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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, 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.
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(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
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(Address of principal executive offices)
(Zip Code)
(585) 242-7200
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(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of November 14, 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 September 30, December 31,
-------------- ------------
2002 2001
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 70,741 $ 29,449
Accounts receivable 285,024 273,791
Prepaid insurance 50,544 55,159
Prepaid expenses and other current assets 44,837 33,290
----------------------------------
Total current assets 451,146 391,689
PROPERTY AND EQUIPMENT, net 329,505 498,472
Other assets, net - 8,934
Intangible assets (net of accumulated amortization of $407,365 and $299,685) 215,358 323,038
----------------------------------
TOTAL ASSETS $ 996,009 $ 1,222,133
==================================
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable $ 116,367 $ 111,018
Accrued salaries and wages 237,706 176,618
Borrowings from directors 4,567,500 3,907,500
Line of credit 3,000,000 -
Accrued expenses 488,687 477,205
Accrued interest 599,749 282,530
Deferred revenue 101,564 123,140
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Total current liabilities 9,111,573 5,078,011
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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: September 30,
2002 - 10,956,024; December 31, 2001 - 10,956,024 109,560 109,560
Additional paid-in capital 24,154,653 24,222,153
Accumulated deficit (32,380,777) (30,688,591)
----------------------------------
Total stockholders' deficit (8,115,564) (6,355,878)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 996,009 $ 1,222,133
==================================
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
REVENUES
Operations Fees $ 579,570 $ 307,212 $ 1,576,026 $ 954,860
Development Fees 5,900 15,900 27,438 72,246
Licensing Fees 630 30,500 24,680 84,500
-------------------------------------------------------------------
Total revenues 586,100 353,612 1,628,144 1,111,606
-------------------------------------------------------------------
COSTS AND EXPENSES
Cost of sales 467,162 576,900 1,416,741 1,897,609
Sales and marketing 192,533 200,206 546,096 629,396
General and administrative 238,184 432,699 894,819 1,713,705
Research and development 26,242 68,091 73,878 163,523
-------------------------------------------------------------------
Total costs and expenses 924,121 1,277,896 2,931,534 4,404,233
-------------------------------------------------------------------
OPERATING LOSS (338,021) (924,283) (1,303,390) (3,292,626)
INVESTMENT LOSS - (200,000) - (200,000)
OTHER EXPENSE (136,126) (97,078) (388,796) (282,187)
-------------------------------------------------------------------
NET LOSS (474,147) (1,221,361) (1,692,186) (3,774,813)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (22,500) (22,500) (67,500) (67,500)
-------------------------------------------------------------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ (496,647) $ (1,243,861) $ (1,759,686) $ (3,842,313)
===================================================================
NET LOSS PER SHARE - BASIC
AND DILUTED $ (0.05) $ (0.11) $ (0.16) $ (0.41)
===================================================================
WEIGHTED AVERAGE COMMON SHARES 10,956,024 10,956,024 10,956,024 9,365,194
===================================================================
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Nine Months Nine Months
Ended Ended
September 30, September 30, 2001
2002
OPERATING ACTIVITIES:
Net loss $ (1,692,186) $ (3,774,813)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 292,641 576,109
Investment Loss - 200,000
Gain on sale of property (400) (305)
Compensation expense related to issuance of stock and warrants - 352,673
(Increase) decrease in accounts receivable, net (11,233) 184,883
(Increase) decrease in prepaid insurance, expenses and other current assets (6,932) 81,100
Increase (decrease) in accounts payable 5,349 (48,375)
Increase in accrued salaries and wages 61,088 78,498
Increase in accrued expenses 261,201 269,070
Decrease in deferred revenue (21,576) (39,934)
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Net cash used in operating activities (1,112,048) (2,121,094)
----------- -----------
INVESTING ACTIVITIES:
Property and equipment additions (7,060) (8,706)
Proceeds form the sale of property 400 800
---- ---
Net cash used in investing activities (6,660) (7,906)
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FINANCING ACTIVITIES:
Borrowing from directors, net 660,000 2,131,500
Line of credit borrowings 500,000 -
-------- ---------
Cash provided by financing activities 1,160,000 2,131,500
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NET INCREASE IN CASH AND CASH EQUIVALENTS 41,292 2,500
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 29,449 28,231
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 70,741 $ 30,731
========= ========
Supplemental disclosures of non-cash information
Dividend declared on Class C Convertible Preferred Stock $ 67,500 $ 67,500
========= ========
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC.
