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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A (2)
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2008
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission File Number: 333-107824
PATIENT PORTAL TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 02-0656132
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8276 Willett Parkway
Baldwinsville, NY 13027
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(Address of principal executive offices) (Zip Code)
(315) 638-6708
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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 past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer o|_| Smaller reporting company |X|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes |_| No|X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of June 30, 2008, there were 36,821,257 shares of common stock, $.001 par
value per share, outstanding.
TABLE OF CONTENTS
Page No.
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PART I - Financial Information
Item 1. Condensed Consolidated Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial 14
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 24
Item 4T. Controls and Procedures 24
PART II - Other Information
Item 1. Legal Proceedings 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. Exhibits 25
Signatures 26
i
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
Restated Restated
June 30, December 31,
ASSETS 2008 2007
- -------------------------------------- ------------- --------------
Cash $ 33,903 $ 404,003
Accounts Receivable, net 2,523,908 1,794,553
Prepaids 82,398 20,350
Other 84,455 83,111
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TOTAL CURRENT ASSETS $ 2,724,664 $ 2,302,018
Property, Plant & Equipment 3,441,649 3,267,882
Investments 1,475,000 1,475,000
Hospital Contracts, Net 6,306,565 6,651,319
Debt Issuance Costs 787,098 877,916
Note Receivable 250,000 276,967
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TOTAL ASSETS $ 14,984,975 $ 14,851,102
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LIABILITIES AND CAPITAL
- --------------------------------------
Accounts Payable $ 1,568,289 $ 1,162,856
Current Portion - LTD 1,472,604 943,118
Current Portion - Leases 62,221 -
Accrued Expenses 944,325 1,245,249
Notes Payable - Current 427,317 629,668
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TOTAL CURRENT LIABILITIES $ 4,474,757 $ 3,980,891
Long Term Debt, net of discount 4,010,560 3,445,501
Long Term Leases 178,931 -
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TOTAL LIABILITIES $ 8,664,248 $ 7,426,392
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STOCKHOLDER'S EQUITY
- --------------------------------------
Redeemable Preferred Stock , $.01 par value
authorized 1,000,000: 55,000 (June 30, 2008)
and 55,000 (Dec 31, 2007) issued and
outstanding 550 550
Common Stock, $.001 par value, authorized
100,000,000: 36,821,257 (June 30, 2008)
and 36,620,707 (Dec 31, 2007) issued and
outstanding 36,822 36,621
Additional Paid in Capital 9,035,364 8,935,290
Additional Paid In Capital - Warrants 913,043 913,043
Retained Deficit (3,665,052) (2,460,794)
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TOTAL STOCKHOLDER'S EQUITY $ 6,320,727 $ 7,424,710
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TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $ 14,984,975 $ 14,851,102
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See notes to the condensed consolidated financial statements
1
PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
Restated Restated
2008 2007 2008 2007
------------- ------------- -------------- -------------
Net Sales $ 4,495,470 $ 391,856 $ 8,753,406 $ 634,834
Cost Of Sales 2,851,426 273,384 5,799,821 469,068
------------- ------------- -------------- -------------
Gross Margin $ 1,644,044 $ 118,472 $ 2,953,586 $ 165,766
------------- ------------- -------------- -------------
Operating Expenses:
Selling and Administrative 1,299,749 204,407 2,543,151 288,384
Depreciation and Amortization 353,594 95,253 714,003 173,718
------------- ------------- -------------- -------------
Total Operating Expense 1,653,344 299,660 3,257,154 462,102
------------- ------------- -------------- -------------
Income (Loss) from Operations
Before Interest $ (9,300) $ (181,188) $ (303,568) $ (296,336)
Interest Expense 463,933 1,693 900,690 1,693
------------- ------------- -------------- -------------
Net (Loss) before Income Taxes (473,233) (182,881) (1,204,258) (298,029)
Provision for Income Taxes - - - -
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Net (Loss) $ (473,233) $ (182,881) $ (1,204,258) $ (298,029)
------------- ------------- -------------- -------------
Net (Loss) Per Share $ (0.01) $ (0.01) $ (0.03) $ (0.01)
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Weighted Average Shares
Outstanding 36,687,557 25,286,601 36,687,557 25,286,601
------------- ------------- -------------- -------------
2
PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED),
SIX MONTHS ENDED
June 30,
(Unaudited)
Restated
2008 2007
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (1,204,258) $ (298,029)
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Adjustments to reconcile net (loss) to net
cash used in operations:
Depreciation and amortization 714,003 173,718
Debt Discount Amortization 449,360 -
(Increase) decrease in assets:
Accounts receivable (729,355) (1,935)
Other current assets (63,392) (70,413)
Increase (decrease) in liabilities:
Accounts payable 405,434 (18,704)
Other current liabilities (300,924) 13,131
Short term notes payable (175,384) 50,000
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Total adjustments 299,742 145,797
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Net cash flows (used) in operating
activities (904,516) (152,232)
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CASH FLOWS INVESTING ACTIVITIES:
Purchase of property, plant and
equipment (422,508) (3,159)
Purchase of hospital contracts - (1,444,472)
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Net cash (used) in investing activities (422,508) (1,447,631)
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CASH FLOWS FINANCING ACTIVITIES:
Proceeds from preferred stock issued - -
Proceeds from common stock issued 100,275 1,628,472
Proceeds from long-term debt and
leases 1,086,464 -
Payments on long-term Debt (229,815) -
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Net cash flows provided by financing
activities 956,924 1,628,472
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NET (DECREASE) INCREASE IN CASH (370,100) 28,609
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 404,003 12,080
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 33,903 $ 40,689
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Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest, net $ 451,330 $ 1,693
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See notes to the condensed consolidated financial statements
3
PATIENT PORTAL TECHNOLOGIES, INC.,
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Operations and Basis of Presentation - Patient Portal Technologies,
Inc. and its wholly owned subsidiaries (The "Company") are in two primary
businesses. First, the sale of televisions and associated equipment to hospital
facilities and second, providing non medical management and patient support
services assisting hospitals to improve patient satisfaction and outcomes. The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
Consolidation- The accompanying consolidated financial statements
include the accounts of Patient Portal Technologies, Inc. and its wholly owned
subsidiaries. All intercompany transactions and balances have been eliminated in
consolidation.
