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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2008.
Commission File No. 333-107826
PATIENT PORTAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0656132
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(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
8276 Willett Parkway, Baldwinsville, NY 13027
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(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (315) 638-6708
Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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:
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form, 10-KSB or any
amendment to this Form 10-KSB. X
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Indicate by check mark whether the Registrant is a shell company [as defined in
Rule 12b-2 of the Exchange Act].
Yes: No: X
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State issuer's revenues for its most recent fiscal year: $ 17,952,615
The number of shares of Common Stock outstanding as of April 6, 2009 was
42,951,130. As of such date, the aggregate market value of the voting stock of
the registrant held by non-affiliates was approximately $ 6,400,000 based on the
average of the best closing bid and ask prices ($.15) for such common stock as
reported on the OTC Bulletin Board on such date.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for its annual meeting of
shareholders to be held on May 28, 2009 which the Company intends to file
within 120 days after the end of the Company's fiscal year ended December 31,
2008 are incorporated by reference into Part III hereof.
Indicate by check mark whether Transitional Small Business Disclosure Format:
Yes No X
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SUPPLEMENTAL INFORMATION
See "Supplemental Information and Exhibits" with respect to additional documents
furnished or to be furnished to the Securities and Exchange Commission but not
deemed to be "filed" with the Securities and Exchange Commission or otherwise
subject to liabilities of Section 18 of the Securities Act.
Affiliates for the purposes of this item refer to the officers, directors and/or
any persons or firms owning 5% or more of the Company's common stock, both of
record and beneficially.
Patient Portal Technologies, Inc.
FORM 10-KSB
Fiscal Year Ended December 31, 2008
TABLE OF CONTENTS
PART I
Item 1 BUSINESS 1
Item 1A RISK FACTORS 8
Item 2 PROPERTIES 14
Item 3 LEGAL PROCEEDINGS 15
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
PART II
Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS 16
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS AND PLAN OF OPERATIONS 18
Item 7 FINANCIAL STATEMENT AND SUPPLEMENTARY DATA F1-F16
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 23
PART III
Item 9 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 24
Item 10 EXECUTIVE COMPENSATION 24
Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 24
Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 24
PART IV
Item 13 EXHIBITS, SCHEDULES AND REPORTS ON FORM 8-K 24
Item 14 PRINCIPAL ACCOUNTING FEES AND SERVICES 24
Signatures 25
PART I
ITEM 1 BUSINESS
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. Pursuant to a Registration Statement filed in accordance with
the Securities Act of 1933, as amended, and declared effective by the Securities
and Exchange Commission on July 3, 2004, the Company in October, 2004
distributed 499,282 Shares of its Common Stock to shareholders of record of The
Quigley Corporation.
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 acquisition of PPC, we became a leading provider of
innovative technology solutions for healthcare institutions. The Company's
products and services are delivered over the Company's state-of-the-art
proprietary technology platform. This platform is used by the Company as the
delivery system for its services. The Company uses the 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, the
Company 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 is the lower of 85% of the lowest closing bid during the previous twenty
day period prior to the conversion or $.46. Part of the financing transaction
included issuing warrants to purchase up to 22,826,086 shares of the Company's
common stock at a price of $.46 per share. The warrant agreement expires on
November 1, 2012. Dutchess' overall ownership in the Company is limited to 4.99%
of the then outstanding shares of Common Stock, in accordance with the financing
documents. As a result, the number of shares issuable to Dutchess, upon
conversion of the Debenture and exercising of its warrants, could potentially be
materially adverse to current and potential investors. Although there is a
restriction on ownership of 4.99%, Dutchess is free to sell any shares issued to
them into the market, thereby enabling Dutchess to systematically convert the
remaining Debentures or exercise additional Warrants into shares of Common
Stock.
On March 12, 2009 the Company entered into an agreement with Dutchess
Private Equities Fund, Ltd. to restructure all of its outstanding debt with the
Company. This transaction will have a material positive impact on both the
Company's balance sheet as well as statement of operations on a going forward
basis.
The key aspects of the transaction are as follows: Dutchess will
convert all of their outstanding debt, estimated at approximately $6.6 million
as of the closing date, return all of their outstanding warrants (22,826,022),
and terminate their security interest in the Company's assets; in return for
$7.5 million in preferred convertible stock, up to $500,000 in cash, payable
within 90 days of the closing and 4% of the outstanding common stock of the
Company.
The preferred stock will have an 8% cumulative dividend payable in cash
or additional preferred stock at the Company's option, and be convertible into
35% of the Company's common stock at the option of the holder. The Company also
has the right to call up to $1 million of the preferred stock and the holder can
put up to $2 million of the preferred stock at the time of a capital raising
event.
1
On November 2, 2007, the Company acquired 100% of the capital stock of
TB&A Hospital Television, Inc. (hereinafter "TB&A") for a cash purchase price of
approximately $3,000,000 and credit for some of the existing accounts
receivable, estimated at $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, the Company is 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.
OUR PLAN OF OPERATIONS
Our Company, through its operating subsidiaries, Patient Portal
Connect, Inc. (PPC) and TB&A Hospital Television, Inc., provides patient centric
nonmedical services which improve hospital financial performance. 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.
2
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 positioned to quickly 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 significantly enhances our ability to capture
significant market share nationwide.
Our products and services enable hospitals to improve patient flow,
enhance patient satisfaction, and create long-term relationships with patients
as they move from hospital to home. In so doing, hospitals gain productivity and
efficiency enhancements, reduce the burden on staff and increase cash flow by
optimizing reimbursements from third-party sources including Medicare and
private insurers.
The Company has adopted a multi year subscription revenue model that is
based on patient interactions. We 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
The healthcare industry is in the midst of dynamic change that is
redefining the way healthcare facilities do business. Competition, government
scrutiny, and consumer demand for more value present new challenges. Giving good
medical care is no longer enough. Healthcare facilities are searching for
innovative ways to gain and retain patients as life-long customers. This
necessitates implementing immediate changes that focus on improving the patient
experience across a full continuum of care, and, for the first time, collecting
and managing pertinent, real-time data to measure success and improve
profitability.
3
Many healthcare facilities are plagued with decentralized workflows and
vertical silos of information that create redundant, costly processes, and a
disjointed patient experience. There is increasing need to improve education and
communication with the patient before, during, and after their medical stay. To
accomplish this, facilities need better systems, data management, and
information services to assist them in meeting their goals.
Our strategy is to utilize our proprietary communications technology
platform as a basis to gain and improve business relationships, then build upon
that platform to integrate more and more services over time, thereby fully
leveraging assets and maximizing profitability.
Our platform integrates with existing communication systems and
workflows to present private branded services and information to the patient.
Once the patient relationship is established, value is extended beyond the
bedside with service offerings before and after a stay. This portal can be
utilized by any number of third parties, including healthcare facilities, drug
and health companies, patient education services, and family members, which
ensures myriad revenue opportunities.
The core system was created in concert with our healthcare partners in
a live laboratory to create solutions that are cost-effective, scalable, and
allow for seamless and transparent integration into a facility's legacy systems
and culture. Healthcare facilities gain with real-time metrics of all patient
activity, which leads to improved medical outcomes, patient satisfaction scores,
compliance with government regulations, and, ultimately, higher profits.
The following is a brief description of some of the principal products
and services that we deliver to our customers:
HealthCast(TM) Patient Network System: In March 2007, we acquired a
nine percent interest in Omnicast, Inc. in exchange for 2,950,000 shares of the
Company's common stock. Omnicast, Inc. is a leading-edge technology and media
provider that offers a variety of customized education and entertainment
solutions for the healthcare industry.
As a part of this agreement, the Company received an exclusive
technology license for the newly developed communication portal, HealthCast(TM)
Patient Network System. We believe that HealthCast(TM) will fundamentally change
the way patient communications are delivered at the bedside, leading to
significant revenue opportunities.
