Item 405 of
Regulation S-B contained in this form, and no disclosure will be
contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part
III of this Form, 10-KSB or any amendment to this Form
10-KSB. X
Indicate
by check mark whether the Registrant is a shell company [as defined
in Rule 12b-2 of the Exchange Act].
Yes: ____
No: X
State
issuer's revenues for its most recent fiscal
year: $3,868,299.
The number of shares of Common Stock outstanding as
of April 4, 2008 was 36,120,707. As of such date, the
aggregate market value of the voting stock of the registrant held by
non-affiliates was approximately $19,456,000 based on the
average of the best closing bid and ask prices ($1.52) for such
common stock as reported on the OTC Bulletin Board on such
date.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the Company’s definitive proxy statement for its annual meeting of
shareholders to be held on June 11, 2008 which the Company intends to file
within 120 days after the end of the Company’s fiscal year ended
December 31, 2007 are incorporated by reference into Part III
hereof.
Indicate
by check mark whether Transitional Small Business Disclosure Format: Yes
____ No X
SUPPLEMENTAL
INFORMATION
See
"Supplemental Information and Exhibits" with respect to additional documents
furnished or to be furnished to the Securities and
Exchange Commission but not deemed to be "filed" with
the Securities and Exchange Commission or
otherwise subject to liabilities of Section 18 of the Securities
Act.
Affiliates
for the purposes of this item refer to the officers, directors and/or any
persons or firms owning 5% or more of the
Company's common stock, both of record and
beneficially.
Patient
Portal Technologies, Inc.
FORM
10-KSB
Fiscal
Year Ended December 31, 2007
TABLE OF
CONTENTS
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PART
I
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Item
1
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BUSINESS
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Item
1A
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RISK
FACTORS
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8
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Item
2
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PROPERTIES
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Item
3
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LEGAL
PROCEEDINGS
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Item
4
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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PART
II
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Item
5
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MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
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Item
6
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS AND PLAN OF
OPERATIONS
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Item
7
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FINANCIAL
STATEMENT AND SUPPLEMENTARY DATA
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F1-F9
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Item
8
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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PART
III
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Item
9
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DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
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Item
10
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EXECUTIVE
COMPENSATION
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Item
11
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Item
12
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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PART
IV
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Item
13
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EXHIBITS,
SCHEDULES AND REPORTS ON FORM 8-K
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| Item 14 | PRINCIPAL ACCOUNTING FEES AND SERVICES |
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Signatures
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PART
I
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ITEM
1
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BUSINESS
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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, we acquired 100% of the capital stock of Patient
Portal Connect, Inc. of Palm Beach Gardens, FL through the
issuance of 17,500,000 shares of Common Stock
of the Company to the shareholders of Patient
Portal Connect, Inc. in a tax-free share exchange. 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 utilize a
state-of-the-art proprietary software platform that controls bedside patient
communications by converting existing television infrastructure into an
intelligent network. The company uses their technology to create a communication
portal that allows many third parties to communicate and exchange information in
a cost effective way. This solution allows the company to offer many services
that optimize patient satisfaction and outcomes, reduces administrative costs,
and maximizes reimbursement for their customers.
To
provide funds for acquisition purposes, on November 1, 2007, we entered into a
$7,000,000 convertible debenture agreement with Dutchess Private Equities Fund,
LTD (“Dutchess”). If Dutchess elects to convert its debentures (the
“Debentures”) into shares of common stock, par value $0.001 (the “Common Stock”)
of the Company, the conversion price for their shares of Common Stock will be at
a maximum price of $.46 per share but may fluctuate at a substantial percentage
discount (15%) to fluctuating market prices. As a result, the number of
shares issuable to Dutchess, upon conversion of the Debentures could be
potentially materially adverse to current and potential investors. Dutchess’
overall ownership at any one moment is limited to 4.9% of the outstanding shares
of Common Stock in accordance with the financing documents. However, Dutchess is
free to sell any shares into the market, which have been issued to them, thereby
enabling Dutchess to convert the remaining Debentures or exercise additional
Warrants into shares of Common Stock.
