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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: September 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
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 November 12, 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 September 30, 2001 December 31, 2000
------------------ -----------------
CURRENT ASSETS:
Cash and cash equivalents $30,731 $28,231
Accounts receivable 226,553 411,436
Prepaid expenses and other current assets 85,067 166,167
--------------------------------------------
Total current assets 342,351 605,834
PROPERTY AND EQUIPMENT, net 577,448 827,050
Debt issuance costs (net of accumulated amortization of $875,367 and $664,750) 17,868 192,750
Intangible assets (net of accumulated amortization of $263,792 and $156,113) 358,931 466,610
Other assets - 200,000
--------------------------------------------
TOTAL ASSETS $1,296,598 $2,292,244
============================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $185,170 $233,545
Accrued salaries and wages 254,656 176,158
Borrowings from directors 3,302,500 1,171,000
Line of credit 2,500,000 -
Accrued expenses 575,131 238,561
Deferred revenue 122,027 161,961
--------------------------------------------
Total current liabilities 6,939,484 1,981,225
--------------------------------------------
LINE OF CREDIT - 2,500,000
STOCKHOLDERS' DEFICIT:
Common stock - $.01 par value: shares authorized:
20,000,000; issued and outstanding: September 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 (30,133,099) (26,290,786)
--------------------------------------------
Total stockholders' deficit (5,642,886) (2,188,981)
--------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $1,296,598 $2,292,244
============================================
See notes to unaudited condensed consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
REVENUES
Operations Fees $307,212 $385,304 $954,860 $1,517,598
Development Fees 15,900 13,246 72,246 34,446
Licensing Fees 30,500 35,000 84,500 80,826
------------------------------------------------------------
Total revenues 353,612 433,550 1,111,606 1,632,870
------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 576,900 982,638 1,897,609 3,354,557
Sales and marketing 200,206 234,942 629,396 920,603
General and administrative 423,765 397,323 1,155,214 1,279,835
Financing Costs 8,934 192,750 558,491 472,000
Research and development 68,091 73,997 163,523 237,196
------------------------------------------------------------
Total costs and expenses 1,277,896 1,881,650 4,404,233 6,264,191
------------------------------------------------------------
OPERATING LOSS (924,283) (1,448,100) (3,292,626) (4,631,321)
INTEREST EXPENSE (107,644) (58,080) (293,583) (121,579)
INVESTMENT LOSS (200,000) - (200,000) -
OTHER INCOME (EXPENSE) 10,566 (4,587) 11,397 (21,144)
------------------------------------------------------------
NET LOSS (1,221,361) (1,510,767) (3,774,813) (4,774,044)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (22,500) (22,500) (67,500) (595,000)
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ (1,243,861) $ (1,533,267) $ (3,842,313) $ (5,369,044)
============================================================
NET LOSS PER SHARE - BASIC
AND DILUTED $ (0.11) $ (0.19) $ (0.41) $ (0.66)
============================================================
WEIGHTED AVERAGE COMMON SHARES 10,956,024 8,209,040 9,365,194 8,106,779
============================================================
See notes to unaudited condensed consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------
Nine Months Nine Months
Ended Ended
September 30, 2001 September 30, 2000
OPERATING ACTIVITIES:
Net loss $ (3,774,813) $ (4,774,044)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 576,109 896,544
Investment Loss 200,000 -
(Gain) loss on sale of property (305) 21,842
Compensation expense related to issuance of stock and warrants 352,673 1,042
Decrease in accounts receivable, net 184,883 242,338
Decrease in prepaid expenses and other current assets 81,100 70,741
Decrease in other assets - 44,011
Decrease in accounts payable (48,375) (267,640)
Increase in accrued salaries and wages 78,498 26,959
Increase in accrued expenses 269,070 36,662
Decrease in deferred revenue (39,934) (60,469)
-------- --------
Net cash used in operating activities (2,121,094) (3,762,014)
----------- -----------
INVESTING ACTIVITIES:
Property and equipment additions (8,706) (17,976)
Proceeds from the sale of property 800 18,240
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Net cash (used in) provided by investing activities (7,906) 264
------- ------
FINANCING ACTIVITIES:
Proceeds from issuance of common and preferred stock, net - 1,025,020
Borrowing from directors 2,131,500 375,000
Line of credit borrowings - 2,000,000
--------- ---------
Net cash provided by financing activities 2,131,500 3,400,020
---------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS 2,500 (361,730)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 28,231 489,521
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $30,731 $127,791
======== ========
Supplemental disclosures of non-cash information
Dividend delared on Class C Convertible Preferred Stock $67,500 $45,000
======== =======
Value of beneficial conversion feature on Class C Convertible Preferred Stock
recognized as a dividend $ - $550,000
======== ========
See notes to unaudited condensed consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements for the period
ended September 30, 2001
1. The accompanying condensed consolidated financial statements for the three
and nine month periods ended September 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 nine months
ended September 30, 2001 are not necessarily indicative of the results for
the entire year ending December 31, 2001.
