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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2004
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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)
(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, 2004, 6,024,979 shares of the Company's common stock, par
value $0.01 per share, were outstanding.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
PATIENT INFOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED) AS OF
ASSETS March 31, 2004 December 31, 2003
-------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents $ 703,527 $ 397,851
Accounts receivable 878,505 771,258
Prepaid expenses and other current assets 156,900 156,729
-------------- -------------
Total current assets 1,738,932 1,325,838
Property and equipment, net 297,093 305,551
OTHER ASSETS:
Intangible assets
(net of accumulated amortization of $633,859 and $586,830) 438,900 497,893
Goodwill 7,004,625 6,981,876
-------------- -------------
TOTAL ASSETS $ 9,479,550 $ 9,111,158
============== =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ - $ 189,608
Accounts payable 1,282,552 1,337,862
Accrued salaries and wages 518,832 442,299
Accrued expenses 852,758 1,043,247
Accrued dividends 699,790 490,756
Current maturities of long-term debt 64,795 294,117
Deferred revenue 105,689 336,598
-------------- -------------
Total current liabilities 3,524,416 4,134,487
-------------- -------------
LINE OF CREDIT 3,000,000 3,000,000
LONG-TERM DEBT 34,098 40,295
STOCKHOLDERS' DEFICIT:
Preferred stock - $.01 par value: shares authorized: 20,000,000
Series C, 9% cumulative, convertible, issued and outstanding - 75,000
as of March 31, 2004, 100,000 as of December 31, 2003 750 1,000
Series D, 9% cumulative, convertible, issued and outstanding - 840,118
as of March 31, 2004, 830,100 as of December 31, 2003 8,401 8,301
Common stock - $.01 par value: shares authorized:
80,000,000; issued and outstanding - 6,024,979 as of March 31, 2004,
4,960,354 as of December 31, 2003 60,250 49,604
Additional paid-in capital 48,334,726 45,596,684
Unearned debt issuance cost (914,000) -
Accumulated deficit (44,569,091) (43,719,213)
-------------- -------------
Total stockholders' deficit 2,921,036 1,936,376
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 9,479,550 $ 9,111,158
============== =============
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATION (UNAUDITED)
Three Months Ended
March 31,
2004 2003
---- ----
REVENUES
Disease and Demand Management Fees $ 2,344,427 $ 947,679
Ancillary Benefits Management Fees 1,676,510 -
-------------- -------------
Total revenues 4,020,937 947,679
-------------- -------------
COSTS AND EXPENSES
Cost of sales 3,170,705 761,602
Sales and marketing 371,122 242,603
General and administrative 1,016,861 275,469
Research and development 32,607 31,758
-------------- -------------
Total costs and expenses 4,591,295 1,311,432
-------------- -------------
OPERATING LOSS (570,358) (363,753)
OTHER EXPENSE
Financing Cost (171,375) -
Interest expense, net (29,966) (141,453)
-------------- -------------
NET LOSS (771,699) (505,206)
CONVERTIBLE PREFERRED STOCK DIVIDENDS (287,214) (22,500)
-------------- -------------
NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS $ (1,058,913) $ (527,706)
============== =============
NET LOSS PER SHARE - BASIC
AND DILUTED $ (0.20) $ (0.58)
============== =============
WEIGHTED AVERAGE COMMON SHARES 5,348,800 913,002
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
OPERATING ACTIVITIES:
Net loss $ (771,699) $ (505,206)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 280,687 82,138
Compensation expense related to warrants 223,088 -
(Increase) decrease in accounts receivable (107,247) 87,946
(Increase) decrease in prepaid insurance, expenses and other current assets (171) 2,642
Decrease in accounts payable (55,310) (45,449)
Increase in accrued salaries and wages 76,533 78,562
(Decrease) increase in accrued expenses (190,489) 128,815
Decrease in deferred revenue (230,909) (31,800)
-------------- ---------------
Net cash used in operating activities (775,517) (202,352)
-------------- ---------------
INVESTING ACTIVITIES:
Property and equipment additions (41,860) (18,572)
Increase in notes receivable - (300,000)
-------------- ---------------
Net cash used in investing activities (41,860) (318,572)
-------------- ---------------
FINANCING ACTIVITIES:
Borrowing from directors, net - 600,000
Decrease in bank overdraft (189,608)
Payment of debt (235,519) -
Proceeds from the sale of common stock 1,663,180 -
Expenses related to the sale of common stock (115,000) -
-------------- ---------------
Net cash provided by financing activities 1,123,053 600,000
-------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 305,676 79,076
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 397,851 5,011
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 703,527 $ 84,087
=========== ========
Supplemental disclosures of non-cash information
Dividend declared on Convertible Preferred Stock $ 209,034 $ 22,500
=========== ========
Beneficial conversion feature of Convertible Preferred Stock $ 78,180
==========
Fair market value of:
Warrants issued as an expense of sale of Common Stock $ 46,625
==========
Warrants issued as acquisition expense $ 22,750
==========
Warrants issued or debt guarantee $1,085,375
==========
Common Stock issued for services $ 44,250
==========
See notes to unaudited consolidated financial statements.