HealthCast(TM) 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(TM) 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(TM) 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(TM)'s proprietary platform
captures viewing metrics so hospitals can document content delivery for
pay-for-performance reimbursement, and commercial sponsors can respond to
patient viewing habits. In response to demand from healthcare facilities, we
have developed channels for Patient Education, Hospital Foundation, Maternity
and New Born Care, Patient Safety, General Information, and Nutrition, in
addition to customized, condition-specific content that can be delivered
on-demand to patients.
MedEx(SM): MedEx(SM) Home Delivery offers the patient free home
delivery within hours of all prescription medications issued to the patient at
discharge and free delivery of all refills, too. With MedEx(SM), we offer a
turnkey solution for healthcare facilities that improves the hand-off of
prescriptions when patients are discharged and returns all real-time data to the
facility and physician for improved medication reconciliation and medication
therapy management. The Company controls the private-branded process by
deploying its technology to manage the information flow between all
stakeholders, in addition to being the primary interface between the healthcare
provider, patient, drivers, and pharmacy. This service is provided in
conjunction with national pharmacy retailers. MedEx(SM) presents a unique
vehicle to extend the patient relationship to the home and opens an array of
revenue streams through patient education, aftercare, advertising, and product
offerings.
4
Instant Response Line: The Instant Response Line is an interactive,
live-response solution that enables patients to log a non-medical need that is
electronically transferred to an appropriate facitliy department for resolution
in a timely fashion. Multiple staff can be notified using various media, and all
communications are time stamped and escalated as needed for immediate service
recovery. A key element to the success of this system is access to real-time
data, which enables administrators to see how quickly and efficiently staff
respond and allows for improved strategic planning over time. Instant Response
Line provides a single point of contact for all patient problems and leads to
greater patient satisfaction. Putting the facitliy in proactive mode improves
interdepartmental communication and adds an unparalleled level of customer
service for the patient.
Quick Pulse Surveys: Quick inpatient surveys allow administrators to
keep their "finger on the pulse" of what patients are thinking while in house or
shortly after returning home. By conducting live surveys with patients while
they are still involved in the experience leads to a higher response rate and
gives the facility opportunity to proactively respond in real time. This
presents a vastly different concept from the standard post-discharge written
surveys healthcare facilities typically employ that include a six to eight week
delay in data return. Our customized surveys focus on finite issues, allowing
the facility to direct specific, timely solutions. These short, flexible surveys
are cost effective enough to be repeated frequently, which enables the facility
to benchmark data and measure improvements in operational efficiencies over
time. Giving administrators real-time access to patient response data is a key
differentiator between our service and competing survey services.
VIRTUAL NURSE(TM) MARKETING AGREEMENT
In April, 2007, we acquired a 9% minority interest in Virtual Nurse,
Inc. of Palm Beach Gardens, FL, in exchange for 750,000 shares of the Company's
common stock and entered into a joint Marketing Agreement to introduce Patient
Portal and Virtual Nurse(TM) services to healthcare institutions throughout the
United States.
Virtual Nurse's mission is to provide healthcare organizations with
outsourced pre admission screening and scheduling services provided by using
licensed nurse working from their home. After the service is complete the
Company provides the healthcare provider with a digital record of the screening.
It offers the highest quality of care through experienced, skilled, productive,
and motivated nurses who benefit from the convenience of working at home on a
flexible time schedule. As a result, it is able to give healthcare facilities
assurance that every patient receives condition-specific education before
entering their facilities and ensure that every assessment has been carefully
documented and delivered on time.
5
Virtual Nurse's "PASS" (Pre-Admission Screening Services) program
fulfills a critical need in the healthcare industry. As expenditures continue to
increase and nursing shortages become greater Virtual Nurse offers the expertise
of registered nurses without the challenges or costs of adding on-site staff.
Virtual Nurse's RNs perform the administrative medical screening tasks usually
conducted by registered nurses in a healthcare facility, with one important
distinction: their RNs are dedicated to this service seven days a week,
including extended hours, while hospital nurses attempt to contact patients
during abbreviated calling hours.
Virtual Nurse enables healthcare providers to reallocate all available
RNs to medical areas where they are needed most, free from the time-consuming
administrative responsibilities of calling patients and coordinating paperwork.
Further, the perception to patients is that the healthcare facility is the
service provider. Therefore, the healthcare facilities gain improved patient
care and satisfaction, superior customer service, and enhanced brand image.
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.
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.
6
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 make 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 March 31, 2009, the Company and its affiliates had approximately
60 full time equivalent employees.
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.
7
ITEM 1A. RISK FACTORS
An investment in our common stock involves a high degree of risk.
Prospective investors should consider carefully the following factors and other
information in this report before deciding to invest in shares of our common
stock. If any of the following risks actually occur, our business, financial
condition, results of operations and prospects for growth would likely suffer.
As a result, the trading price of our common stock could decline and you could
lose all or part of your investment.
Risks Related to Our Company
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We Have A Limited History of Operations.
The Company's present business operations are conducted through its
newly-acquired subsidiaries, Patient Portal Connect, Inc. and TB&A Hospital
Television, Inc. The Company has only been operating in its current business
since 2006 and therefore has a limited history of operations.
We May Need Additional Funding.
Management believes that is has sufficient cash reserves and acess to
capital to satisfy the Company needs for 2009. On March 12, 2009 the Company
entered into an agreement with Dutchess Private Equities Fund, Ltd. to
restructure all of its outstanding debt with the Company. This transaction will
have a material positive impact on both the Company's balance sheet as well as
statement of operations on a going forward basis. As an outcome of this
transaction, the Company is negotiating with commercial banks to secure
additional working capital. However, there can be no assurance that additional
funds will not be required for additional working capital purposes during such
period or thereafter or that, if required, such funds will then be available on
terms satisfactory to the Company, if at all.
We Have Given Dutchess A Security Interest In Certain Property
As part of the Dutchess financing transaction, we had granted Dutchess
a first priority security interest in certain property of the Company to secure
the prompt payment, performance and discharge in full of all of Company's
obligations under the Debentures. This "first lien" on certain of our assets
limited our ability to obtain additional asset-based financing or other types of
secured or unsecured debt. As previously indicated we are restructuring the
Dutchess transaction and their security interest will be eliminated as part of
the transaction. This will allow us to pursue conventional bank financing to
support our cash requirements.
Our Business Operations Could Be Significantly Disrupted If We Lose Members Of,
Or Fail To Integrate, Our Management Team.
Our future performance is substantially dependent on the continued
services of our management team and our ability to retain and motivate them. The
loss of the services of any of our officers or senior managers could harm our
business, as we may not be able to find suitable replacements. We do not have
employment agreements with any of our key personnel, and we do not maintain any
"key person" life insurance policies.
8
We May Not Be Able To Hire And Retain A Sufficient Number Of Qualified Employees
And, As A Result, We May Not Be Able To Grow As We Expect Or Maintain The
Quality Of Our Services.
Our future success will depend on our ability to attract, train, retain
and motivate other highly skilled technical, managerial, marketing and customer
support personnel. Competition for these personnel is intense, especially for
software developers, Web designers and sales personnel, and we may be unable to
successfully attract sufficiently qualified personnel. We will need to maintain
the size of our staff to support our anticipated growth, without compromising
the quality of our product offerings or customer service. Our inability to
locate, hire, integrate and retain qualified personnel in sufficient numbers may
reduce the quality of our services.
Risks Related to Our Products and Services
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New Products and Technological Change.
The markets for our products and services are characterized by rapidly
changing technology and new product introductions. Accordingly, the Company
believes that its future success will depend on its ability to enhance its
existing products and to develop and introduce in a timely fashion new products
that achieve market acceptance. Management believes that the Company will be
able to continue to compete and adapt to potential new industrial and commercial
applications for its products with continuous technological enhancements.
although there can be no assurance that the Company will in fact be able to
identify, develop, manufacture, market or support such products successfully or
that the Company will in fact be able to respond effectively to technological
changes or product announcements by competitors.
