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.
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.
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.
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.
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.
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.
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.
ITEM 1A.
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 - ----------------------------
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.
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 - ------------------------------------------
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.
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 - ------------------------------------------------
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:
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.
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.
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.
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.
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.
ITEM 3.
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.
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).
PART II
ITEM 5.
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:
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.
ITEM 6.
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.
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.
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.
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.
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.
ITEM 7.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this report are located beginning on page of this report and incorporated by reference.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ----
Report of The Independent Registered Public Accountant ,2
Balance Sheets as of December 31, 2008 and December 31, 2007
Statements of Operations for the two years ended December 31, 2008 and 2007
Statements of Cash Flows for the two years ended December 31, 2008 and 2007
Statements of Stockholders' Equity December 31, 2008 and December 31, 2007 ,7
Notes to Financial Statements to
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
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
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
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
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
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
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
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.
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.
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.
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.
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.
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 ============================
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.
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.
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.
ITEM 8.
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.
PART III
Item 9.
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.
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.
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.
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.
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.
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.
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
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