PATIENT INFOSYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements for the period ended
March 31, 2004
1. The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Patient Infosystems Canada, Inc., which
ceased operations in January 2001 and American Caresource Holdings, Inc.
("ACS") which was created in December 2003. Significant intercompany
transactions and balances have been eliminated in consolidation.
Acquisition - On December 31, 2003, the Company acquired substantially all
the assets and liabilities of American Caresource Corporation for a total
purchase price of $5,754,866. The Company recorded this acquisition using
the purchase method of accounting and therefore, the operations of ACS are
included only since the date of the acquisition.
The accompanying consolidated financial statements for the three month
periods ended March 31, 2004 and March 31, 2003 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-KSB for the year ended December 31, 2003. Certain reclassifications of
2003 amounts have been made to conform to 2004 presentations. The results
of operations for the three months ended March 31, 2004 are not necessarily
indicative of the results for the entire year ending December 31, 2004.
All share and per share information contained herein gives effect to the 1
for 12 reverse stock split which was effective as of January 9, 2004.
The calculations for the basic and diluted loss per share for the three
month periods ended March 31, 2004 and 2003 did not include 1,527,160 and
92,877, respectively, options to purchase shares of common stock nor the
common equivalent shares issuable upon conversion of the 100,000 and
915,188, respectively, shares of preferred stock which were outstanding
because the effect would have been antidilutive due to the net loss in
those periods. The computation of basic and diluted net loss per share is
as follows:
Three Months Ended
March 31,
2004 2003
---- ----
Net loss $ (771,699) $ (505,206)
Convertible preferred Stock dividends (287,214) (22,500)
------------- -----------
Net loss attributable to
Common Stockholders $ (1,085,913) $ (527,706)
------------- -----------
Weighted average common shares 5,348,800 913,002
------------- -----------
Net loss per share - Basic and diluted $ (0.20) $ (0.58)
============= ===========
Stock-Based Compensation - In 2002, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure." This standard
provides alternative methods of transition for voluntary change to the fair
value based method of accounting for stock-based employee compensation.
Additionally, the standard also requires prominent disclosures in the
Company's financial statements about the method of accounting used for
stock-based employee compensation, and the effect of the method used when
reporting financial statements.
The Company accounts for stock-based compensation in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation". As permitted by SFAS
No. 123, the Company continues to measure compensation for such plans using
the intrinsic value based method of accounting, prescribed by Accounting
Principles Board ("APB"), Opinion No. 25, "Accounting for Stock Issued to
Employees." Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair value at the date of
grant for awards consistent with the provisions of SFAS No. 123, the
Company's net loss and net loss per share would have been increased to the
pro forma amounts indicated below:
Three Months Ended
March 31,
2004 2003
---- ----
Net loss attributable to common
shareholders - as reported $1,058,913) ($527,706)
Stock compensation expense (1,161,959) (26,334)
------------ -------------
Net loss - pro forma (2,220,872) (554,040)
Net loss per share - basic
and diluted - as reported ($0.20) ($0.58)
============ =============
Net loss per share - basic
and diluted - pro forma ($0.42) ($0.61)
============ =============
Weighted average common shares 5,348,800 913,002
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model using an assumed risk-free interest
rates of 3.31% for the three month period ended March 31, 2004, 3.79% for
the year ended December 31, 2003 and an expected life of 7 years. The
assumed dividend yield was zero. The Company has used a volatility factor
of 113% for the three month period ended March 31, 2004 and 98% for the
year ended December 31, 2003. For purposes of pro forma disclosure, the
estimated fair value of each option is amortized to expense over that
option's vesting period and only the compensation expense related to the
three month periods ended March 31, 2003 and 2004 were used to adjust the
net loss on a pro forma basis.
2. On December 31, 2003, the Company entered into the Third Addendum to the
Second Amended and Restated Credit Agreement with Well Fargo Bank Iowa,
N.A., which extended the term of the $3,000,000 credit facility to July 31,
2005. Dr. Schaffer and Mr. Pappajohn, directors of the Company, guaranteed
this extension. In consideration of their guarantees, in February 2004 the
Company granted to Dr. Schaffer and Mr. Pappajohn warrants to purchase an
aggregate of 47,500 shares of Series D Convertible Preferred Stock,
convertible into 475,000 shares of the Company's common Stock for $10.00
per preferred share. The Company valued these warrants at $1,085,375 using
the Black-Scholes method. The value of these warrants was recorded as
unearned debt issuance costs and will be amortized as financing costs over
the nineteen month period of the loan guarantee. During the 3 months ended
March 31, 2004, the company recorded a financing cost of $171,375.
3. On March 28, 2004, Mr. Pappajohn and Dr. Schaffer signed a letter to the
Company in which they made a commitment to obtain the operating funds that
the Company believes would be sufficient to fund its operations through
January 1, 2005. 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.