We Face Significant Competition.
The Company faces significant competition from a variety of healthcare
industry service providers, and may in the future face competition from a
variety of potential providers, many of which have or will have considerably
larger and greater financial and human resources and marketing capabilities. We
believe that we will be able to compete favorably in this competitive
marketplace because of our flexibility in responding to changing and emerging
markets, our innovative and competitive services and products, our quick
response to customer requirements, and our ability to identify, develop, produce
and market original products and derivative product concepts.
9
We must continue to upgrade our technology infrastructure, both hardware and
software, to effectively meet demand for our services.
We must continue to add hardware and enhance software to accommodate
the increased services which we provide and increased use of our platform. In
order to make timely decisions about hardware and software enhancements, we must
be able to accurately forecast the growth in demand for our services. This
growth in demand for our services is difficult to forecast and the potential
audience for our services is large. If we are unable to increase the data
storage and processing capacity of our systems at least as fast as the growth in
demand, our systems may become unstable and our customers may encounter delays
or disruptions in their service. Unscheduled downtime could harm our business
and also could discourage current and potential customers and reduce future
revenues.
Our network infrastructure and computer systems and software may fail.
An unexpected event like a telecommunications failure, fire, flood,
earthquake, or other catastrophic loss at our service providers' facilities or
at our on-site data facility could cause the loss of critical data and prevent
us from offering our products and services. We do not at the present time carry
business interruption insurance.
In addition, we rely on third parties to securely store our archived
data, house our servers and network systems and connect us to the Internet.
While our service providers have planned for certain contingencies, the failure
by any of these third parties to provide these services satisfactorily and our
inability to find suitable replacements would impair our ability to access
archives and operate our systems and software.
We may lose users and lose revenues if our security measures fail.
If the security measures that we use to protect personal information
are ineffective, we may lose users of our services, which could reduce our
revenues. We rely on security and authentication technology which we have
developed. With this technology, we perform real-time credit card authorization
and verification. We cannot predict whether these security measures could be
circumvented by new technological developments. In addition, our software,
databases and servers may be vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions. We may need to spend significant
resources to protect against security breaches or to alleviate problems caused
by any breaches. We cannot assure that we can prevent all security breaches.
Risks Related to Our Stock Being Publicly Traded
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Our stock price may be volatile.
Our Common Stock has been trading in the public market since 2004.
However, throughout our history trading volume has been extremely light. We
cannot predict the extent to which a trading market will develop for our Common
Stock or how liquid that market might become. The trading price of our Common
Stock has been and is expected to continue to be highly volatile as well as
subject to wide fluctuations in price in response to various factors, some of
which are beyond our control. These factors include:
10
o Quarterly variations in our results of operations or those of our
competitors.
o Announcements by us or our competitors of acquisitions, new
products, significant contracts, commercial relationships or
capital commitments.
o Disruption to our operations.
o The emergence of new sales channels in which we are unable to
compete effectively.
o Our ability to develop and market new and enhanced products on a
timely basis.
o Commencement of, or our involvement in, litigation.
o Any major change in our board of directors or management.
o Changes in governmental regulations or in the status of our
regulatory approvals.
o Changes in earnings estimates or recommendations by securities
analysts.
o General economic conditions and slow or negative growth of related
markets.
In addition, the stock market in general, and the market for technology
companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of those companies. These broad market and industry factors may seriously harm
the market price of our Common Stock, regardless of our actual operating
performance. In addition, in the past, following periods of volatility in the
overall market and the market price of a company's securities, securities class
action litigation has often been instituted against these companies. Such
litigation, if instituted against us, could result in substantial costs and a
diversion of our management's attention and resources.
We do not intend to pay dividends on our Common Stock.
We have never declared or paid any cash dividend on our Common Stock.
We currently intend to retain any future earnings and do not expect to pay any
dividends in the foreseeable future.
11
Provisions in our charter documents and under Delaware law could discourage a
takeover that stockholders may consider favorable.
Provisions in our Certificate of Incorporation and By-laws may have the
effect of delaying or preventing a change of control or changes in our
management. These provisions include the following:
o Our board of directors has the right to elect directors to fill a
vacancy created by the expansion of the board of directors or the
resignation, death or removal of a director, which may prevent
stockholders from being able to fill vacancies on our board of
directors.
o Our stockholders may act by written consent, provided that such
consent is signed by all the shareholders entitled to vote with
respect to the subject matter thereof. As a result, a holder, or
holders, controlling a majority of our capital stock would not be
able to take certain actions without holding a stockholders'
meeting.
o Our Certificate of Incorporation prohibits cumulative voting in
the election of directors. This limits the ability of minority
stockholders to elect director candidates. Additionally the new
class of Preferred Stock to be issued to Dutchess will allow them
to appoint three directors of their choosing to the board.
As a Delaware corporation, we are also subject to certain Delaware anti-takeover
provisions. Under Delaware law, a corporation may not engage in a business
combination with any holder of 15% or more of its capital stock unless the
holder has held the stock for three years or, among other things, the board of
directors has approved the transaction. Our board of directors could rely on
Delaware law to prevent or delay an acquisition of us.
You may experience substantial dilution as a result of the Dutchess financing
transaction, as well as if we raise funds through the issuance of additional
equity and/or convertible securities.
Investors may experience substantial dilution if and when Dutchess converts its
its soon to be issued new class of Preferred Stock in to common stock. They will
have the right to convert the $7.5 million of Preferred Stock in to a 35%
ownership interest in the Company's common stock at anytime.
Under the current agreement Dutchess could convert some or its entire
debenture into Common Stock of the Company and exercises its Common Stock
Purchase Warrants. Since the conversion price of the Debentures fluctuates at a
substantial percentage discount (15%) to fluctuating market prices, the number
of shares issuable to Dutchess, upon conversion of the Debentures, is
potentially limitless. In other words, the lower the average trading price of
the Company's shares at the time of conversion, the greater the number of shares
that can be issued to Dutchess. This perceived risk of dilution may cause our
shareholders to sell their shares, thus contributing to a downward movement in
the Company's stock price. 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.
12
Our Common Stock has a small public float and future sales of our Common Stock,
may negatively affect the market price of our Common Stock.
As of April 6, 2009, the most recent trading day in our Common Stock,
there were 42,951,130 shares of our Common Stock outstanding, at a closing
market price (average of best bid and ask prices) of $.15 for a total market
valuation of approximately $ 6,400,000. Our Common Stock has a public float of
approximately 25,800,000 shares, which shares are in the hands of public
investors, and which, as the term "public float" is defined by NASDAQ, excludes
shares that are held directly or indirectly by any of our officers or directors
or any other person who is the beneficial owner of more than 10% of our total
shares outstanding. These 25,800,000 shares are held by approximately 3,000
shareholders. We cannot predict the effect, if any, that future sales of shares
of our Common Stock into the market will have on the market price of our Common
Stock. However, sales of substantial amounts of Common Stock, including future
shares issued upon the exercise of 33,056,136 Common Stock Purchase Warrants,
future shares issued upon the exercise of stock options (of which none are
outstanding as of April 6, 2009 and 1,000,000 have been reserved for potential
future issuance), or the perception that such transactions could occur, may
materially and adversely affect prevailing market prices for our Common Stock.
We could terminate our Securities and Exchange Commission Registration, which
could cause our Common Stock to be de-listed from the Over the Counter Bulletin
Board ("OTCBB").