November
2, 2007, we acquired 100% of the capital stock of TB&A Hospital
Television, Inc. (hereinafter "TB&A") for a purchase price of $3,875,000 in
cash and $400,000 in assumed debt. The consideration issued in the stock
purchase was determined as a result of arm's-length negotiations between the
parties.
Following
this acquisition, we are carrying on the business operations of TB&A as a
wholly-owned subsidiary. Prior to the stock purchase, there were no material
relationships between us and TB&A or any of our respective affiliates,
directors or officers, or any associates of the respective officers or
directors.
The
Company's offices are located at 8276 Willett Parkway, Suite 200, Baldwinsville,
New York 13027. The telephone number is (888) 774-3579. The Company's website is
www.patientportal.com.
OUR
PLAN OF OPERATIONS
Our
Company, through its operating subsidiaries, Patient Portal Connect, Inc. (PPC)
and TB&A Hospital Television, Inc., is well positioned to be the premier
provider of information and communication based solutions in the healthcare
industry. Having developed the industry's newest, leading-edge
communication/information platform for the healthcare industry, PPC is poised to
capture a significant segment of the multi-billion dollar
healthcare market. Its proprietary systems were developed in close coordination
with hospital industry partners to provide multi-layer functionality across a
wide spectrum of critical patient-centric workflows that result in immediate
improvements in cost savings, patient outcomes, and revenue growth for
hospitals. Our systems and solutions are designed to integrate with
existing hospital systems and processes to improve outcomes in today's
healthcare environment.
The
company’s technology allows it to leverage the hospitals existing television and
cable infrastructure to create a communication portal for patients and third
parties.
Nationwide,
the demand for more customized healthcare has resulted in a greater need for
improved productivity, efficiency, and customer service in hospitals and other
healthcare institutions. We have has pioneered the development of integrated
software applications that combine technology and industry expertise
with unique customization designed to better manage the hospital/patient
relationship and improve hospital operational processes. Further, our solutions
enable hospitals to achieve compliance with strict government mandates that
affect reimbursements by requiring measured improvements in productivity,
efficiency, and patient satisfaction. Our proven technologies provide tremendous
economic benefit for healthcare providers.
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 scaleable architecture creates
even greater profitability by enabling multiple services to be delivered over
our service delivery platform.
We
believe that our Company is primed to swiftly react to the requirements of an
ever-changing healthcare industry. Unlike the costly, capital-intensive and
stand-alone products offered by our industry competitors, our sophisticated
technology platform offers flexible solutions and functionalities that are
universal enough to have broad appeal while still allowing for a level of
customization that is necessary to integrate with a hospital's existing legacy
system, and at an affordable cost. Our flexible platform also enables the
healthcare providers to fulfill the government's newest mandates for a full
"continuum of care" from the hospital to the home. This unique ability enables
us to present a tailored solution to our customers at a cost-effective price and
will dramatically enhance our ability to capture significant market share
nationwide.
Our
Company’s expertise in creating win-win opportunities for hospitals and patients
by clearly defining customized, flexible, and integrated healthcare solutions
with measurable results. 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. They have long term contracts with third parties that pay
the company on a per patient basis based upon a variety of factors. This
approach provides the company with an ability to increase revenue as patient
flow and services increase.
PATIENT
PORTAL PRODUCTS AND SERVICES
Many
hospitals are plagued with decentralized workflows and vertical silos of
information that create redundant, costly processes and a disjointed patient
experience. Competition and consumers are demanding change. There is increasing
need to improve communication with the patient before, during and after their
hospital stay. To accomplish this, hospitals need better systems and information
services to assist them in meeting their goals.