4. During the three month period ended March 31, 2004, the Company issued
814,625 shares of its Common Stock and 4,700 shares of its Series D
Convertible Preferred Stock to certain investors in exchange for $1,663,180
which consisted of $1,610,000 of working capital, $53,180 of accrued
interest payable and $44,250 of services. The Company incurred $205,875 of
costs directly attributable to the sale of its common stock.
During the three month period ended March 31, 2003, the Company paid
$113,625 of expenses by issuing shares of its Common Stock and warrants to
purchase shares of its Common Stock. The Company issued 22,125 shares of
its Common Stock as payment of $44,250 in consulting expenses and issued
warrants to purchase 25,000 shares of its Common Stock at $2.75 per share
that were assigned a fair market value of $69,375 using a Black-Scholes
valuation method.
Of the warrants to purchase 25,000 shares of the Company's Common Stock,
warrants to purchase 12,500 shares assigned a value of $22,750 were an
additional expense related to the purchase of substantially all the assets
of and assumption of liabilities from American Caresource Corporation on
December 31, 2003. Accordingly, goodwill related to this acquisition was
increased by $22,750.
5. During the three months ended March 31, 2004 the Company operated in two
segments: (i) Patient Infoystems, which includes disease management, demand
management and provider improvement services; and (ii) American Caresource,
which includes ancillary benefits management services. Selected financial
information on the Company's segments for the three month periods ended
March 31, 2004 and 2003 and pro forma combined as if the acquisition had
occurred as of January 1, 2003 are presented as follows:
March 31,
2004 2003 2003
Pro Forma
Revenues
Patient Infosystems, Inc. $ 2,344,427 $ 947,679 $ 947,679
American Caresource Holdings, Inc. 1,676,510 - 2,581,617
------------------- ---------------- ----------------
Total revenue 4,020,937 947,679 3,529,296
Cost of goods
Patient Infosystems, Inc. 1,526,595 761,602 761,602
American Caresource Holdings, Inc. 1,644,110 - 2,999,403
Selling, General and Administrative
Patient Infosystems, Inc. 601,792 549,830 549,830
American Caresource Holdings, Inc. 818.798 - 657,391
Other
Patient Infosystems, Inc. 196,772 141,453 141,453
American Caresource Holdings, Inc. 4,569 - 5,458
------------------- ---------------- ----------------
Net profit (loss)
Patient Infosystems, Inc. 19,268 (505,206) (505,206)
American Caresource Holdings, Inc. (790,967) - (1,080,635)
------------------- ---------------- ----------------
Total net loss (771,699) (505,206) (1,585,841)
Dividends (287,214) (22,500) (170,958)
------------------- ---------------- ----------------
Net loss attributable to
common shareholders (1,058,913) (527,706) (1,756,799)
=================== ================ ================
Net loss per share basic and diluted $ (0.20) $ (0.58) $ (1.92)
=================== ================ ================
Weighted average common shares 5,348,800 913,002 913,002
=================== ================ ================
6. 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, 2004 of $771,699 and had negative working capital of
$1,785,484 at March 31, 2004. 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.
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 period ended March 31, 2004 as compared to
the three month period ended March 31, 2003 and a review of the Company's
financial condition at March 31, 2004 as compared to March 31, 2003 and December
31, 2003. 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 forward-looking view of the
Company's current condition and future opportunities, this Quarterly Report on
Form 10-QSB includes information from the Company's management about future
performance and results. Because they are forward-looking, this information
involves 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-KSB for the year ended December 31, 2003.
To assist the reader's understanding the results of operations, each of the
Company's segments will be presented separately using the following segmented
statement of operations, which includes pro forma results of American Caresource
Holdings, Inc. for the three month period ended March 31, 2003 for comparative
purposes:
Patient Infosystems American Caresource
Three Months Ended Three Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Pro forma
REVENUES $ 2,344,427 $ 947,679 $ 1,676,510 $ 2,581,617
COSTS AND EXPENSES
Cost of sales 1,526,595 761,602 1,644,110 2,999,403
Sales and marketing 222,010 242,603 149,112 68,228
General and administrative 347,175 275,469 669,686 589,163
Research and development 32,607 31,758
-------------- --------------- ---------------- ----------------
Total costs and expenses 2,128,387 1,311,432 2,462,908 3,656,794
OPERATING PROFIT (LOSS) 216,040 (363,753) (786,398) (1,075,177)
OTHER EXPENSE (196,772) (141,453) (4,569) (5,458)
-------------- --------------- ---------------- ----------------
NET PROFIT (LOSS) 19,268 (505,206) (790,967) (1,080,635)
Results of Operations
PATIENT INFOSYSTEMS
Revenues
Revenues consist of revenues from operations and other fees. Revenues
increased to $2,344,427 from $947,679 during the three months ended March 31,
2004 and 2003, respectively, or 147%.
