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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: March 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-22319
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PATIENT INFOSYSTEMS, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 16-1476509
-------- ----------
(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)
(585) 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 May 15, 2002, 10,956,024 common shares were outstanding.
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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ASSETS March 31, 2002 December 31,2001
-------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $ 46,330 $ 29,449
Accounts receivable 261,011 273,791
Prepaid Insurance 47,771 55,159
Prepaid expenses and other current assets 30,675 33,290
------------------------------
Total current assets 385,787 391,689
PROPERTY AND EQUIPMENT, net 435,013 498,472
Other assets, net - 8,934
Intangible assets (net of accumulated amortization of $335,579 and $299,685) 287,145 323,038
------------------------------
TOTAL ASSETS $ 1,107,945 $ 1,222,133
==============================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 96,596 $ 111,018
Accrued salaries and wages 223,321 176,618
Borrowings from directors 4,323,500 3,907,500
Line of credit 2,500,000 -
Accrued expenses 527,003 477,205
Accrued interest 367,671 282,530
Deferred revenue 109,752 123,140
------------------------------
Total current liabilities 8,147,843 5,078,011
------------------------------
LINE OF CREDIT - 2,500,000
STOCKHOLDERS' DEFICIT:
Preferred stock - $.01 par value: shares authorized: 5,000,000
Series C, 9% cumulative, convertible
issued and outstanding - 100,000 1,000 1,000
Common stock - $.01 par value: shares authorized:
20,000,000; issued and outstanding: March 31,
2002 - 10,956,024; December 31, 2001 - 10,956,024 109,560 109,560
Additional paid-in capital 24,199,653 24,222,153
Accumulated deficit (31,350,111) (30,688,591)
------------------------------
Total stockholders' deficit (7,039,898) (6,355,878)
------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 1,107,945 $ 1,222,133
==============================
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------------------------------------------------------
Three Months Ended
March 31,
2002 2001
---- ----
REVENUES
Operations Fees $ 473,820 $ 344,242
Development Fees 15,088 29,285
Licensing Fees 10,420 26,500
-----------------------------------
Total revenues 499,328 400,027
-----------------------------------
COSTS AND EXPENSES
Cost of sales 487,853 707,292
Sales and marketing 178,375 224,919
General and administrative 350,136 546,182
Research and development 23,850 53,326
-----------------------------------
Total costs and expenses 1,040,214 1,531,719
-----------------------------------
OPERATING LOSS (540,886) (1,131,692)
OTHER EXPENSE, net (includes interest expense of
$121,015 and $84,363 for the three months ended
March 31, 2001 and 2002, respectively) (120,635) (84,201)
-----------------------------------
NET LOSS (661,521) (1,215,893)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (22,500) (22,500)
-----------------------------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $(684,021) $ (1,238,393)
===================================
NET LOSS PER SHARE - BASIC
AND DILUTED $ (0.06) $ (0.15)
===================================
WEIGHTED AVERAGE COMMON SHARES 10,956,024 8,220,202
===================================
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
---------------------------------------------------------------------------------------------------------
Three Months Three Months
Ended Ended
March 31, 2002 March 31, 2001
OPERATING ACTIVITIES:
Net loss $ (661,521) $ (1,215,893)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 109,701 317,296
Gain on sale of property (400) (305)
Decrease in accounts receivable, net 12,780 66,990
Decrease in prepaid insuance, expenses and other current assets 10,003 56,331
(Decrease) increase in accounts payable (14,422) 53,886
Increase in accrued salaries and wages 46,703 76,043
Increase in accrued expenses 112,439 38,084
Decrease in deferred revenue (13,388) (3,643)
-------- -------
Net cash used in operating activities (398,105) (611,210)
--------- ---------
INVESTING ACTIVITIES:
Property and equipment additions (1,414) (6,831)
Proceeds form the sale of property 400 800
---- ---
Net cash used in investing activities (1,014) (6,031)
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FINANCING ACTIVITIES:
Borrowing from directors 416,000 660,000
-------- -------
Net cash provided by financing activities 416,000 660,000
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NET INCREASE IN CASH AND CASH EQUIVALENTS 16,881 42,759
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 29,449 28,231
------- ------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 46,330 $ 70,989
========= ========
Supplemental disclosures of non-cash information
Dividend declared on Class C Convertible Preferred Stock $ 22,500 $ 22,500
========= ========
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
Notes to Unaudited Consolidated Financial Statements for the period ended March
31, 2002
1. The accompanying consolidated financial statements for the three month
periods ended March 31, 2002 and March 31, 2001 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 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, 2001. Certain reclassifications of
2001 amounts have been made to conform to 2002 presentations. The results
of operations for the three months ended March 31, 2002 are not necessarily
indicative of the results for the entire year ending December 31, 2002.