2. 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
Company's credit facility to March 31, 2002 under substantially the same
terms. Dr. Schaffer and Mr. Pappajohn, two directors of the Company,
guaranteed this extension. In consideration for their guarantees, the
Company re-priced 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 determined using the Black Scholes method.
3. The Company borrowed $2,131,500 for working capital from Mr. Pappajohn
during the nine month period ended September 30, 2001. From September 30,
2001 through October 31, 2001, the Company borrowed an additional $265,000
from Mr. Pappajohn. Through October 31, 2001, a total of $3,567,500 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 September 30, 2001 and 2000, the
calculations for the basic and diluted loss per share were based upon loss
attributable to common stockholders of $1,243,861 and $1,533,267,
respectively, and a weighted average number of common shares of 10,956,024
and 8,209,040 respectively.
For the nine-month periods ended September 30, 2001 and 2000, the
calculations for the basic and diluted loss per share were based upon loss
attributable to common stockholders of $3,842,313 and $5,369,044,
respectively, and a weighted average number of common shares of 9,365,194
and 8,106,779 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 nine month periods ended September 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
nine month periods ended September 30, 2001 of $1,221,361 and $3,774,813,
respectively, and had an accumulated deficit of $30,133,099 at September
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 held an investment of Common Stock in a private company (the
"Investment") that was recorded at its historical cost of $200,000. The
Company has been made aware that the private company to which the
Investment relates intends to cease operations. Accordingly, the Company
considers the Investment to be other than temporarily impaired and has
written off the Investment's entire carrying value of $200,000 as a
non-operating expense as of September 30, 2001.
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 nine month periods ended September 30, 2001
and 2000 and its financial condition at September 30, 2001. The focus of this
review is on the underlying business reasons for significant changes and trends
affecting the revenues, net losses 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 $433,550 and $1,632,870 during the three
and nine month periods ended September 30, 2000, respectively, to $353,612 and
$1,111,606 during the three and nine month periods ended September 30, 2001, or
18% and 32% respectively.
Three Months Ended Nine Months Ended
September 30, September 30,
Revenues 2001 2000 2001 2000
-------- ---- ---- ---- ----
Operations Fees
Disease Management and Compliance $ 108,184 $ 164,935 $ 363,541 $ 493,559
Surveys 42,244 54,089 128,424 315,976
Demand Management 138,784 146,603 408,895 619,859
Other 18,000 19,677 54,000 88,204
---------------------------------- ----------------------------------
Total Operations Fees 307,212 385,304 954,860 1,517,598
Development Fees 15,900 13,246 72,246 34,446
Licensing Fees 30,500 35,000 84,500 80,826
---------------------------------- ----------------------------------
Total Revenues $ 353,612 $ 433,550 $ 1,111,606 $ 1,632,870
---------------------------------- ----------------------------------
Operations revenues are generated as the Company provides services to its
customers. Operations revenues decreased from $385,304 and $1,517,598 during the
three and nine month periods ended September 30, 2000, respectively, to $307,212
and $954,860 during the three and nine month periods ended September 30, 2001,
respectively. Operations revenues continue to be the primary source of revenue
for the Company. Operations revenues declined because of the termination of
agreements 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 fully replaced by new programs.
The Company's revenue has continued to decline. The Company has established
relationships with several new customers and entered into joint marketing
relationships with several 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 $13,246 to $15,900 and from $34,446
to $72,246 for the three and nine month periods ended September 30, 2000 and
2001, respectively. This increase was due to increased focus on development of
new programs and enhancement of existing 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 $30,500 from $35,000 for the three-month periods ended September
30, 2001 and 2000, respectively. License Revenue increased to $84,500 from
$80,826 for the nine month periods ended September 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 nine months ended
September 30, 2001 was $576,900 and $1,897,609, respectively, as compared to
$982,638 and $3,354,557 (a decrease of 41% and 43%, respectively) for the three
and nine month periods ended September 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 substantially 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 nine month periods ended
September 30, 2001 were $200,206 an $629,396, respectively, as compared to
$234,942 and $920,603, respectively, for the three and nine month periods ended
September 30, 2000. Spending in this area has decreased due to the termination
of staff and renegotiation of certain compensation plans. The Company does not
have the resources to expand its sales and marketing staff but 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
nine month periods ended September 30, 2001 were $423,765 and $1,155,214,
respectively, as compared to $397,323 and $1,279,835, respectively, for the
three and nine month periods ended September 30, 2000. These expenditures have
been incurred to maintain the corporate infrastructure necessary to support
anticipated program operations. The change in these costs is primarily a result
of reductions in staff and closing of facilities in Pennsylvania and Canada,
offset by increases in certain other expenses. 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 $8,934 and
$558,491, respectively, for the three and nine month periods ended September 30,
2001 as compared to $192,750 and $472,000, respectively, for the three and nine
month periods ended September 30, 2000. A decrease in financing costs during the
most recent 3 month period was seen because no new equity was issued during that
period. The increase in financing costs over the nine month period 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 nine months ended September 30, 2001 were $68,091 and
$163,523, respectively, as compared to $73,997 and $237,196, respectively, for
the same periods of 2000.
