between (i) the fair
market value of the original warrants as of April 1, 2001 using the Black
Scholes method and (ii) the fair market value of the re-priced warrants as of
April 1, 2001.
The Company borrowed $1,430,000 for working capital from Mr. Pappajohn
during the six month period ended June 30, 2001. From June 30, 2001 through
August 10, 2001, the Company borrowed an additional $330,000 from Mr. Pappajohn.
Through August 10, 2001, a total of $2,931,000 has been borrowed from Mr.
Pappajohn and Dr. Schaffer, all of which is secured by the assets of the
Company. There can be no assurances that Mr. Pappajohn will continue to make
funds available to the Company. If such funds are not available, the Company
will cease operations.
The Company holds an investment of Common Stock in a private company (the
"Investment") that is recorded at its historical cost of $200,000. The Company
has been made aware that the private company to which the Investment relates is
seeking an opportunity to be sold for a valuation that would result in the
Investment exceeding its carrying cost. No assurance can be given that such
sale, if any, will be at this valuation. The market value of the Investment is
not readily determinable. Management believes that an impairment of the
Investment, if any, is temporary.
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 and, except for the loans from Mr.
Pappajohn, the Company has no available capital. Accordingly, the Company has
been required to seek capital to maintain its operations. The Company is
continuing its efforts to raise additional capital privately through the sale of
convertible preferred stock in a private placement to accredited investors
through the efforts of its officers and directors. No assurance can be given
that the Company will successfully raise the necessary funds. 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.
Inflation
Inflation did not have a significant impact on the Company's costs during
the three and six month periods ended June 30, 2001 and 2000. 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 the Company's ability to continue its operations as a
result of, among other things, continuing losses, working capital short falls,
uncertainties with respect to sources of capital, risks of market acceptance of
or preference for the Company's systems and services, competitive forces, the
impact of, 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, 2000. 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.
New Accounting Pronouncements
During the first quarter of 2001, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. The Company has not identified any
derivatives that meet criteria for a derivative instrument and does not
participate in any hedging activities. As a result, management of the Company
concluded that there was no material effect on the Company's consolidated
financial position, results of operations or cash flows resulting from the
adoption of SFAS No. 133 at March 31, 2001.
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.
Management of the Company has concluded that there was no material effect on the
Company's consolidated financial position, results of operations or cash flows
resulting from the adoption of SFAS No. 140 at June 30, 2001.
On June 29, 2001, Statement of Financial Accounting Standards (SFAS) No.
141, "Business Combinations" was issued by the Financial Accounting Standards
Board (FASB). SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Goodwill and
certain intangible assets will remain on the balance sheet and not be amortized.
On an annual basis, and when there is a reason to suspect that their values have
diminished or impaired, these assets must be tested for impairment, and
write-downs may be necessary. The Company is required to implement SFAS No. 141
on July 1, 2001 and it has not determined the impact, if any, that this
statement will have on its consolidated financial position or the results of
operations.
On June 29, 2001, SFAS No. 142, "Goodwill and Other Intangible Assets" was
issued by the FASB. SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company is required to implement SFAS No. 142 by
January 1, 2002 and has not determined the impact, if any, that this statement
will have on its consolidated financial position or results of operations.
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 and six month
periods ended June 30, 2000 and 2001.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Borrowing from directors
The Company borrowed $1,430,000 for working capital from Mr. Pappajohn
during the six month period ended June 30, 2001. From June 30, 2001 through
August 10, 2001, the Company borrowed an additional $330,000 from Mr. Pappajohn.
Through August 10, 2001 a total of $2,931,000 has been borrowed from Mr.
Pappajohn and Dr. Schaffer, all of which is secured by the assets of the
Company. There can be no assurances that Mr. Pappajohn will continue to make
funds available to the Company. If such funds are not available, the Company
will cease operations.
Item 6. Exhibits and Reports on Form 8-K
On June 7, 2001, the Company issued a press release concerning the
execution of a definitive agreement to acquire substantially all the assets of
Health Data Solutions of Brownsburg, Indiana and its affiliate American Care
Source of Dallas, Texas.
Exhibits:
(a) (11) Statements of Computation of Per Share Earnings
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 10, 2001
PATIENT INFOSYSTEMS, INC.
(Registrant)
Date: August 10, 2001 /s/ Roger L. Chaufournier
----------------------------------
Roger L. Chaufournier
Director, President and
Chief Executive Officer
Date: August 10, 2001 /s/ Kent A. Tapper
----------------------------------
Kent A. Tapper
Principal Accounting Officer
Exhibit 11. Statement of Computation of Per Share Earnings
PATIENT INFOSYSTEMS, INC.
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
Net loss $ (1,337,559) $ (1,628,371) $ (2,553,452) $ (3,263,277)
Convertible preferred Stock dividends (22,500) (22,500) (45,000) (572,500)
Net loss attributable to Common Stockholders $ (1,360,059) $ (1,650,871) $ (2,598,452) $ (3,835,777)
Weighted average common shares 8,919,357 8,071,095 8,569,779 8,070,095
Net loss per share - Basic and diluted $ (0.15) $ (0.20) $ (0.30) $ (0.48)