Three Months Ended
March 31,
Revenues 2004 2003
-------- ---- ----
Operations fees
Provider improvement $ 1,858,103 $ 369,996
Disease and demand management 483,638 549,307
-------------- --------------
Total operations fees 2,341,741 919,303
Other fees 2,686 28,376
-------------- --------------
Total revenues $ 2,344,427 $ 947,679
-------------- --------------
Provider innovations and improvement fee revenues are primarily
attributable to assistance provided to organizations for the effective
management of patients with chronic disease, including information technology
support, learning organization services, and data analysis and reporting. For a
substantial part of its innovation and improvement work, Patient Infosystems
participates in as a subcontractor to the Institute for Healthcare Improvement.
Provider improvement fee revenues increased to $1,858,103 for the three months
ended March 31, 2004 as compared to $369,996 for the three months ended March
31, 2003. No assurances can be given that Patient Infosystems will continue to
provide these services at the current levels, or at all, and revenue recognized
during the three month period ended March 31, 2004 is not necessarily indicative
of the results to be expected for the entire year ending December 31, 2004. The
contracts for substantially all the provider improvement services are annual in
nature, the largest of which ended as of March 31, 2004. Patient Infosystems
anticipates renewing this contract and is therefore continuing to provide these
services during the renewal process. No assurance can be given that Patient
Infosystems can successfully renew the contract.
Disease and demand management fee revenues are primarily attributable to
the operation of Patient Infosystems' call center and the delivery of the Care
Team Connect for Health directly to patients. Disease and demand management fee
revenues decreased to $483,638 from $549,307 for the three month periods ended
March 31, 2004 and 2003, respectively. The decrease in these fees is primarily
attributable to the termination of one customer on July 1, 2003 for which
Patient Infosystems had $160,620 of revenue during the three month period ended
March 31, 2003. Patient Infosystems is actively marketing its Disease and demand
management services and anticipates continuing to sell its services. No
assurances can be given that Patient Infosystems will sell its demand and
disease management services, if at all, nor that any such sales will have a
material effect on the financial status of Patient Infosystems.
Other fee revenues were $2,686 and $28,376 for the three month periods
ended March 31, 2004 and 2003, respectively. Patient Infosystems received other
revenues for (i) development fees from a variety of customers for creation of,
or modification to, specific programs and (ii) license fees. Patient Infosystems
has completed substantially all services under these agreements. Development fee
revenues include clinical, technical and operational design or modification of
Patient Infosystems' primary disease management programs. Patient Infosystems
anticipates that revenue from development fees will continue to be low unless
Patient Infosystems enters into new development agreements. Patient Infosystems
has not entered into any new licensing agreements and the revenue for the
current period reflects revenue generated exclusively from the existing
agreements.
Costs and Expenses
Cost of sales includes salaries and related benefits, services provided by
third parties, and other expenses associated with the implementation and
delivery of Patient Infosystems' provider improvement and demand and disease
management programs. Cost of sales for the three months ended March 31, 2004 was
$1,526,595 as compared to $761,602 for the three months ended March 31, 2003.
The increase in these costs was primarily the result of increased operational
activity. Patient Infosystems' gross margin, being total revenues over cost of
sales, was positive for the three month periods ended March 31, 2004 and 2003.
Patient Infosystems anticipates that revenue must increase for it to recognize
economies of scale adequate to improve its margins. 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, 2004 were
$222,010 as compared to $242,603 for the three months ended March 31, 2003.
Patient Infosystems anticipates expansion of Patient Infosystems' 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 Patient Infosystems. General and administrative expenses for the
three months ended March 31, 2004 were $347,175, as compared to $275,469 for the
three months ended March 31, 2003. These expenditures have been incurred to
maintain the corporate infrastructure necessary to support anticipated program
operations. General and administrative expenses are expected to remain
relatively constant in future periods..
Research and development expenses consist primarily of salaries and related
benefits and administrative costs associated with the development of certain
components of Patient Infosystems' integrated information capture and delivery
system, as well as development of Patient Infosystems' standardized disease
management programs and Patient Infosystems's Internet based technology
products. Research and development expenses for the three months ended March 31,
2004 were $32,607, as compared to $31,758 for the three months ended March 31,
2003.
Patient Infosystems recorded other expenses of $196,772 for the three month
period ended March 31, 2004 as compared to $141,453 for the three month period
ended March 31, 2003, principally due to the interest expense and other related
financing cost on debt.
Patient Infosystems had a net profit of $19,268 as compared to a loss of
$505,206 for the 3 month periods ended March 31, 2004 and 2003, respectively.
AMERICAN CARESOURCE
Revenues
Revenues of American Caresource Holdings, Inc. ("ACS") are comprised of
revenues from ancillary service claims and processing of patient claims.
Revenues decreased to $1.7 million from $2.6 million during the three months
ended March 31, 2004 and 2003, respectively, or 35.0%.