Notes to Unaudited Consolidated Financial Statements for the periods ended
September 30, 2002 and September 30, 2001
1. The accompanying consolidated financial statements for the three and nine
month periods ended September 30, 2002 and September 30, 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 and nine month
periods ended September 30, 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
Company's $2,500,000 credit facility to March 31, 2003, under substantially
the same terms as of December 31, 2002. Certain directors of the Company
guaranteed this extension.
On June 28, 2002, the Company and Wells Fargo agreed on an addendum to the
Amended and Restated Credit Agreement which extends the credit facility an
additional $500,000, bringing the total credit to $3,000,000. Certain
directors of the Company also guarantee the extended credit facility.
3. The Company's net borrowing was $660,000 for working capital from Mr.
Pappajohn during the nine month period ended September 30, 2002. The
Company repaid Mr. Pappajohn $400,000 by drawing upon the extended credit
facility through Wells Fargo. From September 30, 2002 to November 14, 2002,
the Company has borrowed an additional $200,000. A total of $4,767,500 has
been borrowed from Mr. Pappajohn and Dr. Schaffer, all of which is secured
by the assets of the Company.
On March 25, 2002, Mr. Pappajohn and Dr. 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 Mr. Pappajohn or Dr. 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.
On June 11, 2002, the board of directors of the Company approved the
conversion of up to $4,642,500 in debt and $438,099 of accrued interest
owed to Mr. Pappajohn and Dr. Schaffer into 36,289,993 shares of the
Company's common stock using a value of $0.14 per common share. The average
value of the Company's common stock based upon an average closing price for
a period immediately before June 11, 2002 was $0.1354. As of September 30,
2002, the Company's Certificate of Incorporation authorizes the Company to
issue up to 20,000,000 shares of common stock, 10,956,024 of which were
issued and outstanding and 2,029,040 of which were reserved for issuance
under outstanding options, warrants and upon conversion of outstanding
convertible preferred stock. Giving effect to this debt conversion will
require an amendment to the Company's Certificate of Incorporation to
authorize additional shares of common stock. The completion of this
transaction cannot occur unless and until the stockholders of the Company
approve this amendment. A date for a meeting of the stockholders of the
Company has not yet been established.
4. The calculations for the basic and diluted loss per share were based upon
the loss attributable to common stockholders of $496,647 and $1,243,861 and
a weighted average number of common shares of 10,956,024 and 10,956,024 for
the three month periods ended September 30, 2002 and 2001 respectively. The
calculations for the basic and diluted loss per share were based upon the
loss attributable to common stockholders of $1,759,686 and $3,842,313 and a
weighted average number of common shares of 10,956,024 and 9,365,194 for
the nine month periods ended September 30, 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
and nine month periods ended September 30, 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 nine month period ended
September 30, 2002 of $1,759,686 and had an accumulated deficit of
$32,380,777 at September 30, 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, Statement of Financial Accounting Standards("SFAS") No.
142, "Goodwill and Other Intangible Assets" was issued by the Financial
Accounting Standards Board. 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 effect on the
Company's consolidated financial statements resulting from the adoption.
SFAS No. 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 and nine month periods ended September 30, 2002
and September 30, 2001 and its financial condition at September 30, 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.