As a public company with more than 300 shareholders, we are required to
file our periodic reports with the SEC and register our shares of Common Stock
under the Securities Exchange Act of 1934 (the "Exchange Act"). In the event
that our Company would have less than 300 shareholders of record, our reporting
requirements would be on a voluntary basis. In the event that in the future we
would have fewer than 300 stockholders of record, we would be eligible to
de-register our Common Stock under the Exchange Act. Although the Company does
not currently plan to de-register its Common Stock, there can be no assurance
that we would not de-register the Common Stock at some point in the future. If
the Company were to take such action, it could inhibit the ability of the
Company's common stock holders to trade the shares in the open market, thereby
severely limiting the liquidity of such shares. Furthermore, if we were to
de-register, we would no longer be required to file annual and quarterly reports
with the SEC and would no longer be subject to various substantive requirements
of SEC regulations. De-registration would reduce the amount of information
available to investors about our Company and may cause our Common Stock to be
de-listed from the OTCBB. In addition, investors would not have the protections
of certain SEC regulations to which we would no longer be subject. The Company
has no intention of terminating the registration of the Common Stock, and in
fact is constrained from doing so under the terms of its agreements with
Dutchess.
13
Because the market for and liquidity of our shares is volatile and limited, and
because we are subject to the "Penny Stock" rules, the level of trading activity
in our Common Stock may be reduced.
Our Common Stock is quoted on the OTC Bulletin Board under the trading
symbol PPRG. The OTCBB is generally considered to be a less efficient market
than the established exchanges or the NASDAQ markets. While our Common Stock
continues to be quoted on the OTCBB, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the price of our Common
Stock, compared to if our securities were traded on NASDAQ or a national
exchange. In addition, our Common Stock is subject to certain rules and
regulations relating to "penny stocks" (generally defined as any equity security
that is not quoted on the NASDAQ Stock Market and that has a price less than
$5.00 per share, subject to certain exemptions). Broker-dealers who sell penny
stocks are subject to certain "sales practice requirements" for sales in certain
nonexempt transactions (i.e., sales to persons other than established customers
and institutional "accredited investors"), including requiring delivery of a
risk disclosure document relating to the penny stock market and monthly
statements disclosing recent bid and offer quotations for the penny stock held
in the account, and certain other restrictions. If the broker-dealer is the sole
market maker, the broker-dealer must disclose this, as well as the
broker-dealers presumed control over the market. For as long as our securities
are subject to the rules on penny stocks, the liquidity of our Common Stock
could be significantly limited. This lack of liquidity may also make it more
difficult for us to raise capital in the future.
ITEM 2. PROPERTIES
As of December 31, 2008, the principal property assets of the Company
consisted of hospital telecommunications services contracts, furniture, fixtures
and computer and network equipment owned by our wholly-owned subsidiaries
Patient Portal Connect, Inc. and TB&A Hospital Television, Inc.
During the year ended December 31, 2008, the Company had no significant
equipment leases in effect. The Company maintained office space in three
locations under real estate leases: Baldwinsville, NY and Amherst, NY and
Jupiter, Fla. The non-cancelable lease payments for the year ended December 31,
2008 were $302,754.00. The future minimum lease payments for the three years
ending December 31, 2009, 2010 and 2011 are $272,000.00, $272,000.00 and
$216,000.00 respectively. The future minimum lease payments for years 2012
through 2016 are $216,000.00 through 2015 and $49,500.00 for 2016.
14
ITEM 3. LEGAL PROCEEDINGS
The Company is presently involved in one lawsuit which management
believes does not have any merit and will not have a material effect upon the
financial condition of the Company. There are no other lawsuits pending nor are
any such material legal proceedings anticipated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securities holders during the
three months ended December 31, 2008 (the fourth quarter of the fiscal period
covered by this report).
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
(a) The Company's Common Stock was initially listed on the OTC Bulletin
Board Market (Current OTCBB Symbol: "PPRG") from July 27, 2005 to January, 2006,
and resumed trading on the Bulletin Board from July, 2007 through December,
2008.
HIGH LOW HIGH LOW
BID PRICES ASK PRICES
----------------- -------------------------
Fiscal Year 2007:
- -----------------
Quarter Ended 3/31/07 $ .14 $ .08 $ .17 $ .10
Quarter Ended 6/30/07 $ 1.45 $ .35 $ 1.60 $ .38
Quarter Ended 9/30/07 $ .80 $ .22 $ .90 $ .20
Quarter Ended 12/31/07 $ 1.50 $ .15 $ 1.75 $ .18
Fiscal Year 2008
- ----------------
Quarter Ended 3/31/08 $ 1.65 $ .30 $ 1.75 $ .45
Quarter Ended 6/30/08 $ 1.65 $ .80 $ 1.75 $ .90
Quarter Ended 9/30/08 $ .81 $ .20 $ .95 $ .25
Quarter Ended 12/31/08 $ .47 $ .13 $ .50 $ .15
Sales prices do not include commissions or other adjustments to the
selling price.
(b) HOLDERS - As of March 31, 2009, there were approximately 380
shareholders of record of the Company's Common Stock.
Based upon information from nominee holders, the Company believes that
the number of beneficial holders of its Common Stock exceeds 3,000.
(c) DIVIDENDS - The Company has not paid or declared any dividends upon
its common stock and it intends for the foreseeable future to retain any
earnings to support the growth of its business. Any payment of cash dividends in
the future, as determined at the discretion of the Board of Directors, will be
dependent upon the Company's earnings and financial condition, capital
requirements, and other factors deemed relevant.
(d) WARRANTS AND OPTIONS- As of March 31, 2009, 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:
16
Exercise
Description Number Price Expiration
---------------------------------
Class "A" Warrants 250,000 $ 2.00 12/31/11
Class "B" Warrants 250,000 $ 3.00 12/31/11
Class "C" Warrants 250,000 $ 4.00 12/31/11
Class "D" Warrants 9,480,050 $ .50 12/31/09
Dutchess Warrants 22,826,086 $ .46 11/01/12
2002 INCENTIVE STOCK OPTION PLAN
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 March 31, 2009, no options have been
awarded pursuant to this Plan.
RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth the equity securities we sold during the
period covered by this report, not previously reported on Forms 10-QSB or 8-K,
which was not registered under the Securities Act.
During calendar year 2008 the Company sold 2,846,050 shares of
unregistered common stock under a private placement for $ 570,102 and issued
33,333 shares of Series B Preferred Stock for $200,000.00. The preferred stock
is convertible into common stock at a ratio of 1 share of preferred for each 10
shares of common stock at the option of the Company or holder.
The Company relied on the exemption under section 4(2) of the
Securities Act of 1933 (the "Act") for the above issuances. No commission or
other remuneration was paid on these issuances.
17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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.
General Discussion on Results of Operations and Analysis of Financial Condition
- -------------------------------------------------------------------------------
We begin our General Discussion and Analysis with a discussion of the
Results of Operations for the years ended December 31, 2008 and 2007, followed
by a discussion of Liquidity and Capital Resources available to finance our
operations.
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.
18
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.
RESULTS OF OPERATIONS
- ---------------------
The Company was established in November, 2002. On December 7, 2006, the
Company acquired Patient Portal Connect, Inc., and on November 4, 2007 acquired
TB&A Hospital Television, Inc. As of December 31, 2008, these are the only
operating subsidiaries of the Company. The results of operations for the year
ended December 31, 2008 includes the business operations of these subsidiaries
and revenues from acquired contracts for the periods subsequent to their
acquisition, including hospital contracts acquired in November 2008.
Year Ended December 31, 2008 vs. December 31, 2007
- --------------------------------------------------
The Company reported $ 17,592,615 of revenue for the Year Ended
December 31, 2008 and $ 4,705,035 for the comparable period in 2007. This
majority of this increase, approximately $11.8 million, is attributable to the
full year impact of acquired hospital contracts (from 2007) and the full year of
operations from TB&A Hospital Television, Inc. (TB&A). The remaining revenue
increase of $1.0 million is from existing customer growth and as well as the
addition of new customers.
Cost of sales for the Year Ended December 31, 2008 was $11,380,147 as
compared to cost of sales of $ 3,056,835 during the same period in 2007. This
increase followed the increase in revenue over 2007.