Three Months Ended
March 31
Revenues 2004 2003
-------- ---- ----
Pro forma
Ancillary Health $1,544,848 $ 2,476,944
Patient Claims 131,662 104,673
---------------- ------------------
Total Revenues $1,676,510 $ 2,581,61
Ancillary health claims revenue decreased to $1.5 million for the three
months ended March 31, 2004 as compared to $2.5 million for the three months
ended March 31, 2003. This decrease is attributable to the cancellation of
contracts by major clients and to the reduction of revenue from a provider in
ACS' ancillary health provider network. Pinnacol Assurance ("Pinnacol") notified
ACS on December 19, 2003 of its intent to terminate its contract with ACS
effective March 18, 2004, and was winding down throughout the first quarter of
2004. Revenue for Pinnacol decreased 45.4% from $981,269 for the three months
ended March 31, 2003 to $536,035 for the three months ended March 31, 2004. A
provider for which ACS had $314,421 of revenue for the three months ended March
31, 2003, notified ACS of its intent to terminate its contract effective October
13, 2004 and did not generate any revenue for ACS during the three month period
ended March 31 2004. ACS expects relations with providers in its network to
improve as a result of the acquisition by Patient Infosystems. ACS also expects
to expand its provider network by seeking to restore relationships with
providers previously in the network and add new providers as ACS adds new client
payor contracts. No assurances can be given that ACS will be able to expand its
provider or payor relationships, nor that any such expansion will result in an
improvement in the results of operations of ACS.
The processing of patient claims revenues increased 25.8% to $131,662 for
the three months ended March 31, 2004 as compared to $104,673 for the three
months ended March 31, 2003. The Company does not expect to increase its
revenues from claims processing in future periods.
Costs and Expenses
Cost of revenues includes provider payments, direct expenses incurred for
providing services and the related direct labor and overhead of providing such
services. ACS is not liable for costs incurred by its contracted providers
unless and until these providers obtain approval from the appropriate payors and
provide the contracted services and ACS receives payment from the payors. Costs
of revenues also include direct expenses to administer claims, including direct
labor associated with recruitment and contracting with providers, database
maintenance, data entry of claims, claims repricing, fulfillment and overhead
costs. Costs of revenues decreased to $1,644,110 for the three month period
ended March 31, 2004 as compared to $2,999,403 for the three month period ended
March 31, 2003. This decrease was due to a decrease in provider payments,
renegotiation of management fees payable to one client, and to a reduction in
direct expenses and overhead associated with the decrease in claims volume
related to revenue. Provider payments decreased $815,653 in relation to
decreasing revenues. Management fees for client ppoNEXT decreased $127,173 as
contract changes negotiated in July 2003 took effect upon the acquisition of ACS
by Patient Infosystems. Direct expenses and overhead associated with ACS service
provision decreased $342,266 as reductions were made to personnel and other
costs to align ACS' cost structure with its claims volume.
Sales and marketing expenses include the salaries and related benefits of
ACS' account development employees, travel and other costs for those employees,
and sales materials and other marketing or sales expenses of ACS. Commissions
paid to independent outside salespeople are based directly on net margin per
client. Payments to providers and all billing and processing of claims expenses
are included in cost of revenues. Sales and marketing expenses increased to
$149,112 for the three months ended March 31, 2004, as compared to $68,228 for
the three months ended March 31, 2003. The increase was attributable primarily
to a $59,480 salary accrual related to the termination on one employee.
General and administrative expenses include the salaries and related
benefits of ACS' executive employees, systems development and finance and
accounting employees, travel and other costs for those employees. General and
administrative expenses increased to $669,686 for the three months ended March
31, 2004, as compared to $589,163 for the three months ended March 31, 2003. The
increase was attributable primarily to a one time warrant compensation expense
of $211,900, offset by a reduction in legal costs of $62,971 and $60,710 from
reductions in personnel costs related to the consolidation of the human
resources function with Patient Infosystems as well as efficiencies and
reductions in payment processing volume.
The Company recorded net interest expense of $4,569 for the three month
period ended March 31, 2004, as compared to $5,458 for the same period of 2003.
Any new financing arrangements will be made by Patient Infosystems.
Consequently, ACS' interest expense is expected to be minimal in future periods.
ACS had a net loss of $790,967 for the three month periods ended March 31,
2004 compared to $1,080,635 for the same period of 2003.
Income (loss)
The Company reported a net loss attributable to common shareholders of
$1,058,913 as compared to $527,706 for the three month periods ended March 31,
2004 and 2003, respectively. This represents a loss per share of $0.20 and $0.58
for the same respective periods. The Company's loss per share for the three
month period ended March 31, 2003, on a pro forma basis, assuming that the
acquisition of substantially all the assets and liabilities of American
Caresource Corporation had occurred on January 1, 2003 is $1.92, as compared to
$0.20 loss per share for the same period of 2004. During the 3 months ended
March 31, 2004, the company recorded $78,180 beneficial conversion feature
related to the issuance of 10,018 shares of the Company's Series D Preferred
Stock, which was recorded as a dividend, and declared $209,034 of dividends on
the outstanding preferred stock.