Recent Developments
On September 23, 2002, we signed an agreement to acquire substantially all
the assets of American Care Source (ACS), headquartered in Dallas, Texas. ACS is
an ancillary healthcare benefits management company. It provides a bridge
connecting healthcare payers and the providers of ancillary healthcare services.
Ancillary healthcare services include a broad array of services that supplement
or support the care provided by hospitals and physicians, including the
non-physician services associated with outpatient surgery centers, free-standing
diagnostic imaging centers, home infusion, durable medical equipment, orthotics
and prosthetics, laboratory and many other services. These ancillary services
are provided to patients as benefits under group health plans and workers'
compensation plans. ACS manages the administration of these ancillary healthcare
benefits.
Under the terms of the Asset Purchase Agreement, Patient Infosystems will
acquire the assets of ACS in exchange for two thirds of the common stock of
Patient Infosystems. The Asset Purchase Agreement provides for closing the
anticipated transaction no later than May 2003. The agreement contains various
conditions to closing, some of which may not be satisfied. Therefore completion
of the transaction cannot be assured until closing. Among the conditions to
closing are the following:
o the approval of the stockholders of Patient Infosystems of certain
amendments to its Certificate of Incorporation;
o the execution by certain shareholders of ACS and Patient Infosystems of a
Shareholders' Agreement providing for the voting of shares of Patient
Infosystems in favor of the election of certain individuals to the board of
directors of Patient Infosystems;
o the execution of agreements by John Pappajohn, Derace Schaffer, Eric Brauss
and Today Financial Corporation and related entities and affiliates, to
hold all indebtedness of Patient Infosystems in abeyance until March 31,
2004,;
o written documentation that the bank debt of Patient Infosystems to Wells
Fargo Bank has been renegotiated so as to provide a grace and forbearance
period until December 31, 2003, before any principal payments are required
and that John Pappajohn and Derace Schaffer will remain guarantors of such
bank debt if required by Wells Fargo Bank;
o the private placement of equity securities of Patient Infosystems;
o the execution of a Voting Agreement by each stockholder of Patient
Infosystems owning more than 10% of the outstanding shares of common stock
of Patient Infosystems; and
o fulfillment of customary contractual conditions set forth in the Asset
Purchase Agreement;
The Asset Purchase Agreement may be terminated and the acquisition
abandoned at any time prior to the closing date of the transaction under the
following conditions:
o by mutual agreement in writing by Patient Infosystems and ACS;
o by either Patient Infosystems or ACS if the other party materially breaches
any of the representations, warranties, covenants or agreements set forth
in the Asset Purchase Agreement at the time of its execution or on the
closing date;
o by either Patient Infosystems or ACS if the other party fails to perform
timely, in all material aspects the covenants and obligations that it is
required to perform under Asset Purchase Agreement and such party does not
obtain in writing a waiver of such performances, or
o by either Patient Infosystems or ACS if the closing of the acquisition does
not occur by December 31, 2002 (unless the closing does not occur prior to
such date because the Securities and Exchange Commission has determined to
review this proxy statement, in which case the closing may occur any time
prior to March 31, 2003, which date may be further extended by Patient
Infosystems for an additional 60 days if Patient Infosystems is unable to
hold the stockholders meeting by March 31, 2003 due to failure of ACS to
timely provide information regarding ACS.)
Results of Operations
Revenues
Revenues consist of revenues from operations, development fees and
licensing fees. Revenues increased to $586,100 from $353,612 during the three
months ended September 30, 2002 and 2001, respectively, or 65.7%. Revenues
increased to $1,628,144 from $1,111,606 during the nine months ended September
30, 2002 and 2001, respectively, or 46.5%.