Selling and Administrative expenses were $ 5,231,764 for the Year Ended
December 31, 2008 as compared to $2,948,026 in 2007. These expense as a
percentage of revenue decreased from 62% in 2007 to 29% in 2008 primarily due to
the stabilization of expenses as the Company grew its revenues as well as a
reduction of start up and organization of expenses of approximately $1.2 million
from 2007 to 2008. We expect these expenses to continue to decline as a
percentage of revenue.
Interest costs were $ 2,093,830 for the Year Ended December 31, 2008
compared to $295,868 in 2007. This increase in interest costs was primarily due
to the full year cash and non-m cash interest expense associated with the
Dutchess debt.
The Company reported a net loss of ($2,311,990) for the Year Ended
December 31, 2008 as compared to a net loss of ($2,059,386) during the same
period in 2007. This represents a loss per share of ($.06) during the Year Ended
December 31, 2008 as compared to a loss per share of $ (.08) for the same period
in 2007.
19
Year Ended December 31, 2007 vs. December 31, 2006
- --------------------------------------------------
The Company reported $ 4,705,035 of revenue for the Year Ended December
31, 2007 and $1,609 for the comparable period in 2006. This increase is solely
attributable to the acquisition of the Company's Patient Portal Connect, Inc.
operating subsidiary in December, 2006 and minimal start-up revenues attributed
to this subsidiary during this period. The results for 2006 reflected minimal
start up revenues from the new combined entity with Patient Portal Connect, Inc.
in December 2006.
Cost of sales for the Year Ended December 31, 2007 was $ 3,056,835 as
compared to cost of sales of $115,332 during the same period in 2006. This
increase was attributable to the acquisition of hospital contracts and TB&A
during 2007.
Selling and administrative expenses were $ 2,948,026 for the Year Ended
December 31, 2007 as compared to $ 173,449 in 2006. This increase is solely
attributable to the full year of operations for the Company.
Interest costs were $ 295,868 for the Year Ended December 31, 2007
compared to $126,152 in 2006.
The Company reported a net loss of ($ 2,059,386) for the Year Ended
December 31, 2007 as compared to a net loss of ($ 401,408) during the same
period in 2006. This represents a loss per share of $(.08) during the Year Ended
December 31, 2007 as compared to a loss per share of $(.01) for the same period
in 2006.
20
CURRENT PLAN OF OPERATIONS
- --------------------------
Our Company, through its newly acquired subsidiaries, Patient Portal
Connect, Inc. (PPC) and TB&A Hospital Television, Inc. (TB&A) is well positioned
to be the premier provider of integrated workflow solutions in the healthcare
industry. Having developed the industry's newest, leading-edge process
improvement delivery 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. PPC's innovative solutions
are changing the way hospitals and patients do business in today's healthcare
environment.
Nationwide, an explosive demand for more customized healthcare has
resulted in a greater need for improved productivity, efficiency, and customer
service in hospitals. PPC 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. PPC's proven technologies provide tremendous economic benefit for
healthcare providers.
PPC intends to rapidly gain market share by leveraging strategic
relationships and acquiring companies with existing hospital contracts. The
Company's acquisition strategy will enable it to achieve immediate
profitability, grow rapidly, and quickly gain first mover advantage. PPC's
sophisticated technology platform allows the Company 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 the PPC service
delivery platform.
Management believes that PPC is primed to swiftly react to the
ever-changing healthcare industry. Unlike the costly, capital-intensive and
stand-alone products offered by our industry competitors, PPC's sophisticated
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 PPC 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.
21
PPC's expertise is its ability to create win-win opportunities for
hospitals and patients by clearly defining customized, flexible, and integrated
healthcare solutions with measurable results. PPC enables hospitals to improve
patient flow, enhance patient satisfaction, and create long-term relationships
with patients as they move from hospital to home. In so doing, hospitals gain
productivity and efficiency enhancements, reduce the burden on staff and
increase cash flow by optimizing reimbursements from third-party sources.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
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 ($2,311,990)
during the year ended December 31, 2008. The Company has been successful in
raising capital through private placements of its equity. It has plans to raise
more capital through public or private financing, through the issuance of its
common stock and the issuance of debt instruments, including debt convertible to
equity. When attaining financing if available, 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, management expects that the acquisitions in November,
2007 of our TB&A Hospital Television, Inc. subsidiary and additional hospital
service contracts will continue to increase revenue, profitability and liquidity
of the Company.
SUBSEQUENT EVENTS
-----------------
On March 12, 2009 the Company entered into an agreement with Dutchess
Private Equities Fund, Ltd. to restructure all of its outstanding debt with the
Company. This transaction will have a material positive impact on both the
Company's balance sheet as well as statement of operations on a going forward
basis.
The key aspects of the transaction are as follows: Dutchess will
convert all of their outstanding debt, estimated at approximately $6.6 million
as of the closing date, return all of their outstanding warrants (22,826,022),
and terminate their security interest in the Company's assets; in return for
$7.5 million in preferred convertible stock, up to $500,000 in cash, payable
within 90 days of the closing and 4% of the outstanding common stock of the
Company.
The preferred stock will have an 8% cumulative dividend payable in cash
or additional preferred stock at the Company's option, and be convertible into
35% of the Company's common stock at the option of the holder. The Company also
has the right to call up to $1 million of the preferred stock and the holder can
put up to $2 million of the preferred stock at the time of a capital raising
event.
As part of the transaction the Company is working to finalize an
agreement for additional working capital through a commercial bank and is
confident that the new bank financing will adequately funds any working capital
requirements.
The Company intends to continue its efforts to complete the necessary
steps in order to meet its cash flow requirements throughout fiscal 2009 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. We also expect to see significant
growth in the revenues of our TB&A Hospital Television, Inc. subsidiary during
2009 both through new contracts and through the sale of new flat-screen
television equipment to our existing customer base.
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 restructuring
transaction, our future operating cash flows 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.
22
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this report are located beginning
on page F-1 of this report and incorporated by reference.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of The Independent Registered Public Accountant F-1,2
Balance Sheets as of December 31, 2008 and December 31, 2007 F-3
Statements of Operations for the two years ended December 31,
2008 and 2007 F-4
Statements of Cash Flows for the two years ended December 31,
2008 and 2007 F-5
Statements of Stockholders' Equity December 31, 2008 and
December 31, 2007 F-6,7
Notes to Financial Statements F-8 to F-16
The Board of Directors
Patient Portal Technologies, Inc.
Baldwinsville, New York
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTANT
I have audited the balance sheet of Patient Portal Technologies, Inc. and
subsidiaries (the "Company") as of December 31, 2008 and December 31, 2007, and
the related statements of operations, stockholders' equity and cash flows for
the years ended December 31, 2008 and December 31, 2007. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining on
test basis evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Patient Portal Technologies, Inc.
and subsidiaries at December 31, 2008 and December 31, 2007 and the related
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 2008 and December 31, 2007, in conformity with accounting
principles generally accepted in the United States of America.
I also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) the effectiveness of internal control
over financial reporting as of December 31, 2008, based on criteria established
in the Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
April 8, 2008 expressed in unqualified opinion (attached) on management's
assessment that Patient Portal Technologies, Inc. and subsidiaries maintains
effective internal control and an unqualified opinion that internal control was
effective.
As described in Note 2 to the financial statements, the Company restated the
December 31, 2007 Consolidated Balance Sheet, Statement of Operations, Statement
of Cash Flow and Statement of Shareholder Equity to correct for certain types of
revenue recognition, the acquisition of TB&A, recording of the Dutchess
transaction, long term investments, stock issuance transactions and modifying
disclosure within the Statement of Cash Flows.
/s/ Harris F. Rattray
- ---------------------
Harris F. Rattray CPA
Pembroke Pines, Florida
April 10, 2009
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC COMPANY
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The shareholders and Board of Directors of Patient Portal Technologies, Inc.