2. On March 28, 2002, the Company entered into an Amended and Restated Credit
Agreement with Wells Fargo Bank Iowa, N.A., which extended the term of the
$2,500,000 credit facility to March 31, 2003, under substantially the same
terms. Certain directors of the Company guaranteed this extension.
3. The Company borrowed $416,000 for working capital from Mr. Pappajohn during
the three month period ended March 31, 2002. From March 31, 2002 through
May 15, 2002, the Company borrowed an additional $240,000 from Mr.
Pappajohn. A total of $4,563,500 has been borrowed from Mr. Pappajohn and
Dr. Schaffer, all of which is secured by the assets of the Company.
On March 25, 2002, Messrs. Pappajohn and Schaffer made a commitment to the
Company to obtain the operating funds that the Company believes would be
sufficient to fund its operations through December 31, 2002 based upon an
operational forecast for the Company. As with any forward-looking
projection, no assurances can be given concerning the outcome of the
Company's actual financial status given the substantial uncertainties that
exist. There can be no assurances given that Messers. Pappajohn or Schaffer
can raise either the required working capital through the sale of the
Company's securities or that the Company can borrow the additional amounts
needed.
4. The calculations for the basic and diluted loss per share were based upon
loss attributable to common stockholders of $684,021 and $1,238,393 and a
weighted average number of common shares of 10,956,024 and 8,220,202 for
the three month periods ended March 31, 2002 and 2001 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 month
periods ended March 31, 2002 and 2001 because the effect would have been
antidilutive due to the net loss in those periods.
5. The accompanying unaudited 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 consolidated financial
statements, the Company incurred a net loss for the three month period
ended March 31, 2002 of $684,021 and had an accumulated deficit of
$31,528,306 at March 31, 2002. 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 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. 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 has adopted SFAS No. 142
on January 1, 2002 and there was no material effect on the Company's
consolidated financial statements resulting from the adoption.
Statement of Financial Accounting Standards("SFAS") 144 establishes a
single accounting model for the impairment or disposal of long-lived
assets, including discontinued operations. SFAS No. 144 superseded SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", and APB Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." The provisions of SFAS No. 144 are effective in fiscal years
beginning after December 15, 2001, with early adoption permitted, and in
general are to be applied prospectively. There was no material effect on
the Company's consolidated financial statements resulting from the adoption
of SFAS No. 144 in 2002.
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 month periods ended March 31, 2002 and March 31,
2001 and its financial condition at March 31, 2002. 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 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 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, 2001.
Results of Operations
Revenues
Revenues consist of revenues from operations, development fees and
licensing fees. Revenues increased to $499,328 from $400,027 during the three
months ended March 31, 2002 and 2001, respectively, or 24.8%.