Three Months Ended Nine Months Ended
September 30, September 30,
Revenues 2002 2001 2002 2001
-------- ---- ---- ---- ----
Operations Fees
Disease Management and Compliance $ 325,940 $ 108,184 $ 837,484 $ 363,541
Surveys 42,428 42,244 147,233 128,424
Demand Management 148,202 138,784 468,771 408,895
Other 63,000 18,000 122,538 54,000
------------------------------ --------------------------------
Total Operations Fees 579,570 307,212 1,576,026 954,860
Development Fees 5,900 15,900 27,438 72,246
Licensing Fees 630 30,500 24,680 84,500
------------------------------ --------------------------------
Total Revenues $ 586,100 $ 353,612 $ 1,628,144 $ 1,111,606
------------------------------ --------------------------------
Operations revenues are generated as the Company provides services to its
customers. Operations revenues increased to $579,570 and $1,576,026 from
$307,212 and $954,860 during the three and nine month periods ended September
30, 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,
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.
Due in part to the impact of the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"), P.L. 104-191, one of the Company's
customers, which has provided 52.8% of the Company's revenue for the first nine
months of 2002, has elected to terminate its services agreement with the
Company. Under the terms of the agreement, the Company has provided its services
to a third party that is considered a Covered Entity under HIPAA. The Company
has a services agreement and a business associate agreement to provide
substantially the same services directly to an affiliate of that Covered Entity
and anticipates that it will continue to perform some or all of the terminated
services under such agreements. No assurance can be given that the terminated
services will be assumed under the other existing agreements, nor that any new
revenues the Company may receive, if any, will offset the loss of revenue from
the terminated services agreement.
Development fee revenues decreased from $15,900 and $72,246 to $5,900 and
$7,438 for the three and nine month periods ended September 30, 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
$630 and $24,680 as compared to $30,500 and 84,500 for the three and nine month
periods ended September 30, 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 and nine month periods ended
September 30, 2002 was $467,162 and $1,416,741, respectively as compared to
$576,900 and $1,897,609 for the same respective periods of 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 and nine month periods
ended September 30, 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 and nine month periods ended
September 30, 2002 were $192,533 and $546,096, respectively as compared to
$200,206 and $629,396 for the same respective periods of 2001. Spending in this
area has decreased due to the termination of staff. The Company anticipates that
it will need to invest in the sales and marketing staff and in the sales and
marketing process, and that 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, 2002 were $238,184 and $894,819
respectively, as compared to $432,699 and $1,713,705 for the same respective
periods of 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 and the one time effect of reversing a $114,953 accrued expense as
a result of a renegotiated vendor contract.
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 month periods ended September 30, 2002 were
$26,242 and $73,878, respectively, as compared to $68,091 and $163,523 for same
respective periods of 2001.
The Company recorded no investment loss in the three and nine month periods
ended September 30, 2002, as compared to $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. In 2001, the Company was informed that the private
company to which the Investment relates intends to cease operations.
Accordingly, the Company considered the Investment to be other than temporarily
impaired and wrote off the Investment's entire carrying value of $200,000 as a
non-operating expense as of September 30, 2001.
The Company recorded other expenses of $136,126 and $388,796 for the three
and nine month periods ended September 30, 2002 as compared to $97,078 and
$282,187 for the same respective periods of 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 $474,147 and $1,692,186 for the three and nine
month periods ended September 30, 2002 compared to $1,243,861 and $3,842,313 for
the same respective periods of 2001. This represents a net loss per common share
of $.05 and $.16 for the three and nine month periods ended September 30, 2002,
as compared to a net loss of $.11 and $.41 per common share for the same
respective periods of 2001.
Liquidity and Capital Resources
At September 30, 2002 the Company had a working capital deficit of
$8,660,427 as compared to $4,686,322 at December 31, 2001. Through September 30,
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 September 30, 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. Mr. Pappajohn and Dr. Schaffer, directors of the Company, guaranteed this
extension.
On June 28, 2002, the Company and Wells Fargo agreed on an addendum to the
Amended and Restated Credit Agreement which extends the credit facility by an
additional $500,000, increasing the total credit to $3,000,000. Mr. Pappajohn
and Dr. Schaffer also guarantee the extended credit facility.