I have audited Patient Portal Technologies, Inc.'s internal control over
financial reporting as of December 31, 2008, based on criteria established in
Internal Control--Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Patient Portal
Technologies, Inc.'s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Management's Report on Internal Control over Financial Reporting.
My responsibility is to express an opinion on the Company's internal control
over financial reporting based on my audit.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. My audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as I considered
necessary in the circumstances. I believe that my audit provides a reasonable
basis for my opinion.
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A Company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit the preparation of financial statements in accordance with generally
accepted accounting principles and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the Company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. In my opinion, Patient Portal
Technologies, Inc. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2008, based on the COSO
criteria.
I also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
Patient Portal Technologies, Inc. as of December 31, 2008 and December 31, 2007
and my report expressed an unqualified opinion thereon.
/s/ Harris F Rattray
- --------------------
Certified Public Accountant
Pembroke Pines, Florida
April 10, 2009
F-2
PATIENT PORTAL TECHNOLOGIES,INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
ASSETS Restated
2008 2007
------------ -------------
Cash $ 411,229 $ 404,003
Accounts Receivable, net 2,046,836 1,794,553
Prepaid Expenses 54,919 20,350
Other 292,416 83,111
------------ -------------
TOTAL CURRENT ASSETS $ 2,805,400 $ 2,302,018
------------ -------------
Property, Plant & Equipment, net 4,355,532 3,267,882
Investments 1,475,000 1,475,000
Hospital Contracts, Net 7,692,452 6,651,319
Debt Issuance Costs 696,280 877,916
Note Receivable - 276,967
------------ -------------
TOTAL ASSETS $ 17,024,664 $ 14,851,102
------------ -------------
LIABILITIES AND STOCKHOLDERS EQUITY
Accounts Payable $ 3,320,317 $ 1,162,856
Current Portion - LTD 1,409,597 943,118
Current Portion - Leases 127,581 -
Accrued Expenses 1,336,675 1,245,249
Notes Payable - Current 1,065,000 629,668
------------ -------------
TOTAL CURRENT LIABILITIES $ 7,259,170 $ 3,980,891
------------ -------------
Long Term Debt, net of discount 3,584,413 3,445,501
Long Term Leases 298,259 -
------------ -------------
TOTAL LIABILITIES $ 11,141,842 $ 7,426,392
------------ -------------
Redeemable Preferred Stock , $.01 par value
authorized 1,000,000: 88,333 (Dec 31, 2008) and
55,000 (Dec 31, 2007) issued and outstanding 883 550
Common Stock, $.001 par value, authorized
100,000,000: 39,466,757 (Dec 30, 2008) and
36,620,707 (Dec 31, 2007) issued and outstanding 39,467 36,621
Additional Paid in Capital 9,702,213 8,935,290
Additional Paid In Capital - Warrants 913,043 913043
Retained Deficit (4,772,784) (2,460,794)
------------ -------------
TOTAL STOCKHOLDER'S EQUITY $ 5,882,822 $ 7,424,710
------------ -------------
TOTAL LIABILITIES AND
STOCKHOLDER's EQUITY $ 17,024,664 $ 14,851,102
------------ -------------
See notes to the consolidated financial statements
F-3
PATIENT PORTAL TECHNOLOGIES,INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
Restated
2008 2007
------------ -------------
NET SALES $ 17,952,615 $ 4,705,035
COST OF SALES 11,380,147 3,056,835
------------ -------------
GROSS PROFIT 6,572,468 1,648,200
------------ -------------
DIRECT OPERATING EXPENSES:
Selling and Administrative 5,231,764 2,948,026
Depreciation and Amortization 1,542,736 463,692
------------ -------------
TOTAL OPERATING EXPENSES 6,774,500 3,411,718
------------ -------------
(LOSS) FROM OPERATIONS BEFORE
OTHER INCOME AND EXPENSE (202,032) (1,763,518)
OTHER INCOME AND EXPENSE
Interest Expense 2,093,830 295,868
------------ -------------
OPERATING (LOSS) BEFORE INCOME TAXES (2,295,862) (2,059,386)
PROVISION FOR INCOME TAXES 16,128 -
------------ -------------
NET (LOSS) (2,311,990) (2,059,386)
------------ -------------
Net (Loss) per share: $ (0.06) $ (0.08)
------------ -------------
Common Shares Outstanding (weighted) 37,332,043 26,040,612
------------ -------------
See notes to the consolidated financial statements
F-4
PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
Restated
2008 2007
------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $ (2,311,990) $ (2,059,386)
------------ -------------
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Common stock and Warrants issued for services - 772,416
Depreciation and amortization 1,542,736 463,692
Amortization of Debt Discount 898,720
(Increase) decrease in assets:
Accounts receivable (579,843) (691,601)
Prepaids and Other current assets (243,873) 12,277
Increase (decrease) in liabilities:
Accounts payable 1,445,461 52,774
Other current liabilities (319,538) 838,500
------------ -------------
Total adjustments 2,743,662 1,448,057
------------ -------------
NET CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES 431,673 (611,329)
------------ -------------
CASH FLOWS INVESTING ACTIVITIES:
Purchase of property, plant and equipment (1,221,404) (462,152)
Purchase of TBA - (3,000,000)
Purchase of Hospital Contracts - (2,414,958)
------------ -------------
NET CASH FLOWS (USED IN) INVESTING ACTIVITIES (1,221,404) (5,877,109)
------------ -------------
FINANCING ACTIVITIES:
Proceeds from Common Stock Issued 570,102 987,383
Proceeds from Long-Term Debt (TMS) - 3,938,619
Deferred Loan Costs - (756,015)
Proceeds from Preferred Stock Issued 200,000 500,000
Debt Repayment (798,144) (840,616)
Proceeds from Notes Payable 825,000 -
Proceeds from Warrants Issued - Leases - 913,043
Proceeds from - Debt Beneficial Conversion - 2,148,338
------------ -------------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 796,958 6,890,752
------------ -------------
NET INCREASE IN CASH 7,227 402,313
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 404,002 1,690
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 411,229 $ 404,003
============ =============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest, net $ 1,102,224 $ 144,208
------------ -------------
See notes to the consolidated financial statements
F-5
PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PREFERRED STOCK
DECEMBER 31, 2008
Common and Additional
Preferred Stock Paid-In Retained
Shares Par Value Capital Deficit Total
-------------------- ----------- ----------- ------------
Balance January 1,
2008 36,675,707 $ 37,171 $ 9,848,333 $(2,460,794) $ 7,424,710
Issuance of Common
Stock 2,846,050 2,846 567,256 570,102
Issuance of
Preferred Stock 33,333 333 199,667 200,000
Net loss for the
Year (2,311,990) (2,311,990)
---------- -------- ----------- ------------ ------------
Balance December 31,
2008 39,555,090 $ 40,350 $10,615,256 $(4,772,784) $ 5,882,822
=========== ======== =========== ============ ============
See notes to the consolidated financial statements
F-6
PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY
RESTATED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PREFERRED STOCK
DECEMBER 31, 2007
Common and Additional
Preferred Stock Paid-In Retained
Shares Par Value Capital Deficit Total
-------------------- ----------- ----------- ------------
Balance January 1,
2007 24,231,601 $ 24,771 $ 1,094,614 $ (401,408) $ 717,977
Issuance of Common
Stock 405,000 405 535,000 535,405
Issuance of
Preferred Stock 50,000 500 499,500 500,000
Issuance of Common
Stock For services 2,425,000 2,425 597,915 600,340
Issuance of Common
Stock For services 469,512 470 43,140 43,610
Issuance of Common
Stock for
Worldnet, Inc.
contracts 2,250,000 2,250 1,823,762 1,826,012
Sale of common stock
to equity investor 500,000 500 434,012 434,512
Issuance of Common
Stock for
OmniCast, Inc. 9%
Acquisition 2,200,000 2,200 1,097,800 1,100,000
Issuance of Common
Stock for Virtual
Nurse, Inc. 9%
Acquisition 750,000 750 374,250 375,000
Commissions & Fees
for Dutchess
Financing (in
lieu of cash) 1,521,740 1,522 150,652 152,174
Conversion of
Preferred Stock 550,000 550 550
Conversion of
Preferred Stock (55,000) (550) (550)
Issuance of Common
Stock for Interest 93,188 93 9,225 9,318
Employment and
Consulting
Agreements 1,110,000 1,110 109,890 111,000
Issuance of common
stock pursuant to
exercise of
warrants 174,666 175 17,291 17,466
Intrinsic Value of
Convertible Debt - - 2,148,338 2,148,338
Warrants Issued - - 913,043 913,043
Net loss for the
Year (2,059,485) (2,059,485)
---------- -------- ----------- ------------ ------------
Balance December 31,
2007 36,675,707 $ 37,171 $ 9,848,432 $(2,460,893) $ 7,424,710
========== ======== =========== ============ ============
See notes to the consolidated financial statements
F-7
Patient Portal Technologies, Inc.