Financial Statement Preparation- The preparation of the consolidated
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts and related disclosures. Actual
results may differ from those estimates.
Revenue Recognition- The Company recognizes revenue from the sales of
televisions when the product is received by the customer. Revenue for its other
management and patient centers services is recognized when the service is
rendered. Revenue from hospitals for equipment sales or other services is
recorded when the service is performed or the equipment sale is finalized
Income Taxes - Income taxes are not provided for in these financial
statements since the Company incurred a net loss for the year ended December 31,
2007.
Cash Equivalents- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
4
Cash Receivable - The Company performs ongoing credit evaluations of
its customers and adjusts credit limits based upon payment history and the
customer's current creditworthiness, as determined by review of their credit
information. The Company continuously monitors collections and payments from its
customers and maintains a provision for estimated credit losses based upon
historical experience and any specific customer collection issues that have been
identified. Credit losses have historically been within management's
expectations and the provisions established. The allowance for bad debts was
$420,000 as of June 30, 2008.
Debt Issuance Costs - Cost incurred to issue debt are deferred and
amortized as interest expense over the term of the related debt.
Convertible Instrument Discount - Discounts associated with issuance of
debt are amortized over the term of the debt using the interest method.
Recent Accounting Pronouncements - In September 2006, the FASB issued
SFAS NO 157 "Fair Value Measurements" (SFAS 157) which provides guidance for
measuring assets and liabilities at fair value. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007.
The adoption of SFAS 157 is not expected to have a material impact on the
Company's consolidated financial statements.
In December 2007, the FASB issued Statements of Financial Accounting
Standards NO. 141 (revised 2007), "Business Combinations" (FAS 141(R)) and No.
160, "Non-controlling Interests in Consolidated Financial Statements, an
amendment for ARB No. 41 (FAS 160)". FAS 141(R) will change how business
acquisitions are accounted for and FAS 160 will change the accounting and
reporting for minority interests, which will be characterized as non-controlling
interests and classified as a component of equity. FAS 141(R) and FAS 160 are
effective for fiscal years beginning on or after December 15, 2008 (January 1,
2009 for the Company). The adoption of FAS 141(R) and FAS 160 will not have a
material impact on the Company's consolidated financial statements.
Effective January 1, 2008, the Company adopted Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles and expands disclosures
about the fair value measurements. The adoption of SFAS 157 did not have a
material impact on the Company's financial condition and results of operations.
For additional information on the fair value of certain financial assets and
liabilities, see Note 8, "Fair Value Measurements".
Fair Value Option: In February 2007, the FASB issues SFAS No. 159, "The
Fair Value Option for Financial Assets and Financial Liabilities - including an
amendment of FASB Statement No. 115," which permits an entity to measure certain
financial assets and financial liabilities at fair value, with unrealized gains
and losses reported in earnings at each subsequent measurement date. The fair
value option may be elected on an instrument-by-instrument basis, as long as it
is applied to the instrument in its entirety. The fair value option election is
irrevocable, unless an event specifies in SFAS No. 159 occurs that results in a
new election date. This statement is effective for fiscal years beginning after
November 15, 2007. The Company adopted SFAS No. 159 as of January 1, 2008 and
has elected not to measure any additional financial instruments and other items
at fair value.
5
Note 2 - FINANCIAL STATEMENT RESTATEMENTS
Fiscal Year 2007
- ----------------
During fiscal 2007, the Company changed its accounting for patient
service revenue from the cash method to the accrual method in accordance with
SFAC 5. This correction resulted in an increase in revenue of approximately
$837,000 and an increase in operating profit of approximately $142,000 for the
year ended December 31, 2007.
The Company also incorrectly accounted for some aspects of the Dutchess
financing transaction. Errors were made in properly accounting for the preferred
conversion feature and the sale of warrants and the calculation of the debt
issuance balance. These corrections resulted in an increase in paid in capital
of $3,061,381, establishing a debt discount balance of $3,061,381and increasing
the debt issuance balance by approximately $265,000.
The Company also corrected the accounting for the acquisition of TB & A
that had been previously done using an incorrect accounting method. The result
of this correction had an impact on increasing the bargain purchase to
approximately $2.4 million from $1.7 million. This resulted in a reduction of
the fixed asset and hospital contracts recorded balances in the amounts of
$327,000 and $426,000 respectively, from previously reported December 31, 2007
balances. The reduced balances resulted in a reduction of depreciation and
amortization expense of approximately $15,000 over the previously reported
amounts in fiscal 2007.
A correction was made to account for the investments in Omnicast, Inc
and Virtual Nurse, Inc. made during 2007. The correction resulted in an increase
in paid in capital and a corresponding increase in Investment of approximately
$1.475 million.