Liquidity and Capital Resources
At March 31, 2004, the Company had a working capital deficit of $1,785,484
as compared to $2,808,649 at December 31, 2003. Through March 31, 2004, these
amounts reflect the effects of the Company's continuing losses and borrowings.
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, 2003, 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 $3,000,000 credit facility to January 2, 2004, under substantially the
same terms. Mr. Pappajohn and Dr. Schaffer, directors of the Company, guaranteed
this extension.
On December 31, 2003, the Company entered into the Third Addendum to the
Second Amended and Restated Credit Agreement with Well Fargo Bank Iowa, N.A.,
which extended the term of the $3,000,000 credit facility to July 31, 2005. Mr.
Pappajohn and Dr. Schaffer guaranteed this extension. In consideration of their
guarantees, In February 2004 the Company granted to Dr. Schaffer and Mr.
Pappajohn warrants to purchase an aggregate of 47,500 shares of Series D
Convertible Preferred Stock, convertible into 475,000 shares of the Company's
common Stock for $10.00 per preferred share. The Company valued these warrants
at $1,085,375 using the Black-Scholes method. The value of these warrants was
recorded as unearned debt issuance cost and will be amortized as financing costs
over the nineteen month period of the loan guarantee. During the 3 months ended
March 31, 2004, the company recorded a financing cost of $171,375.
In January 2004, the Company borrowed $200,000 for working capital from Mr.
Pappajohn which was repaid in March 2004 using the proceeds of the sale of the
Company's common stock.
On March 28, 2004, Mr. Pappajohn and Dr. Schaffer signed a letter to the
Company in which they made a commitment to obtain the operating funds that the
Company believes would be sufficient to fund its operations through January 1,
2005. 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.
During the three month period ended March 31, 2004, the Company issued
814,625 shares of its Common Stock and 4,700 shares of its Series D Convertible
Preferred Stock to certain investors in exchange for $1,663,180 which consisted
of $1,610,000 of working capital, $53,180 of accrued interest payable and
$44,250 of services. The Company incurred $205,875 of costs directly
attributable to the sale of its common stock.
During the three month period ended March 31, 2003, the Company paid
$113,625 of expenses by issuing shares of its Common Stock and warrants to
purchase shares of its Common Stock. The Company issued 22,125 shares of its
Common Stock as payment of $44,250 in consulting expenses and issued 25,000
warrants to purchase shares of its Common stock which was assigned a fair market
value of $69,375 using a Black-Scholes valuation method.
Of the warrants to purchase 25,000 shares of the Company's Common Stock,
warrants to purchase 12,500 shares assigned a value of $22,750 were an
additional expense related to the purchase of substantially all the assets of
and assumption of liabilities from American Caresource Corporation on December
31, 2003. Accordingly, goodwill related to this acquisition was increased by
$22,750.
The Company has expended significant amounts to expand its operational
capabilities including increasing its administrative and technical costs. While
Patient Infosystems has both curtailed its spending levels and increased its
revenue, to the extent that American Caresource Holdings, Inc. revenues do not
increase substantially, the Company's' losses will continue and its available
capital will diminish further. The Company's' operations are currently being
funded by the sale of equity securities. There can be no assurances given that
the Company can raise either the required working capital through the sale of
its securities or that Patient Infosystems can borrow the additional amounts
needed. In such instance, if Patient Infosystems is unable to identify
additional sources of capital, it will likely be forced to curtail or cease
operations. As a result of the above, the Independent Auditors' Report on
Patient Infosystems' consolidated financial statements for the year ended
December 31, 2003 includes an emphasis paragraph indicating that Patient
Infosystems' recurring losses from operations raise substantial doubt about
Patient Infosystems' ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Inflation
Inflation did not have a significant impact on the Company's costs during
the three month periods ended March 31, 2004 and March 31, 2003. 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-KSB for the year ended December 31, 2003. 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.
Item 3. Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and
Vice President, Financial Planning, has evaluated the effectiveness of our
disclosure controls and procedure as of March 31, 2004. Based upon this
evaluation, our Chief Executive Officer and Vice President, Financial Planning
concluded that our disclosure controls and procedures are effective for the
recording, processing, summarizing and reporting the information the Company is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the SEC's rules and forms. Such
evaluation did not identify any change in our internal control over financial
reporting that occurred during the quarter ended March 31, 2004 that has
materially affected, or is reasonably likely to affect, our internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
Recent Sales of Unregistered Securities
In January 2004, the Company issued 10,018 shares of Series D 9% Cumulative
Convertible Preferred Stock ("Series D Preferred Stock") in exchange for $25,000
of cash and $53,180 of accrued interest. 5,318 of these shares were issued to
Dr. Schaffer, a director of the Company. There was no placement agent and no
commissions were paid to any party. These shares can be converted into common
stock at a rate of 10 shares of common stock to 1 share of Series D Preferred
Stock. Each share of Series D Preferred Stock has voting rights equivalent to 10
shares of common stock. The proceeds from this issuance have been used to repay
debt and support the operations of Patient Infosystems' subsidiary, American
Caresource Holdings, Inc.
in February 2004, the Company sold 592,500 shares of common stock, for
$1,185,000 to six accredited investors, under an exemption from registration
pursuant to Section 4(2) and Rule 506 of the Securities Act of 1933. There was
$68,250 of fees paid and a warrant to purchase 12,500 shares of Patient
Infosystems common stock for $2.00 per share issued in connection with these
funds. On May 5, 2004, Patient Infosystems filed a registration statement on
Form SB-2 for these shares. Patient Infosystems has a best efforts commitment to
have this registration statement become effective by May 24, 2004.