Three Months Ended
March 31,
Revenues 2002 2001
-------- ---- ----
Operations Fees
Disease Management and Compliance $ 231,078 $ 137,177
Demand Management 164,740 138,944
Surveys 48,465 50,121
Other 29,537 18,000
--------------------------
Total Operations Fees 473,820 344,242
Development Fees 15,088 29,285
Licensing Fees 10,420 26,500
--------------------------
Total Revenues $ 499,328 $ 400,027
--------------------------
Operations revenues are generated as the Company provides services to its
customers. Operations revenues increased to $473,820 from $344,242 during the
three months ended March 31, 2002 and 2001, respectively. Operations revenues
continue to be the primary source of revenue for the Company. Operations
revenues increased because the Company began providing services to new customers
and because its volume of services to existing customers increased.
The Company has established relationships with several new customers and
entered into a joint marketing relationship with one of its strategic partners.
While the Company is now receiving increased revenues from these relationships
are, no assurances can be given that such revenues will increase or continue at
their current rate. 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 decreased from $29,285 to $15,088 for the
three month periods ended March 31, 2001 and 2002, respectively. This decline
was due to decreased emphasis by the Company on generating revenue for the
development of new programs. Development fee revenue represents the amounts that
the Company charges its customers for the development of customized 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 relatively low in the future.
License fee revenues recognized from the Case Management Support System was
$10,420 and $26,500 for the three month periods ended March 31, 2002 and 2001
respectively. The Company has not entered into any new licensing agreements for
its Case Management Support System and the revenue for the current period
reflects revenue from the existing agreements.
Costs and Expenses
Cost of sales include salaries and related benefits, services provided by
third parties, and other expenses associated with the implementation and
delivery of the Company's standard and customized population, demand and disease
management programs. Cost of sales for the three months ended March 31, 2002 was
$487,853 as compared to $707,292 for the three month period ended March 31,
2001. The decrease in these costs primarily reflects savings derived from
organizational changes in the Company's operational departments. The Company's
gross margin, being total revenues over cost of sales, was positive for the
three month period ended March 31, 2002. The Company anticipates that revenue
must increase significantly before it will recognize further economies of scale.
No assurance can be given that revenues will increase or that, if they do, they
will continue to 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 months ended March 31, 2002 were
$178,375 as compared to $224,919 for the three month period ended March 31,
2001. Spending in this area has decreased due to the termination of staff. The
Company anticipates expansion of the Company's sales and marketing staff and
expects it will continue to invest in the sales and marketing process, 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
months ended March 31, 2002 were $350,136, as compared to $546,182 for the three
month period ended March 31, 2001. These expenditures have been incurred to
maintain the corporate infrastructure necessary to support anticipated program
operations. The decrease in these costs during the period reflected a lower
amount of debt issuance cost amortization. The amortization expense recorded was
$8,934 and $192,750 for the three month periods ended March 31, 2002 and 2001
respectively. Without these charges, general and administrative costs would have
decreased from $353,432 to $341,202 for the three month periods ended March 31,
2001 and 2002, respectively.
Research and development expenses consist primarily of salaries and related
benefits and administrative costs associated with the development of certain
components of the Company's integrated information capture and delivery system,
as well as development of the Company's standardized disease management programs
and the Company's Internet based technology products. Research and development
expenses for the three months ended March 31, 2002 were $23,850, as compared to
$53,326 for the three months ended March 31, 2001.
The Company recorded other expenses of $120,635 for the three month period
ended March 31, 2002 as compared to $84,201 for the three month period ended
March 31, 2001, principally due to the increase of interest expenses on debt.
Income (loss)
The Company had a net loss attributable to the common shareholders after
preferred stock dividends, of $684,021 for the three month period ended March
31, 2002 compared to $1,238,393 for the three month period ended March 31, 2001.
This represents a net loss per common share of $.06 for the first quarter of
2002, as compared to a net loss of $.15 per common share in the first quarter of
2001.
Liquidity and Capital Resources
At March 31, 2002 the Company had a working capital deficit of $7,039,898
as compared to $3,855,878 at December 31, 2001. Through March 31, 2002, these
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, 2001 but is classified as a current liability at March
31, 2002. Since its inception, the Company has primarily funded its operations,
working capital needs and capital expenditures from the sale of equity
securities or the incurrence of debt.