There were two calculation errors in the number of outstanding
preferred and common stock in the amounts of 25,000 and 80,000 respectively for
the year ended December 31, 2007. The correction had an impact of increasing
expenses by $ 35,000 in 2007.
6
Note 3 - BUSINESS COMBINATIONS AND ACQUISITIONS
During 2007 the Company completed a significant acquisition which was
accounted for as purchases under SFAS No 141, "Business Combinations." The
assets purchased and liabilities assumed for this acquisition has been reflected
in the accompanying consolidated balance sheet as of December 31, 2007 and the
results of operations for the acquisition is included in the accompanying
consolidated statement of earnings from the respective date of acquisition.
Additionally, the company acquired a total of 22 hospital contracts at various
times throughout the year. The operational results of those contracts have been
reflected in the accompanying consolidated financial statements.
TB&A Hospital Television, Inc.
On November 2, 2007, the Company acquired 100% of the outstanding stock
in TB&A Hospital Television, Inc. a privately held company. TB & A Hospital
Television, Inc. is a leading provider of television systems and billing
services for over 600 hospitals nationwide.
The aggregate purchase price paid was $ 3,300,000 which included
$3,000,000 in cash paid at closing and credit for certain outstanding accounts
receivable at the time of closing, which was approximately $300,000. The credit
for the accounts receivable balance was due and payable to the seller as
collected.
The following table summarizes the fair values of assets acquired and
liabilities assumed:
Inventories $ 90,000
A/ R 1,059,000
Other current assets 15,000
Property and equipment 2,173,000
Hospital Contracts 2,654,000
Other assets 55,000
Accounts payable and accrued liabilities (2,746,000)
--------------
Total Purchase Price $ 3,300,000
==============
7
The original amounts assigned to the assets acquired and liabilities
assumed exceeded the purchase price by approximately $2.4 million. In accordance
with SFAS 141 this difference was allocated as a pro rata reduction of the non
current asset values.
The full amount of intangible assets was allocated to the existing 50
hospital contracts and 6 buying group contracts. The value was determined using
a net present value analysis of the future value of these contracts in
accordance with SFAS 141 and 142. The asset category is being amortized over a
useful life of 10 years, which approximates the anticipated term (including
renewals) for these contracts.
Consolidated pro-forma revenues for fiscal years 2007 giving effect to
the Patient Portal and TB&A acquisitions as if they occurred on January 1, 2007
was $13,039,826.
Worldnet Communications, Inc.
In January, April and November 2007 the company acquired 22 active
hospital contracts from Worldnet Communications, Inc. These contacts covered a
variety of services including television and phone rental and billing services
as well as other products and service supporting hospital patient management
improvement.
Total consideration for these contacts was approximately $4.2 million
which consisted of $2.4 million in cash and $1.8 million in common stock equal
to 2,250,000 shares of common stock. The company's common stock was valued in a
range of $.50 - $1.00 based upon the market conditions at the time of the
transaction. The value of the hospital contracts was negotiated at arm's length
and was based upon the anticipated future value of the agreements. The value is
being amortized over 10 years in accordance with the typical length (including
renewals) of these agreements.
8
Note 4 - INVESTMENTS
During March 2007 and April 2007 the Company acquired a 9% minority
interest in Omnicast, Inc., an electronic media based business and a 9% interest
in Virtual Nurse, Inc. a provider of outsourced register nurse screening
services.
The investment in Omnicast, Inc. was valued at $1.1 million dollars and
the investment in Virtual Nurse, Inc. was valued at $375,000. Both investments
were made through the issuance of common stock in Patient Portal Technologies,
Inc., using a valuation of $.50 per share.
Note 5 - PROPERTY, PLANT & EQUIPMENT
Property and equipment are stated at cost and depreciated and amortized
generally on the straight-line method over their estimated useful lives of three
to fifteen years. Property and equipment consist of the following at June 30,
2008 and December 31, 2007.
June 30, December 31,
2008 2007
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Television sets/system installations,
equipment $ 2,701,790 $ 2,401,401
Computer equipment and Software 881,171 822,288
Office equipment 297,061 233,826
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3,880,022 3,457,515
Accumulated depreciation 438,373 189,632
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Total $ 3,441,649 $ 3,267,882
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9
Note 6 - INTANGIBLE ASSETS
In accordance with SFAS No. 142 the Company's intangible assets are
being amortized over the anticipated useful life of the assets. At the end of
June 30, 2008 there was a balance of $6,306,565 in intangible assets which
reflected the unamortized portion of multiyear hospital contracts purchased
during 2007. The contracts are being amortized over a 120 month period using the
straight line method. See note 3. A summary of the balance at June 30, 2008 and
December 31, 2007 follows:
June 30, December 31,
2008 2007
------------- --------------
Hospital Contracts $ 6,895,156 $ 6,895,156
Accumulated Amortization 760,969 243,837
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Total $ 6,134,187 $ 6,651,319
============= ==============
The amortization expense for the three and six month periods ended June
30, 2008 was $ 172,377 and $344,754 and for 2007 was $243,837. The estimated
annual amortization for the next five years will be $689,508.