In March 2004, the Company sold 222,125 shares of common stock, for
$400,000 of cash and $44,250 of the Company's expense liability to four
accredited investors, under an exemption from registration pursuant to Section
4(2) and Rule 506 of the Securities Act of 1933. There was $15,000 of fees paid
in connection with these funds. On May 5, 2004, Patient Infosystems filed a
registration statement on Form SB-2 which included these shares.
Borrowing from directors
In January 2004, the Company borrowed $200,000 for working capital from Mr.
Pappajohn which was repaid in March 2004 using the proceeds of the sale of the
Company's common stock. The loan was a non-interest bearing demand note.
Item 6. Exhibits and Reports on Form 8-K
Exhibit # Description of Exhibits
3.1-- Certificate of Amendment to the 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.
10.20 + Lease Agreement dated as of February 22, 1995 between Patient
Infosystems and Conifer Prince Street Associates.
10.21 + First Addendum to Lease Agreement dated as of August 22, 1995 between
Patient Infosystems and Conifer Prince Street Associates.
10.22 + Second Addendum to Lease Agreement dated as of November 17, 1995 between
Patient Infosystems and Conifer Prince Street Associates.
10.23 + Third Addendum to Lease Agreement dated as of March 28, 1996 between
Patient Infosystems and Conifer Prince Street Associates.
10.24 + Fourth Addendum to Lease Agreement dated as of October 29, 1996 between
Patient Infosystems and Conifer Prince Street Associates.
10.25 + Fifth Addendum to Lease Agreement dated as of November 30, 1996 between
Patient Infosystems and Conifer Prince Street Associates.
10.26 + Sixth Addendum to Lease Agreement dated as of November 24, 1997 between
Patient Infosystems and Conifer Prince Street Associates.
10.30 ++ Seventh Addendum to Lease Agreement dated as of June 16, 1999 between
Patient Infosystems and Conifer Prince Street Associates.
10.33 ++ Revolving Note dated as of December 23, 1999 between Patient
Infosystems and Norwest Bank Iowa, National Association.
10.34 ++ Credit Agreement dated as of December 23, 1999 between Patient
Infosystems and Norwest Bank Iowa, National Association.
10.35 ++ Security Agreement dated as of December 23, 1999 between Patient
Infosystems and Norwest Bank Iowa, National Association.
10.36 ++ Arbitration Agreement dated as of December 23, 1999 between Patient
Infosystems and Norwest Bank Iowa, National Association.
10.37 ++ Financing Statement executed by Patient Infosystems and Norwest Bank
Iowa, National Association.
10.38 ++ First Amendment to Credit Agreement dated as of March 21, 2000 between
Patient Infosystems and Norwest Bank Iowa, National Association.
10.39 ++ Note Modification Agreement dated as of March 21, 2000 between Patient
Infosystems and Norwest Bank Iowa, National Association.
10.41 *** Form of Subscription Agreement dated on or about March 31, 2000
between Patient Infosystems 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 Patient Infosystems 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 Patient Infosystems and Conifer Prince Street Associates.
10.45 *** Amended and Restated Credit Agreement dated as of March 28, 2001
between Patient Infosystems and Wells Fargo Bank Iowa, National
Association.
10.46 *** Revolving Note dated as of March 28, 2001 between Patient Infosystems
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
Patient Infosystems and Conifer Prince Street Associates.
10.50 # Letter of Agreement dated as of March 25, 2002 between Patient
Infosystems, John Pappajohn and Derace Schaffer.
10.51 # Second Amended and Restated Credit Agreement dated as of March 28, 2002
between Patient Infosystems and Wells Fargo Bank Iowa, National Association.
10.52 # Revolving Note dated as of March 28, 2002 between Patient Infosystems
and Wells Fargo Bank Iowa, National Association.
10.53 # Security Agreement dated as of March 28, 2002 between Patient
Infosystems and Wells Fargo Bank Iowa, National Association.
10.54 ## Addendum to Amended and Restated Credit Agreement dated as of June 28,
2002 between Patient Infosystems and Wells Fargo Bank Iowa, National
Association.
10.55 ## Agreement for Purchase and Sale of Assets dated as of September 23,
2002 between Patient Infosystems and American CareSource Corporation.
10.56 ### Tenth Addendum to Lease Agreement dated as of June 24, 2002 between
Patient Infosystems and Conifer Prince Street Associates.