On March 28, 2002, the Company entered into an Amended and Restated Credit
Agreement with Wells Fargo Bank Iowa, N.A., which extended the term of the
$2,500,000 credit facility to March 31, 2003, under substantially the same
terms. Certain directors of the Company guaranteed this extension.
The Company borrowed $416,000 for working capital from Mr. Pappajohn during
the three month period ended March 31, 2002. From March 31, 2002 through May 15,
2002, the Company borrowed an additional $240,000 from Mr. Pappajohn. A total of
$4,563,500 has been borrowed from Mr. Pappajohn and Dr. Schaffer, all of which
is secured by the assets of the Company.
On March 25, 2002, Messrs. Pappajohn and Schaffer made a commitment to the
Company to obtain the operating funds that the Company believes would be
sufficient to fund its operations through December 31, 2002 based upon an
operational forecast for the Company. As with any forward-looking projection, no
assurances can be given concerning the outcome of the Company's actual financial
status given the substantial uncertainties that exist. There can be no
assurances given that Messers. Pappajohn or Schaffer can raise either the
required working capital through the sale of the Company's securities or that
the Company can borrow the additional amounts needed.
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, but for the continuing 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 identify additional capital privately, which may
involve the sale of convertible preferred stock or further debt equity. 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 periods ended March 31, 2002 and March 31, 2001. 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, 2001. The Company has no obligation to
publicly release the result of any revisions, which may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
Accounting Pronouncements
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 has adopted SFAS No. 142 on January 1,
2002 and there was no material effect on the Company's consolidated financial
statements resulting from the adoption.
Statement of Financial Accounting Standards("SFAS") 144 establishes a
single accounting model for the impairment or disposal of long-lived assets,
including discontinued operations. SFAS No. 144 superseded SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of", and APB Opinion No. 30, "Reporting the Results of Operations -
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." The provisions of
SFAS No. 144 are effective in fiscal years beginning after December 15, 2001,
with early adoption permitted, and in general are to be applied prospectively.
There was no material effect on the Company's consolidated financial statements
resulting from the adoption of SFAS No. 144 in 2002.
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%.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Borrowing from directors
The Company borrowed $416,000 for working capital from Mr. Pappajohn during
the three month period ended March 31, 2002. From March 31, 2002 through May 15,
2002, the Company borrowed an additional $240,000 from Mr. Pappajohn. A total of
$4,563,500 has been borrowed from Mr. Pappajohn and Dr. Schaffer, all of which
is secured by the assets of the Company.
On March 25, 2002, Messrs. Pappajohn and Schaffer made a commitment to the
Company to obtain the operating funds that the Company believes would be
sufficient to fund its operations through December 31, 2002 based upon an
operational forecast for the Company. As with any forward-looking projection, no
assurances can be given concerning the outcome of the Company's actual financial
status given the substantial uncertainties that exist. There can be no
assurances given that Messers. Pappajohn or Schaffer can raise either the
required working capital through the sale of the Company's securities or that
the Company can borrow the additional amounts needed.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
--------
(a) (11) Statements of Computation of Per Share Earnings
(b) No reports on Form 8-K were filed during the quarter ended March 31, 2002
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: May 15, 2002
PATIENT INFOSYSTEMS, INC.
(Registrant)
Date: May 15, 2002 /s/ Roger L. Chaufournier
------------------------------ --------------------------------------
Roger L. Chaufournier
Director, President and
Chief Executive Officer
Date: May 15, 2002 /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
March 31,
2002 2001
---- ----
Net loss $ (661,521) $ (1,215,893)
Convertible preferred Stock dividends (22,500) (22,500)
Net loss attributable to
Common Stockholders $ (684,021) $ (1,238,393)
----------- -------------
Weighted average common shares 10,956,024 8,220,202
----------- -----------
Net loss per share - Basic and diluted $ (0.06) $(0.15)
======== =======