10
Note 7 - LONG TERM DEBT
Long-term debt consists of the following:
June 30, December 31,
2008 2007
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12% Convertible Debenture $ 6,770,185 $ 7,000,000
Line Of Credit 750,000
Other Long-term Debt 575,000 450,000
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8,095,185 7,450,000
Less: Current portion of long-term debt 1,472,604 943,118
Debt Discount 2,612,021 3,061,381
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$ 4,010,560 $ 3,455,501
============= ==============
12% Convertible Debenture - On November 1, 2007 the Company entered
into an agreement with Duchess Private Equities Fund, LTD ("Dutchess") to borrow
$7,000,000 for acquisition purposes. This amount began being repaid on May 1,
2008, at a monthly amount, including principal and interest, of $183,825.17. All
amounts due and payable under the debenture mature on November 1, 2010.
Approximately 13% of the proceeds or $913,043 was allocated to the
detached warrants using a fair market value of $.04, which was the difference
between the exercise price and estimated fair value of the common stock at the
transaction date. The offset was charged to the discount account in accordance
with EITF 98-5 and EITF 00-27. Additionally the debenture has a conversion
feature which was determined to be beneficial to the holder at the date of
issuance. The conversion feature allows the holder with an option to convert the
outstanding principal for common stock at a price equal to the lesser of 85% of
the lowest closing bid for the Common Stock, during the 20 days prior to the
conversion, or $.46 per share. This conversion feature was determined to have an
intrinsic value of $2,148,338. This balance was charged to additional paid in
capital with the offset charged to debt discount. The debt discount will be
amortized using the interest method over the term of the debt.
Other Long term Debt - Debt is payable in monthly installments of $833
to $4804 including interest at 10 % expiring at various dates through January
2012. These notes are secured by television equipment.
11
Line of Credit - $750,000 line of credit from Five Star Bank, payments
of monthly interest only at prime plus 0.5%
Note 8 COMMITMENTS AND CONTINGENCIES
Lease Commitments - The Company finances its use of certain facilities
and equipment under committed lease arrangements provided by various
institutions. At September 30, 2008 future lease payments, under the long-term
real estate leases, totaled approximately $1.6 Million.
Employment Agreements - As of June 30, 2008, the Company had two
employment agreements in effect for senior executives involved with overseeing
the operations of T B & A.
Litigation - From time to time the Company may be involved in various
legal proceedings and other matters, including nominal disputes with creditors
relating to the dollar amount of outstanding obligations of the Company, arising
in the normal course of business. The Company believes no such actions would
result in liabilities in excess of amounts accrued in the financial statements.
Warrants and Options - As of June 30, 2008, in addition to the
Company's aforesaid outstanding Common Stock, there are issued and outstanding
Common Stock Purchase Warrants which are exercisable at the price-per-share
indicated, and which expire on the date indicated, as follows:
Exercise
Description Number Price Expiration
------------------------------------------
Class "A" Warrants 365,000 $ 2.00 12/31/11
Class "B" Warrants 365,000 $ 3.00 12/31/11
Class "C" Warrants 365,000 $ 4.00 12/31/11
Class "D" Warrants 5,650,000 $ .50 12/31/09
Dutchess
Warrants (A) 22,826,086 $ .46 11/01/12
12
(A) The Dutchess warrants are part of a financing transaction that
closed in November 2007. There is a limit of 4.99% on the amount of the
Company's common stock that Dutchess can own at any point in time.
On November 22, 2002, the Shareholders of the Company ratified the
Company's "2002 Incentive Stock Option Plan" and reserved 1,000,000 shares for
issuance pursuant to said Plan. As of June 30, 2008, no options have been
awarded pursuant to this Plan.
Note 9 FAIR VALUE MEASUREMENTS
As described in Note 2, "New Accounting Standards", the Company adopted
SFAS 157 effective January 1, 2008. SFAS 157 defines fair value as the price
that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability
in an orderly transaction between market participants on the measurement date.
SFAS 157 also describes three levels of inputs that may be used to measure fair
value:
Level 1 - quoted prices in active markets for identical assets and
liabilities.
Level 2 - observable inputs other than quoted prices in active markets
for identical assets and liabilities.
Level 3 - unobserved inputs in which there is little or no market data
available, which require the reporting entity to develop its own assumptions.
13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
In addition to historical information, this Report contains
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those reflected in these forward-looking statements. Factors
that might cause such a difference include, but are not limited to, management
of growth, competition, pricing pressures on the Company's products, industry
growth and general economic conditions. Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
opinions only as of the date hereof. The Company undertakes no obligation to
revise or publicly release the results of any revision to these forward-looking
statements.
General
This discussion and analysis should be read in conjunction with our
financial statements and accompanying notes, which are included elsewhere in
this prospectus. This discussion includes forward-looking statements that
involve risks and uncertainties. Operating results are not necessarily
indicative of results that may occur in future periods. When used in this
discussion, the words "believes", "anticipates", "expects" and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected.
Our business and results of operations are affected by a wide variety
of factors, as we discuss under the caption "Risk Factors" and elsewhere in this
prospectus, which could materially and adversely affect us and our actual
results. As a result of these factors, we may experience material fluctuations
in future operating results on a quarterly or annual basis, which could
materially and adversely affect our business, financial condition, operating
results and stock price.
Any forward-looking statements herein speak only as of the date hereof.
Except as required by applicable law, we undertake no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Income Taxes
We make estimates to determine our current provision for income taxes,
as well as our income taxes payable. Our estimates with respect to the current
provision for income taxes take into account current tax laws and our
interpretation of current tax laws, as well as possible outcomes of any future
tax audits. Changes in tax laws or our interpretation of tax laws and the
resolution of any future tax audits could significantly impact the amounts
provided for income taxes in our financial statements.