Notes to Consolidated Financial Statements
For the Years ended December 31, 2008 and 2007
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 provided for in these financial
statements.
Cash Equivalents- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents.
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
$1,217,000 as of December 31, 2008.
F-8
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.
2. FINANCIAL STATEMENT RESTATEMENTS
Fiscal 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 $152,000 for the
year ended December 31, 2007.
This correction impacted each financial statement line item as follows:
Balance Sheet for period ended December 31, 2007: increased net
accounts receivable by approximately $421,000 over previously reported amount;
increased accrued expenses by approximately $269,000 and reduced accumulated
deficit by $152,000. There were no other impacts on the line items of the
balance sheet from this restatement.
Statement of Operations for period ended December 31, 2007: Revenue was
increased $837,000; cost of sales increased by approximately $269,000; selling
and administrative expenses increased by approximately $416,000 and the
operating loss and net loss decreased by approximately $152,000. There were no
other impacts on the line items of the statement of operations from this
restatement.
Consolidated Statement of Cash Flows for the period ended December 31,
2007: This restatement impacted the net loss line item by reducing it $152,000;
increasing the accounts receivable line item by approximately $421,000 and
increasing accrued expenses by approximately $269,000. There were no other
impacts on the line items of the statement of cash flows from this restatement.
The Company also incorrectly accounted for some aspects of the Dutchess
financing transaction. Errors were made in properly accounting for the preferred
conversion feature for the debenture, the sale of warrants and the calculation
of the debt issuance balance.
F-9
This correction impacted each financial statement line item as follows:
Balance Sheet for period ended December 31, 2007: Increased debt
issuance costs by approximately $236,000; reclassification of the debt from
short term to long term in the amount of approximately $290,000; reduction in
the net amount of long term debt of approximately $3,000,000 due to the creation
of a debt discount account as part of the Dutchess transaction; increase in
additional paid in capital of $2,148,000 and increase in additional paid in
capital - warrants of $913,000. There were no other impacts on the line items of
the balance sheet from this restatement.
Statement of Operations for period ended December 31, 2007: There were
no impacts from this correction on any statement of operation line items for the
period ended December 31, 2007.
Consolidated Statement of Cash Flows for the period ended December 31,
2007; The correction impacted the presentation and classification for long term
debt, warrants issued and the preferred debt conversion feature. The result was
a reduction in short and long term debt of approximately $3.5 million and an
increase in proceeds from warrants issued of approximately $913,000 and proceeds
from debt conversion feature of $2.6 million. There were no other impacts on the
line items of the statement of cash flows from this restatement.
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 Investments of approximately
$1.475 million. There were no other changes to any other line items in the other
financial statements.
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 as well as impact on some of the
assets and liability amounts within the balance sheet.
This correction impacted each financial statement line item as follows:
Increase in accounts receivable of approximately $1.0 million, reduction in
fixed assets of approximately $300,000 and a reduction in hospital contracts of
approximately $400,000. The reductions in fixed assets and hospital contracts
will reduce annual depreciation expense and amortization expenses by
approximately $65,000 beginning in 2008. There was minimal income statement
impact for 2007 from these corrections.
There were two calculation errors in the number of outstanding
preferred and common stock in the amounts of 25,000 and 80,000 respectively. The
correction had an impact of increasing redeemable preferred stock in the balance
sheet by $250 and general administrative expenses by $ 35,000. No other line
items in any of the financial statements were impacted by this correction.
Lastly, the Company incorrectly included non cash items within the
December 31, 2007 Statement of Cash Flows. These items were properly moved into
Note 3 in accordance with the guidance in SFAS 142. There was no impact on any
line item of the balance sheet or statement of operations from these
corrections. The following line items were impacted by the changes to the
statement of cash flows for the period ended December 31, 2007: purchase of
hospital contracts was reduced by approximately $5 million; minority investments
were reduced by $1.5 million and stock payments for investments of $3.2 million
was eliminated. No other line items were impacted.
F-10
3. NON CASH TRANSACTIONS
During 2008 the Company had two significant non cash transactions. A
summary of each follows:
Worldnet Communications
The Company purchased 6 hospital contracts and certain fixed assets for
a combination of cash equivalents and assumption of liabilities. The non cash
portion of the transaction was approximately $1,957,000 and represented the
purchase of hospital contracts for $1.9 million and certain fixed assets for
approximately $57,000.
Capitalized Leases
During 2008 the Company entered into a series of capitalized leases for
equipment used in the business. The total of these leases was approximately
$285,000. The offsetting entry was recorded in fixed assets based upon the terms
of these leases.
During 2007 the Company had four significant non cash transactions. A
summary of each follows.
TB&A Acquisition
The acquisition of 100% of the outstanding stock of TB&A was for $3.3
million of which $3.0 million was paid in cash and the remaining $300,000 was
secured by a portion of the Company's accounts receivable, to be paid as the
receivables were collected.
Worldnet Communications
The Company purchased 22 hospital contracts at a price of approximately
$4.2 million. The non cash portion of the transaction was $1.826 million which
the Company paid for in common stock.
Virtual Nurse, Inc.
The Company made non cash investment in Virtual Nurse, Inc. by issuing
750,000 shares of common stock at a value of $.50 per share, or $ 375,000.
Omnicast, Inc
The Company made non cash investment in Omnicast, Inc by issuing 2.2
million shares of common stock at a value of $.50 per share, or $1.1 million.
4. BUSINESS COMBINATIONS AND ACQUISITIONS
During 2008 the Company acquired certain assets and assumed certain
liabilities in a transaction with Worldnet Communications, Inc. The Company
purchased six hospital contracts and certain fixed assets in a transaction
valued at approximately $2.2 million of which approximately $2.0 million
included the assumption of certain liabilities associated with the assets
purchased.
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.
F-11
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. As a result of this acquisition,
Patient Portal Technologies can expanded its broader product and service
offerings nationwide.
The aggregate purchase price was approximately $ 3,300,000 which
included $3,000,000 in cash 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
===============
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 and 2006, giving
effect to the Patient Portal and TB&A acquisitions as if they occurred on
January 1, 2007 and 2006 were $13,039,826 and $9,258,073 respectively.
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.
F-12
5. INVESTMENTS
During April 2007 the Company acquired a 9% minority interest in
Virtual Nurse, Inc. and in March 2007, acquired a 9% minority interest in
OmniCast, Inc.
Virtual Nurse, Inc
The Company acquired a 9% interest in Virtual Nurse, Inc. for $375,000
in common stock. The investment was valued at $.50 per share, in an arm's length
transaction, which represented the average market price at the time the
transaction occurred. Virtual Nurse's mission is to provide healthcare
organizations with efficient, cost-effective nursing solutions. It offers the
highest quality of care through experienced, skilled, productive, and motivated
nurses who benefit from the convenience of working at home on a flexible time
schedule. As a result, it is able to give healthcare facilities assurance that
every patient receives condition-specific education before entering their
facilities and ensure that every assessment has been carefully documented and
delivered on time.