The Company's net borrowing was $660,000 for working capital from Mr.
Pappajohn during the nine month period ended September 30, 2002. The Company
repaid Mr. Pappajohn $400,000 by drawing upon the extended credit facility
through Wells Fargo. From September 30, 2002 to November 14, 2002, the Company
has borrowed an additional $200,000. A total of $4,767,500 has been borrowed
from Mr. Pappajohn and Dr. Schaffer, all of which is secured by the assets of
the Company.
On March 25, 2002, Mr. Pappajohn and Dr. 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 thatMr. Pappajohn or Dr. 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.
On June 11, 2002, the board of directors of the Company approved the
conversion of up to $4,642,500 in debt and $438,099 of accrued interest owed to
Mr. Pappajohn and Dr. Schaffer into 36,289,993 shares of the Company's common
stock using a value of $0.14 per common share. The average value of the
Company's common stock based upon an average closing price for a period
immediately before June 11, 2002 was $0.1354. As of September 30, 2002, the
Company's Certificate of Incorporation authorizes the Company to issue up to
20,000,000 shares of common stock, 10,956,024 of which were issued and
outstanding and 2,029,040 of which were reserved for issuance under outstanding
options, warrants and upon conversion of outstanding convertible preferred
stock. Giving effect to this debt conversion will require an amendment to the
Company's Certificate of Incorporation to authorize additional shares of common
stock. The completion of this transaction cannot occur unless and until the
stockholders of the Company approve this amendment. A date for a meeting of the
stockholders of the Company has not yet been established.
The Company has expended substantial amounts to establish its operational
capabilities and infrastructure. The Company's cash has been depleted as a
result of operating losses. The Company anticipates that its losses will
continue. But for the continuing loans from Mr. Pappajohn, the Company has no
available capital. Mr. Pappajohn is not obligated to continue funding the
Company's operations beyond December 31, 2002 and the Company cannot be certain
whether or for how long Mr. Pappajohn will continue to loan the Company funds.
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 and nine month periods ended September 30, 2002 and September 30,
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, Statement of Financial Accounting Standards("SFAS") No.
142, "Goodwill and Other Intangible Assets" was issued by the Financial
Accounting Standards Board. 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, ceased upon
adoption of this statement. The Company has adopted SFAS No. 142 on January 1,
2002 and there was no effect on the Company's consolidated financial statements
resulting from the adoption.
SFAS No. 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 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 rolling the outstanding
line of credit balance into notes that carry a rate equal to LIBOR plus 1.75%.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Based on their evaluation as of a date within 90 days of the filing date of
this Quarterly Report on Form 10-Q, the Company's chief executive officer and
principal accounting officer have concluded that the Company's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934 (the "Exchange Act")) are effective to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) Changes in internal controls.
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
On June 11, 2002, the board of directors of the Company approved the
conversion of up to $4,642,500 in debt and $438,099 of accrued interest owed to
Mr. Pappajohn and Dr. Schaffer into 36,289,993 shares of the Company's common
stock using a value of $0.14 per common share. The average value of the
Company's common stock based upon an average closing price for a period
immediately before June 11, 2002 was $0.1354. The Company relied on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. As of September 30, 2002, the Company's Certificate of Incorporation
authorizes the Company to issue up to 20,000,000 shares of common stock,
10,956,024 of which were issued and outstanding and 2,029,040 of which were
reserved for issuance under outstanding options, warrants and upon conversion of
outstanding convertible preferred stock. Giving effect to this debt conversion
will require an amendment to the Company's Certificate of Incorporation to
authorize additional shares of common stock. The completion of this transaction
cannot occur unless and until the stockholders of the Company approve this
amendment. A date for a meeting of the stockholders of the Company has not yet
been established.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit # Description of Exhibits
3.1* Certificate of Incorporation
3.2* By-Laws
4.1** Patient Infosystems, Inc. Amended and Restated Stock Option Plan
4.2*** Certificate of Designations, Powers, Preferences and Relative,
Participating, Optional or Other Special Rights, and the
Qualifications, Limitations Thereof of the Series C Preferred Stock of
Patient InfoSystems, Inc.