14
Legal Contingencies
From time to time, we are involved in routine legal matters incidental
to our business. In the opinion of management, the ultimate resolution of such
matters will not have a material adverse effect on our financial position,
results of operations or liquidity.
CORPORATE INFORMATION
The Company is a Delaware corporation which was originally organized on
November 22, 2002 as Suncoast Naturals, Inc. and commenced business operations
in January, 2003.
On December 8, 2006, Patient Portal Connect, Inc. of Palm Beach
Gardens, Florida, a Delaware corporation organized in May 2006, acquired
approximately 80% of the capital stock of Patient Portal Technologies, Inc. in a
tax free exchange that resulted in the shareholders of Patient Portal Connect,
Inc. owning 17,500,000 shares of Common Stock of Patient Portal Technologies,
Inc., as part of a "reverse" transaction. As a result of this transaction,
Patient Portal Connect, Inc. (hereinafter referred to as "PPC") became a
wholly-owned operating subsidiary of the Company.
Through this transaction with PPC, we became a leading provider of
innovative technology solutions for healthcare institutions. The company's
products and services utilize a state-of-the-art proprietary software platform
that controls bedside patient communications by converting existing television
infrastructure into an intelligent network. The company uses their technology to
create a communication portal that allows many third parties to communicate and
exchange information in a cost effective way. This solution allows the company
to offer many services that optimize patient satisfaction and outcomes, reduces
administrative costs, and maximizes reimbursement for their customers.
To provide funds for acquisition purposes, on November 1, 2007, we
entered into a $7,000,000 convertible debenture agreement with Dutchess Private
Equities Fund, LTD ("Dutchess"). If Dutchess elects to convert its debentures
(the "Debentures") into shares of common stock, par value $0.001 (the "Common
Stock") of the Company, the conversion price for their shares of Common Stock
will be at a maximum price of $.46 per share but may fluctuate at a substantial
percentage discount (15%) to fluctuating market prices. As a result, the number
of shares issuable to Dutchess, upon conversion of the Debentures could be
potentially materially adverse to current and potential investors. Dutchess'
overall ownership at any one moment is limited to 4.9% of the outstanding shares
of Common Stock in accordance with the financing documents. However, Dutchess is
free to sell any shares into the market, which have been issued to them, thereby
enabling Dutchess to convert the remaining Debentures or exercise additional
Warrants into shares of Common Stock.
15
In November 2, 2007, we acquired 100% of the capital stock of TB&A
Hospital Television, Inc. (hereinafter "TB&A") for a purchase price of
$3,300,000. The consideration issued in the stock purchase was determined as a
result of arm's-length negotiations between the parties.
Following this acquisition, we are carrying on the business operations
of TB&A as a wholly-owned subsidiary. Prior to the stock purchase, there were no
material relationships between us and TB&A or any of our respective affiliates,
directors or officers, or any associates of the respective officers or
directors.
The Company's offices are located at 8276 Willett Parkway, Suite 200,
Baldwinsville, New York 13027. The telephone number is (888) 774-3579. The
Company's website is www.patientportal.com.
CURRENT PLAN OF OPERATIONS
Our Company, through its operating subsidiaries, Patient Portal
Connect, Inc. (PPC) and TB&A Hospital Television, Inc., is well positioned to be
the premier provider of information and communication based solutions in the
healthcare industry. Having developed the industry's newest, leading-edge
communication/information platform for the healthcare industry, PPC is poised to
capture a significant segment of the multi-billion dollar healthcare market. Its
proprietary systems were developed in close coordination with hospital industry
partners to provide multi-layer functionality across a wide spectrum of critical
patient-centric workflows that result in immediate improvements in cost savings,
patient outcomes, and revenue growth for hospitals. Our systems and solutions
are designed to integrate with existing hospital systems and processes to
improve outcomes in today's healthcare environment.
The company's technology allows it to leverage the hospitals existing
television and cable infrastructure to create a communication portal for
patients and third parties.
Nationwide, the demand for more customized healthcare has resulted in a
greater need for improved productivity, efficiency, and customer service in
hospitals and other healthcare institutions. We have has pioneered the
development of integrated software applications that combine technology and
industry expertise with unique customization designed to better manage the
hospital/patient relationship and improve hospital operational processes.
Further, our solutions enable hospitals to achieve compliance with strict
government mandates that affect reimbursements by requiring measured
improvements in productivity, efficiency, and patient satisfaction. Our proven
technologies provide tremendous economic benefit for healthcare providers.
16
We intend to rapidly gain market share by leveraging strategic
relationships and by acquiring companies with existing hospital contracts. Our
acquisition strategy will enable us to achieve greater profitability, grow
rapidly, and quickly gain first-mover advantage. Our proprietary technology
platform allows us to create additional revenue streams with minimal cost by
accessing enhanced service modules as market demand changes. This scalable
architecture creates even greater profitability by enabling multiple services to
be delivered over our service delivery platform.
We believe that our Company is primed to swiftly react to the
requirements of an ever-changing healthcare industry. Unlike the costly,
capital-intensive and stand-alone products offered by our industry competitors,
our sophisticated technology platform offers flexible solutions and
functionalities that are universal enough to have broad appeal while still
allowing for a level of customization that is necessary to integrate with a
hospital's existing legacy system, and at an affordable cost. Our flexible
platform also enables the healthcare providers to fulfill the government's
newest mandates for a full "continuum of care" from the hospital to the home.
This unique ability enables us to present a tailored solution to our customers
at a cost-effective price and will dramatically enhance our ability to capture
significant market share nationwide.