10.57 ### Eleventh Addendum to Lease Agreement dated as of December 30, 2002
between Patient Infosystems and Conifer Prince Street Associates.
10.58 ### Letter of Agreement dated as of March 28, 2003 between Patient
Infosystems, John Pappajohn and Derace Schaffer.
10.59 ### Second Addendum to Second Amended and Restated Credit Agreement dated
as of March 28, 2003 between Patient Infosystems and Wells Fargo Bank,
National Association.
10.60 ### Modification Agreement dated as of March 28, 2003 between Patient
Infosystems and Wells Fargo Bank, National Association.
10.61 ^ Amended and Restated Agreement for the Purchase and Sale of Assets among
Patient Infosystems, Inc., American Caresource Corporation, formerly
known as Health Data Solutions, and the Stockholders Signatory hereto,
dated April 10, 2003.
10.62 ^ Note and Stock Purchase Agreement between Patient Infosystems, Inc. and
a group of investors, dated April 10, 2003.
10.63 ^ Patient Infosystems, Inc. Series D Convertible Preferred Stock
Registration Right Agreement dated April 10, 2003.
10.64 ^ Credit Agreement between American Caresource Corporation and Patient
Infosystems, Inc. dated April 10, 2003.
10.65 ^^ Twelfth Addendum to Lease Agreement dated as of April 28, 2003 between
Patient Infosystems and Conifer Prince Street Associates.
10.66 ^^ Thirteenth Addendum to Lease Agreement dated as of June 27, 2003
between Patient Infosystems and Conifer Prince Street Associates.
10.67 ^^^ Amendment No. 1 to the Amended and Restated Agreement for the Purchase
and Sale of Assets dated as of July 30, 2003 between Patient Infosystems
and American Caresource Corporation.
10.68 ^^^ Amendment No. 1 to the Note and Stock Purchase Agreement dated as of
September 11, 2003 between Patient Infosystems and a group of investors.
10.69 ^^^ Amendment No. 1 to the Credit Agreement dated as of July 30, 2003
between Patient Infosystems and American Caresource Corporation.
10.70 ^^^ Amendment No. 2 to the Amended and Restated Agreement for the Purchase
and Sale of Assets dated as of October 8, 2003 between Patient
Infosystems and American Caresource Corporation.
10.71 -- Third Addendum to Second Amended and Restated Credit Agreement dated as
of December 31, 2003 between Patient Infosystems and Wells Fargo Bank,
National Association.
10.72-- Form of Securities Purchase Agreement.
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Principal Accounting Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
-- Previously filed with the Securities and Exchange Commission as an Exhibit
to the Annual Report on Form 10-K filed on March 30, 2004 and incorporated
herein by reference.
* 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.
## Previously filed with the Securities and Exchange Commission as an Exhibit
to the Quarterly Report on Form 10-Q filed on November 14, 2002 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 31, 2003 and incorporated
herein by reference.
^ Previously filed with the Securities and Exchange Commission as an Exhibit
to the Quarterly Report on Form 10-QSB filed on May 15, 2003 and
incorporated herein by reference.
^^ Previously filed with the Securities and Exchange Commission as an Exhibit
to the Quarterly Report on Form 10-QSB filed on August 15, 2003 and
incorporated herein by reference.
^^^ Previously filed with the Securities and Exchange Commission as an Exhibit
to the Quarterly Report on Form 10-QSB filed on November 14, 2003 and
incorporated herein by reference.
(b) The following current reports on Form 8-K have been filed as of May 15,
2004:
On January 9, 2004, the Company filed a current report on Form 8-K
reporting that on January 9, 2004 a 1-for-12 reverse split was effected for the
Company's common stock and therefore, the common stock would trade under a new
ticker symbol PATY.
On January 15, 2004, the Company filed a current report on Form 8-K
reporting that on December 31, 2003, the Company had acquired substantially all
the assets and liabilities of American Caresource Corporation.
On February 26, 2004, the Company filed a current report on Form 8-K
providing required Regulation FD disclosure.
On March 15, 2004, the Company amended its current report on Form 8-K/A
providing the required financial statements related to the acquisition of
substantially all the assets and liabilities of American Caresource Corporation.
On March 31, 2004, the Company filed a current report on Form 8-K providing
a copy of a press release announcing the Company's earnings for the year ended
December 31, 2003.
On April 7, 2004, the Company filed a current report on Form 8-K providing
a copy of a press release announcing a new customer.
On April 28, 2004, the Company filed a current report on Form 8-K reporting
a change in the Company's independent accountants from Deloitte and Touche LLP
to McGladrey and Pullen LLP.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PATIENT INFOSYSTEMS, INC.
Date: May 17, 2004 By: /s/Kent A. Tapper
------------------- -----------------------------------
Name: Kent A. Tapper
Title: Principal Accounting Officer
Date: May 17, 2004 By: /s/Roger L. Chaufournier
------------------- -----------------------------------
Name: Roger L. Chaufournier
Title: Director, President and
Chief Executive Officer