The Company recorded an investment loss of $200,000 during the three and
nine month periods ended September 30,2001. The Company held an investment of
Common Stock in a private company (the "Investment") that was recorded at its
historical cost of $200,000. The Company has been made aware that the private
company to which the Investment relates intends to cease operations.
Accordingly, the Company considers the Investment to be other than temporarily
impaired and has written off the Investment's entire carrying value of $200,000
as a non-operating expense as of September 30, 2001.
The Company recorded interest expenses of $107,644 and $293,583,
respectively, for the three and nine month periods ended September 30, 2001 as
compared to $58,080 and $121,579, respectively, for the three and nine month
periods ended September 30, 2000. These expenses are related the Company's debt
and are expected to increase steadily until the Company becomes less dependent
on debt to fund its operations.
The Company recorded other income of $10,566 and $11,397, respectively, for
the three and nine month periods ended September 30, 2001 as compared to
expenses $4,587 and $21,144, respectively, for the same periods of 2000,
principally due to receipt of a state tax refund and to the sale of certain
assets.
The Company had a net loss attributable to the common shareholders after
preferred stock dividends, of $1,243,861 and $3,842,313, respectively, for the
three and nine months ended September 30, 2001 as compared to $1,533,267 and
$5,369,044, respectively, for the three and nine month periods ended September
30, 2000 respectively. This represents a net loss per common share of $.41 for
the nine month period ended September 30, 2001, as compared to a net loss of
$.66 per common share in the same period 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 September 30, 2001 the Company had a working capital deficit of
$6,597,133 as compared to $1,375,391 at December 31, 2000. The September 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
September 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 borrowings from directors and external sources.
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 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 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.
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
Company's credit facility to March 31, 2002 under substantially the same terms.
Dr. Schaffer and Mr. Pappajohn, two directors of the Company, guaranteed this
extension. In consideration for their guarantees, the Company re-priced 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 $2,131,500 for working capital from Mr. Pappajohn
during the nine month period ended September 30, 2001. From September 30, 2001
through October 31, 2001, the Company borrowed an additional $265,000 from Mr.
Pappajohn. Through October 31, 2001, a total of $3,567,500 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 held an investment of Common Stock in a private company (the
"Investment") that was recorded at its historical cost of $200,000. The Company
has been made aware that the private company to which the Investment relates
intends to cease operations. Accordingly, the Company considers the Investment
to be other than temporarily impaired and has written off the Investment's
entire carrying value of $200,000 as a non-operating expense as of September 30,
2001.
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. 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.
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.
On September 28, 2001, the Company issued a press release announcing that
the agreement to acquire substantially all the assets of Health Data Solutions
and American Care Source was terminated.
Inflation
Inflation did not have a significant impact on the Company's costs during
the three and nine month periods ended September 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 in 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 September 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 not be significant 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 nine month
periods ended September 30, 2000 and 2001.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Borrowing from directors
The Company borrowed $2,131,500 for working capital from Mr. Pappajohn
during the nine month period ended September 30, 2001. From September 30, 2001
through October 31, 2001, the Company borrowed an additional $265,000 from Mr.
Pappajohn. Through October 31, 2001, a total of $3,567,500 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.
On September 28, 2001, the Company issued a press release announcing that
the agreement to acquire substantially all the assets of Health Data Solutions
and American Care Source was terminated.
Exhibits:
--------
(a) (11) Statements of Computation of Per Share Earnings
(b) Incorporated herein by reference in entirety, is a copy of the press
release filed with the Commission by the Company on June 7, 2001 as Exhibit
99.1 of Form 8-K.
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 12, 2001
PATIENT INFOSYSTEMS, INC.
(Registrant)
Date: November 12, 2001 /s/Roger L. Chaufournier
------------------------------ -----------------------------------
Roger L. Chaufournier
Director, President and
Chief Executive Officer
Date: November 12, 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 Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
------------ ------------ ------------- -------------
Net loss $(1,221,361) $(1,510,767) $ (3,774,813) $ (4,774,044)
Convertible preferred Stock dividends (22,500) (22,500) (67,500) (595,000)
-------- -------- -------- ---------
Net loss attributable to
Common Stockholders $(1,243,861) $(1,533,267) $ (3,842,313) $ (5,369,044)
------------ ------------ ------------- -------------
Weighted average common shares 10,956,024 8,209,040 9,365,194 8,106,779
----------- ---------- ---------- ---------
Net loss per share - Basic and diluted $ (0.11) $ (0.19) $ (0.41) $ (0.66)
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