The company has adopted a multi year subscription revenue model that is
based on patient interactions. They have long term contracts with third parties
that pay the company on a per patient basis based upon a variety of factors.
This approach provides the company with an ability to increase revenue as
patient flow and services increase.
PATIENT PORTAL PRODUCTS AND SERVICES
Hospitals are plagued with decentralized workflows and vertical silos
of information that create redundant, costly processes and a disjointed patient
experience. Competition and consumers are demanding change. There is increasing
need to improve communication with the patient before, during and after their
hospital stay. To accomplish this, hospitals need better systems and information
services to assist them in meeting their goals.
Our strategy is establishing hospital relationships that can benefit
from the patient centric services that are offered over our proprietary
technology platform. Our non medical services impact the patient experience and
cost at three key points: before being admitted to a hospital, while they are in
a hospital and when they are discharged and return home. The combination of our
software solutions, call center and delivery platform provide us with a
significant competitive advantage to improve hospital performance as it relates
to critical patient measurements.
17
The following is a brief description of some of the principal products
and services which we deliver to our customers utilizing the information and
power of the communication portal platform:
Preadmission Scheduling and Assessment: We provide outsource services,
using licensed nurses working out of their home, to perform a preadmission
screening process and a post care evaluation service. These services are use a
proprietary software solution and provide the hospital with a customized digital
record of the assessment prior to the patient arriving for their procedure.
HealthCast (TM) Patient Network System: As part of our healthcare
services package, we are aggressively marketing the newly-developed HealthCast
Patient Network System under an exclusive technology license from Omnicast, Inc
specifically for the healthcare industry. We believe that HealthCast will
fundamentally change the way patient communications at the bedside are managed
leading to significant revenue opportunities. HealthCast is the first suite of
customized hospital television channels that invites viewers to interact with
channel programming and delivers condition-specific content directly to a
patient's TV, IP phone, or home computer. HealthCast features an exclusive
digital signage platform that promotes an unparalleled level of communication by
simultaneously showing video, an information scroll, and additional customized
messaging to a single patient, certain patient groups, or to specific areas of
the hospital. HealthCast is the only patient network that puts the hospital in
control of multiple information streams for an unprecedented level of
communication and education for patients and families. In addition, HealthCast's
proprietary platform captures viewing metrics so hospitals can document
educational content delivery for pay-for-performance reimbursement, and
commercial sponsors can respond to patient viewing habits.
HealthCast's Foundation Channel, Education Services Channel, and MyMail
station present personalized content to specific patients. In turn, patients
have opportunities to interact with the multimedia platform to respond to
channel content, such as with live auctions on the Foundation Channel, text
messaging or E-Greetings on MyMail, or by answering questions to win prizes
after watching condition-specific educational programming. The Foundation
Channel promotes fundraising events and announcements with celebrity
endorsements and national sponsorship.
MedEx: The Company provides a turn key solution to hospitals that
improves the management and hand-off of prescription drugs when patients are
discharged. The company controls and manages the process of providing the
patient free home delivery for prescription drugs, within four hours of being
discharge. This service is provided in conjunction with national or regional
drug fulfillment companies. This service also provides an opportunity to extend
the patient relationship into the home environment. The service is provided on a
per patient basis for both inpatients as well as outpatients.
18
Instant Response Line: An interactive, live response solution that
enables patients to log a non-medical need, which is electronically transferred
to an appropriate hospital department for resolution in a timely fashion.
Putting the hospital in proactive mode, improves interdepartmental
communication, and adds an unparalleled level of customer service for the
patient. A key element to the success of this system is time-stamped reporting
that allows administrators to see how quickly and efficiently their staff
responds. Administrators can request immediate notification regarding certain
calls for direct intervention and response. Instant Response Line provides a
single point of contact for all patient problems and leads to greater patient
satisfaction.
Quick Pulse Surveys: Quick inpatient surveys allow hospital
administrators to keep their "finger on the pulse" of what patients are thinking
while in house--a vastly different concept from industry standard post-discharge
surveys hospitals typically employ. This customized service focuses on finite
issues, allowing the hospital to direct specific, timely solutions. A key
differentiator between our service and competing survey services is our ability
to collect patient response data in real time while the patient is still
involved in the experience. The data is also made available in real-time with
follow-up analysis available so hospitals can benchmark and measure
improvements, putting the hospital in compliance with pay-for-performance
government initiatives.
COMPETITION
Our Company's markets are extremely competitive and are subject to
rapid technological change. We believe that our Company is unique in the
healthcare industry because we are positioned to provide services and products
across the entire patient-service spectrum. Our competitors typically focus
products on specific market niches that address a finite need within the
industry. We approach the market with more innovation and versatility. Our
services coordinate multiple processes toward improved productivity and
communication between various stakeholders.
The competition that we face in this healthcare services marketplace
can be broken down into two different company types:
Small Niche Competitors: The competition in this category is comprised
of smaller companies offering few very specific products. They focus on one or
two areas, such as providing patient education information or administrative
services. Some of the competitors in this area include Get Well Network, Allen
Technologies, Skylight Systems, Beryl, and TeleTracking. Most companies in this
category have a very small hospital base (ten or fewer). Patient Portal Connect
has a unique advantage vis-a-vis the small-niche competitors because we offer
revenue-generating opportunities across a full continuum of care instead of a
stand-alone application, 24/7 integration with our Patient Contact Center,
access to an extensive customer base, and a long history serving hospitals and
patients.