10.15+ Asset Purchase Agreement dated as of September 29, 1998 among Patient
Infosystems Acquisition Corp., the Company and HealthDesk Corporation.
10.16+ Amendment to Asset Purchase Agreement dated as of December 1, 1998
among Patient Infosystems Acquisition Corp., the Company and
HealthDesk Corporation.
10.17+ Second Amendment to Asset Purchase Agreement dated as of February 1,
1999 among Patient Infosystems Acquisition Corp., the Company and
HealthDesk Corporation.
10.19+ Consulting Agreement dated as of March 8, 1999 between the Company and
John V. Crisan.
10.20+ Lease Agreement dated as of February 22, 1995 between the Company and
Conifer Prince Street Associates.
10.21+ First Addendum to Lease Agreement dated as of August 22, 1995 between
the Company and Conifer Prince Street Associates.
10.22+ Second Addendum to Lease Agreement dated as of November 17, 1995
between the Company and Conifer Prince Street Associates.
10.23+ Third Addendum to Lease Agreement dated as of March 28, 1996 between
the Company and Conifer Prince Street Associates.
10.24+ Fourth Addendum to Lease Agreement dated as of October 29, 1996
between the Company and Conifer Prince Street Associates.
10.25+ Fifth Addendum to Lease Agreement dated as of November 30, 1996
between the Company and Conifer Prince Street Associates.
10.26+ Sixth Addendum to Lease Agreement dated as of November 24, 1997
between the Company and Conifer Prince Street Associates.
10.30++ Seventh Addendum to Lease Agreement dated as of June 16, 1999 between
the Company and Conifer Prince Street Associates.
10.31++ Lease Agreement dated as of July 2, 1999 between the Company and
Cadena Properties Limited.
10.32++ Lease Agreement dated as of August 1, 1999 between the Company and
Michele M. Hoey and John E. Hoey.
10.33++ Revolving Note dated as of December 23, 1999 between the Company and
Norwest Bank Iowa, National Association.
10.34++ Credit Agreement dated as of December 23, 1999 between the Company and
Norwest Bank Iowa, National Association.
10.35++ Security Agreement dated as of December 23, 1999 between the Company
and Norwest Bank Iowa, National Association.
10.36++ Arbitration Agreement dated as of December 23, 1999 between the
Company and Norwest Bank Iowa, National Association.
10.37++ Financing Statement executed by the Company and Norwest Bank Iowa,
National Association.
10.38++ First Amendment to Credit Agreement dated as of March 21, 2000 between
the Company and Norwest Bank Iowa, National Association.
10.39++ Note Modification Agreement dated as of March 21, 2000 between the
Company and Norwest Bank Iowa, National Association.
10.41*** Form of Subscription Agreement dated on or about March 31, 2000
between the Company and John Pappajohn, Derace Schaffer, Gerald Kirke
and Michael Richards for Series C 9% Cumulative Convertible Preferred
Stock.
10.42*** Form of Registration Rights Agreement dated on or about March 31, 2000
between the Company and John Pappajohn, Derace Schaffer, Gerald Kirke
and Michael Richards for Series C 9% Cumulative Convertible Preferred
Stock.
10.43*** Eighth Addendum to Lease Agreement dated as of December 8, 2000
between the Company and Conifer Prince Street Associates.
10.44*** Termination of Lease Agreement dated as of January 24, 2001 between
the Company and Michele M. Hoey and - John E. Hoey.
10.45*** Amended and Restated Credit Agreement dated as of March 28, 2001
between the Company and Wells Fargo Bank Iowa, National Association.
10.46*** Revolving Note dated as of March 28, 2001 between the Company and
Wells Fargo Bank Iowa, National Association.