The investment allowed the Company to enter into an exclusive joint
marketing relationship which will allow Patient Portal access to the customer
base of Virtual Nurse. The agreement also provides for the Company to market the
Virtual Nurse platform to its customer base.
OmniCast, Inc.
The Company acquired a 9% interest in OmniCast, Inc. for $1,100,000 in
common stock. The investment was valued at $.50 per share, in an arm's length
transaction, which represented the average market price at the time the
transaction occurred. Omnicast, Inc. is a leading-edge technology and media
provider that offers a variety of customized education and entertainment
solutions for the healthcare industry.
The investment in OmniCast followed the execution of an exclusive
license agreement, between OmniCast and Patient Portal Technologies, for the
HealthCast platform. This platform serves as a critical element of eth Company's
strategy to management patient information and content flow before, during and
after hospital care.
6. 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 fifty years. Property and equipment consist of the following at December 31:
2008 2007
----------------------------
Television set/system installations, equipment $ 3,289,521 $ 2,401,401
Computer equipment and Software 1,389,330 846,738
Office equipment 339,492 209,375
----------------------------
5,018,343 3,457,514
Accumulated depreciation 662,811 189,632
----------------------------
Total $ 4,355,532 $ 3,267,882
============================
F-13
7. INTANGIBLE ASSETS
In accordance with SFAS No. 142 the Company's intangible assets are
amortized over the anticipated useful life of the assets. The intangible assets
represent hospital contracts that have been purchased by the Company. The
balances summarized below reflect the unamortized portion of the balances. The
contracts are being amortized over a 120 month period using the straight line
method. See note 4. A summary of the balance at December 31, follows:
2008 2007
----------------------------
Hospital Contracts $ 8,795,156 $ 6,895,156
Accumulated Amortization 1,102,704 243,837
----------------------------
Total $ 7,692,452 $ 6,651,319
============================
The amortization expense for 2008 and 2007 was $858,867 and $243,837
respectively and the estimated annual amortization for the next five years will
be approximately $880,000.
8. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
2008 2007
----------------------------
12% Convertible Debenture $ 6,343,610 $ 7,000,000
Other Long-term Debt 813,061 450,000
----------------------------
7,156,671 7,450,000
Less:
Current portion of long-term debt 1,409,597 943,118
Discount on Convertible Debt 2,162,661 3,061,381
----------------------------
Total $ 3,584,413 $ 3,445,501
============================
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 is repayable beginning 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.
F-14
Other Long term Debt - Individuals' payable in monthly installments of
approximately $1,000 to $5,000 including interest at rates ranging from 12% to
17% percent expiring at various dates through June 2011. These notes are secured
by television equipment.
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments - During the Year ended December 31, 2008 the Company
had no significant equipment leases in effect.
Lease and rent expense for the Year ended December 31, 2008 and 2007
was $ 307,942 and $ 101, 555 respectively. Future payments under operating
leases with terms currently greater than one year as follows:
2009 $289,631
2010 $229,171
2011 $216,000
2012 $216,000
2013 $216,000
Thereafter $216,000
Employment Agreements - As of December 31, 2008, the Company had two
Employment Agreement in effect for key management.
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 December 31, 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 9,480,050 $ .50 12/31/11
Dutchess Warrants 22,826,086 $ .46 11/01/12
(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.
In 2007 there were approximately 30 million warrants outstanding with
an exercise ranging from $.50 to $4.00 and expiration dates ranging from
December 31, 2011 to December 31, 2012.
2002 INCENTIVE STOCK OPTION PLAN
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 March 31, 2009, no options have been
awarded pursuant to this Plan.
F-15
10. SUBSEQUENT EVENTS
On March 12, 2009 the Company entered into an agreement with Dutchess
Private Equities Fund, Ltd. to restructure all of its outstanding debt with the
Company. This transaction will have a material positive impact on both the
Company's balance sheet as well as statement of operations on a going forward
basis.
The key aspects of the transaction are as follows: Dutchess will
convert all of their outstanding debt, estimated at approximately $6.6 million
as of the closing date, return all of their outstanding warrants (22,826,022),
and terminate their security interest in the Company's assets; in return for
$7.5 million in preferred convertible stock, up to $500,000 in cash, payable
within 90 days of the closing and 4% of the outstanding common stock of the
Company.
The preferred stock will have an 8% cumulative dividend payable in cash
or additional preferred stock at the Company's option, and be convertible into
35% of the Company's common stock at the option of the holder. The Company also
has the right to call up to $1 million of the preferred stock and the holder can
put up to $2 million of the preferred stock at the time of a capital raising
event.
When recorded this transaction will impact the Company's balance sheet
by reducing short and long term debt by approximately $6.6 million; increasing
equity by $7.5 million less the elimination of the outstanding warrants of
approximately $900,000 for a net change of approximately $6.6 million.
Additionally, the debt discount balance of approximately $2.1 million and debt
issuance costs of approximately $700,000 will be written off, further reducing
the overall equity impact by approximately $2.8 million. In summary the
transaction is expected to increase equity by approximately $3.6 million after
the adjustments are recorded.
The transaction will also reduce ongoing net interest expense by
approximately $1.0 million annually and reduce amortization expense by
approximately $200,000. The transaction is expected to close by the end of April
2009.
F-16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements between the Company and its
independent accountants on any matter of accounting principles or practices, or
financial statement disclosure.
ITEM 8A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of December 31, 2008, we conducted an evaluation, under the
supervision and with the participation of the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 31, 2008.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting. A company's internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
Management, including the Chief Executive Officer and Chief Financial
Officer, has conducted an evaluation of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2008, based on the
criteria for effective internal control described in Internal Control --
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on its assessment, management concluded that the
Company's internal control, as defined in Rules 13a-15(e) and 15d - 15(e) of the
Exchange Act of 1934, over financial reporting were effective as of December 31,
2008.
This Annual Report includes an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting.
Item 8B. Other Information
None.
23
PART III
Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate
Governance; Compliance with Section 16(a) of the Exchange Act.
The information called for by this Item and not provided above in Item
4A is incorporated by reference to our proxy statement which we intend to file
with the Securities and Exchange Commission and mail to shareholders within 120
days of our fiscal year ended December 31, 2008.
Item 10. Executive Compensation.
The information required by this Item is incorporated by reference to
our proxy statement which we intend to file with the Securities and Exchange
Commission and mail to shareholders within 120 days of our fiscal year ended
December 31, 2008.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The information required by this Item is incorporated by reference to
our proxy statement which we intend to file with the Securities and Exchange
Commission and mail to shareholders within 120 days of our fiscal year ended
December 31, 2008.
Item 12. Certain Relationships and Related Transactions, and Director
Independence.
The information required by this Item is incorporated by reference to
our proxy statement which we intend to file with the Securities and Exchange
Commission and mail to shareholders within 120 days of our fiscal year ended
December 31, 2008.
Item 13. Exhibits.
(a)(1) Financial Statements
Our consolidated financial statements and notes to our consolidated
financial statements filed with this report are set forth as follows:
Item 14. Principal Accounting Fees and Services.
The information required by this item is incorporated by reference to
our proxy statement which we intend to file with the Security and Exchange
Commission and mail to shareholders within 120 days of our fiscal year ended
December 31, 2008.
24
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PATIENT PORTAL TECHNOLOGIES, INC.
April 11, 2009 by: /s/ KEVIN KELLY
---------------------------
Kevin Kelly
President
April 11, 2009 by: /s/ Thomas Hagan
---------------------------
Thomas Hagan
Secretary, Acting CFO
April 11, 2009 by: /s/ Rounsevelle Schaum
---------------------------
Director
Chairman - Audit Committee
25
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