19
Large Technology-based Providers: The large technology-based providers
typically offer very expensive and complex systems that deliver a variety of
administrative services at high cost. Companies such as Siemens and Hill-Rom are
in this category. Although the product set is enticing, to date they have sold
few services due to the cost, complexity of integration, and the amount of
system wide change required to sustain the services. Our technology allows us to
integrate new products easily without requiring a cultural shift or debt load.
Patient Portal Connect focuses on rapidly deploying less expensive,
user-friendly services compared to the competition.
RESEARCH AND DEVELOPMENT
The Company employs a multiple product and services sourcing strategy
that includes internal software and hardware development and licensing from
third parties. In the future, Company strategy may also include acquisitions of
technologies, product lines or companies.
As part of our business strategy to reduce direct costs and improve
margins, elements of some of the Company's products and services are licensed
from third parties. Our main outsourcing activities are related to both
developing new modules for our software, and marketing and supporting our
product. While our business depends somewhat on our ability to outsource, we are
not dependent on any one contractor or vendor.
In the future, the Company may affect select strategic acquisitions to
secure certain technology, people and products which complement or augment
overall product and services strategy. Both time-to-market and potential market
share growth, among other factors, are considered when evaluating acquisitions
of technologies, product lines or companies. Management may acquire and/or
dispose of other technologies and products in the future.
As a technology and services Company, we realize that we must maintain
our investment in research and development to design both new, experimental
products and marketing campaigns. Management anticipates incurring additional
research and development expenditures as its business grows and adequate cash
flow becomes available to fund such costs.
EMPLOYEES
As of September 30, 2008, the Company and its affiliates had
approximately 75 full time employees. We also have a comprehensive National
Master Dealer Agreement with VOX Technologies, Inc., through which we utilize
over one hundred independent dealer representatives throughout the United States
to market the Company's products and services to healthcare institutions on a
commission-only basis. In addition, we have a long-term contract to out-source
our 24/7 Operator Call Center and Data Management Services with Worldnet
Communications, Inc. of Syracuse, NY.
20
REGULATORY ISSUES
We are not subject to any special governmental regulation concerning
our supplying of products and services to the market place and we believe we are
in compliance in all material respects with all existing regulations governing
other aspects of our businesses.
RESULTS OF OPERATIONS
Recently Issued Accounting Standards
In September 2006, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 157, " Fair Value
Measurements ". SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP) and
expands disclosures about fair value measurements. SFAS 157 is effective for
fiscal years beginning after November 15, 2007 and interim periods within those
fiscal years. The adoption of this standard has not had a significant impact on
the Company's consolidated financial position, results of operations or cash
flows.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option
for Financial Assets and Financial Liabilities ", including an amendment of FASB
No. 115 ("FAS 159"). The Statement permits companies to choose to measure many
financial instruments and certain other items at fair value in order to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. FAS 159 is effective for the Company beginning January 1, 2008. The
adoption of this standard has not had a significant impact on the Company's
consolidated financial position, results of operations or cash flows.
In December 2007, the FASB issued Statement of Financial Accounting
Standard No. 160, "Non-controlling Interests in Consolidated Financial
Statements -- an amendment of ARB No. 51" ("FAS 160"). FAS 160 establishes
accounting and reporting standards for the non-controlling interest in a
subsidiary and for the retained interest and gain or loss when a subsidiary is
deconsolidated. This statement is effective for financial statements issued for
fiscal years beginning on or after December 15, 2008 with earlier adoption
prohibited. The Company is currently evaluating the impact, if any, of FAS 160
on its operating results and financial position.
21
In December 2007, the FASB issued SFAS No. 141R, "Business
Combinations," ("SFAS 141R") which establishes principles and requirements for
how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed and any non-controlling
interest in the acquirer. SFAS 141R also establishes disclosure requirements to
enable the evaluation of the nature and financial effects of the business
combination. SFAS 141R applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008, and interim periods within those
fiscal years.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Management believes there are no material charges to net income in the
current period related to sales from a prior period.
Three months ended June 30, 2008 compared with three months ended June 30, 2007
Net sales for the three month period ended June 30, 2008 were $
4,495,470, reflecting an increase of $4,103,614 over the net sales of $391,856
for the comparable three month period ended June 30, 2007.
Cost of sales as a percentage of net sales for the three months ended
June 30, 2008 was 63.4 % compared to 69.7 % for the comparable 2007 period, a
decrease of 6.2%. The decrease was largely due to the mix of products and
services between the two periods.
Sales and administrative expenses for the three month period ended June
30, 2008 were $1,299,749, an increase of $ 1,095,342 over the comparable 2007
period amount of $204,407. This increase in 2008 was primarily due to the full
operations and activity associated with the integration of pervious acquired
assets as well as TB & A.
22
Six months ended June 30, 2008 compared with six months ended June 30, 2007
Net sales for the six month period ended June 30, 2008 were $
8,753,406, reflecting an increase of $ 8,118,572 over the net sales of $ 634,834
for the comparable six month period ended June 30, 2007
Cost of sales as a percentage of net sales for the six months ended
June 30, 2008 was 66.2% compared to 74% for the comparable 2007 period, an
increase of almost 8%. The decrease was largely due to the mix of products and
services sold during the period.
Sales and administrative expenses for the six month period ended June
30, 2008 were $2,543,151, an increase of $2,254,767 over the comparable 2007
period amount of $288,384. The increase in 2008 was primarily due to full
operations of and activity associated with the integration of previous acquired
assets and TB & A.