10.47*** Form of Promissory Notes payable to Dr. Schaffer and Mr. Pappajohn.
10.48*** Form of Security Agreements with Dr. Schaffer and Mr. Pappajohn.
10.49 Ninth Addendum to Lease Agreement dated as of January 7, 2002 between
the Company and Conifer Prince Street Associates.
10.50# Letter of Agreement dated as of March 25, 2002 between the Company,
John Pappajohn and Derace Schaffer.
10.51# Second Amended and Restated Credit Agreement dated as of March 28,
2002 between the Company and Wells Fargo Bank Iowa, National
Association.
10.52# Revolving Note dated as of March 28, 2002 between the Company and
Wells Fargo Bank Iowa, National Association.
10.53# Security Agreement dated as of March 28, 2002 between the Company and
Wells Fargo Bank Iowa, National Association.
10.54 Addendum to Amended and Restated Credit Agreement dated as of June 28,
2002 between the Company and Wells Fargo Bank Iowa, National
Association.
10.55 Agreement for Purchase and Sale of Assets dated as of September 23,
2002 between the Company and American Caresource Corporation.
21.1*** Subsidiaries
------------------------------------
* Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement on Form S-1 filed on July 3,
1996 and incorporated herein by reference.
** Previously filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement on Form S-8 filed on May 3, 2000
and incorporated herein by reference.
*** Previously filed with the Securities and Exchange Commission as an
Exhibit to the Annual Report on Form 10-K filed on April 2, 2001 and
incorporated herein by reference.
+ Previously filed with the Securities and Exchange Commission as an
Exhibit to the Annual Report on Form 10-K filed on April 13, 1999 and
incorporated herein by reference.
++ Previously filed with the Securities and Exchange Commission as an
Exhibit to the Annual Report on Form 10-K filed on March 30, 2000 and
incorporated herein by reference.
# Previously filed with the Securities and Exchange Commission as an
Exhibit to the Annual Report on Form 10-K filed on April 10, 2002 and
incorporated herein by reference.
(b) Reports on Form 8-K.
On August 14, 2002, the Company filed a current report on Form 8-K
reporting that the Company submitted to the Securities and Exchange Commission
the certification of the Company's report on Form 10-Q for the quarter ended
June 30, 2002 by its chief executive officer and principal accounting officer as
required pursuant to Section 906 of the Sarbanes-Oxley Act of 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: November 14, 2002
-------------------
PATIENT INFOSYSTEMS, INC.
(Registrant)
Date: November 14, 2002 /s/ Roger L. Chaufournier
------------------------------ -------------------------------------
Roger L. Chaufournier
Director, President and
Chief Executive Officer
Date: November 14, 2002 /s/ Kent A. Tapper
------------------------------ -------------------------------------
Kent A. Tapper
Principal Accounting Officer
I, Roger L. Chaufournier, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Patient Infosystems,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002 By: /s/ Roger L. Chaufournier
-------------------------
Roger L. Caufournier
Chief Executive Officer
Principal Executive Officer
I, Kent A. Tapper, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Patient Infosystems,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 14, 2002 By: /s/ Kent A. Tapper
------------------
Kent A. Tapper
Vice President
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,
2002 2001 2002 2001
---- ---- ---- ----
Net loss $ (474,147) $ (1,221,361) $ (1,692,186) $ (3,774,813)
Convertible preferred Stock dividends (22,500) (22,500) (67,500) (67,500)
----------- ------------- ------------- -------------
Net loss attributable to
Common Stockholders $ (496,647) $ (1,243,861) $ (1,759,686) $ (3,842,313)
----------- ------------- ------------- -------------
Weighted average common shares 10,956,024 10,956,024 10,956,024 9,365,194
----------- ------------ ------------- -------------
Net loss per share - Basic and diluted $ (0.05) $ (0.11) $ (0.16) $ (0.41)
=========== ============ ============ =============