Liquidity and Capital Resources
The Company had working capital of ($ 1,750,093) and ($ 1,678,873) at
June 30, 2008 and December 31, 2007, respectively. Working capital decreased by
almost $70,000 during the period due to the following items: Cash decreased
approximately $370,000; accounts payable increased approximately $400,000,
accounts receivable increased by approximately $729,000 and other liabilities
decreased by $503,000. Total cash balances at June 30, 2008 were $ 33,902
compared to $404,003 at December 31, 2007.
As shown in the above financial statements, the Company incurred a net
loss of ($2,059,386) during the year ended December 31, 2007 and ($1,204,258)
during the six months ended June 30, 2008. The Company has been successful in
raising capital through public or private financing, through the issuance of its
common stock and the issuance of debt instruments, including debt convertible to
equity. In the future it cannot be certain such financing will be on attractive
terms. Should the Company obtain more capital, in turn, it may cause dilution to
its existing stockholders and providing the company can obtain more capital, it
cannot be assured to ultimately attain profitability. However, operational
performance during 2008 has been significantly improved over 2007 and management
expects that trend to continue into 2009.
The Company intends to continue its efforts to complete the necessary
steps in order to meet its cash flow requirements throughout fiscal 2008 and to
continue its product development efforts and adjust its operating structure to
reduce losses and ultimately attain profitability. Management's plans in this
regard include, but are not limited to, the increase in business operations
which it expects from the acquisition of additional retail hospital contracts by
our Patient Portal Connect subsidiary and the continuing roll-out of its product
line to its existing and future customer base.
23
Management believes that actions presently being taken will generate
sufficient revenues to provide cash flows from operations and that sufficient
capital will be available, when required, to permit the Company to realize its
plans. However, there can be no assurance that this will occur. The accompanying
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Because our business is evolving and changing,
particularly regarding our recent acquisitions and the Dutchess financing
transaction, our operating cash flow will be significantly increased from past
results, and past operations are not a good gauge for anticipating future
operations.
Inflation
The rate of inflation has had little impact on the Company's results of
operations and is not expected to have a significant impact on continuing
operations.
Capital Expenditures
Capital expenditures during the remainder of 2008 are not expected to
be material.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company's operations are not subject to risks of material foreign
currency fluctuations, nor does it use derivative financial instruments in its
investment practices. The Company places its marketable investments in
instruments that meet high credit quality standards. The Company does not expect
material losses with respect to its investment portfolio or exposure to market
risks associated with interest rates. The impact on the Company's results of one
percentage point change in short-term interest rates would not have a material
impact on the Company's future earnings, fair value, or cash flows related to
investments in cash equivalents or interest-earning marketable securities..
Item 4T. Controls and Procedures
Based on their evaluation as of the end of the period covered by this
report, the Company's Chief Executive Officer and Chief Financial Officer have
concluded that the Company's disclosure controls and procedures (as defined in
Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended)
were not effective. During the third quarter it was determined that there were
weaknesses in the reporting controls that had a material effect on the December
31, 2007 financial statements and subsequent first and second quarter 2008
statements. These weaknesses resulted in the restatement of the financial
statements for the periods ended December 31, 2007, March 31, 2008 and June 30,
2008. These weaknesses had to do with the review process over one time or
unusual accounting entries. Management has taken corrective action in the third
quarter 2008 to establish new controls and review processes to insure that the
control environment has been improved and strengthened and to eliminate the
potential for these errors to reoccur.
In accordance with the Sarbanes-Oxley Act of 2002, as amended, the
Company has included an assessment of its internal control over financial
reporting and attestation from an independent registered public accounting firm
in its Annual Reports on Form 10-K commencing with the fiscal year ended
December 31, 2007. The Company has undergone an ongoing comprehensive effort in
preparation for compliance with Section 404 of the Sarbanes-Oxley Act of 2002.
This has involved the documentation, testing and review of our internal controls
under the direction of senior management.
24
Part II. Other Information
Item 1. Legal Proceedings
The Company is at present not involved in any legal proceedings which
management believes will have a material effect upon the financial condition of
the Company, nor are any such material legal proceedings anticipated.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on June 11,
2008 with 36,821,257 shares eligible to vote. The presence of a quorum was
reached and the following proposals were approved by the stockholders:
(i) To elect a Board of Directors to serve for the ensuing year until
the next Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified.
(ii) To ratify the appointment of Harris Rattray CPA as independent
auditors for the year ending December 31, 2008.
For proposals (i) and (ii) above, the votes were cast as follows:
Withhold Abstentions Broker
Proposal Position For Against Authority Non-Votes
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(i) By nominee:
Kevin J. Kelly Chairman of the Board,
President, CEO 22,765,450 0 18,762
Thomas Hagan Secretary, Acting CFO
and Director 22,765,450 0 18,762
Daniel Coholan Director 22,765,450 0 18,762
Rounsevelle W. Schaum Director 22,765,450 0 18,762
(ii) Harris Rattray
CPA Independent Auditors 22,765,450 0 18,762 -
- -----------------------------------------------------------------------------------------------------------
Item 6. Exhibits
(1) Exhibit 31.1 Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
(2) Exhibit 31.2 Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
(3) Exhibit 32.1 Certification by the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(4) Exhibit 32.2 Certification by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
25
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.
PATIENT PORTAL TECHNOLOGIES, INC.
By: /s/ Kevin J. Kelly
------------------
KEVIN J. KELLY
President, Chief Exec. Officer
Date: April 6, 2009
26
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