Our
strategy is establishing hospital relationships that utilizes our proprietary
technology platform. This platform utilizes the existing television and cable
infrastructure to caret a communication portal that can be delivered to the
patient bedside. This portal can be utilized by any number of third parties
including the hospitals, drug and heath companies, patient education services
and family members creating numerous revenue possibilities.
Our core
system was created as an outcome of working with
our hospital partners in a
live laboratory to create
a solution that is cost-effective, scalable, and
allow for seamless and transparent integration into the hospital's legacy
systems and culture.
The
following is a brief description of some of the principal products and services
which we deliver to our customers utilizing the information and power of the
communication portal platform:
HealthCast (TM)
Patient Network System:
As part of our healthcare services package, we are aggressively marketing
the newly-developed HealthCast Patient Network System under an exclusive
technology license from Omnicast, Inc specifically for the healthcare
industry. We believe that HealthCast will fundamentally change the
way patient communications at the bedside are managed leading to significant
revenue opportunities. HealthCast is the first suite of customized hospital
television channels that invites viewers to interact with channel programming
and delivers condition-specific content directly to a patient's TV, IP phone, or
home computer. HealthCast features an exclusive digital signage
platform that promotes an unparalleled level of communication by simultaneously
showing video, an information scroll, and additional customized messaging to a
single patient, certain patient groups, or to specific areas of the
hospital. HealthCast is the only patient network that puts the
hospital in control of multiple information streams for an unprecedented level
of communication and education for patients and families. In
addition, HealthCast's proprietary platform captures viewing metrics so
hospitals can document educational content delivery for pay-for-performance
reimbursement, and commercial sponsors can respond to patient viewing
habits.
HealthCast's
Foundation Channel, Education Services Channel, and MyMail station present
personalized content to specific patients. In turn, patients have
opportunities to interact with the multimedia platform to respond to channel
content, such as with live auctions on the Foundation Channel, text messaging or
E-Greetings on MyMail, or by answering questions to win prizes after watching
condition-specific educational programming. The Foundation Channel
promotes fundraising events and announcements with celebrity endorsements and
national sponsorship.
MedEx: The
Company provides a turn key solution to hospitals that improves the management
and hand-off of prescription drugs when patients are discharged. The company
controls and manages the process of providing the patient free home delivery for
prescription drugs, within four hours of being discharge. This service is
provided in conjunction with national or regional drug fulfillment companies.
This service also provides an opportunity to extend the patient relationship
into the home environment. The service is provided on a per patient basis for
both inpatients as well as outpatients.
Instant Response
Line: An interactive, live response solution that
enables patients to log a non-medical need, which is electronically transferred
to an appropriate hospital department for resolution in a timely
fashion. Putting the hospital in proactive mode, improves
interdepartmental communication, and adds an unparalleled level of customer
service for the patient. A key element to the success of this system
is time-stamped reporting that allows administrators to see how quickly and
efficiently their staff responds. Administrators can request
immediate notification regarding certain calls for direct intervention and
response. Instant Response Line provides a single point of contact
for all patient problems and leads to greater patient satisfaction.
Quick Pulse
Surveys: Quick inpatient surveys allow hospital
administrators to keep their "finger on the pulse" of what patients are thinking
while in house--a vastly different concept from industry standard post-discharge
surveys hospitals typically employ. This customized service focuses
on finite issues, allowing the hospital to direct specific, timely
solutions. A key differentiator between our service and competing
survey services is our ability to collect patient response data in real time
while the patient is still involved in the experience. The data is
also made available in real-time with follow-up analysis available so hospitals
can benchmark and measure improvements, putting the hospital in compliance with
pay-for-performance government initiatives.
VIRTUAL
NURSE(TM) MARKETING AGREEMENT
In April,
2007, we acquired a 9% minority interest in Virtual Nurse, Inc. of
Palm Beach Gardens, FL, 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 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.
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-à-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 affect select strategic acquisitions to secure certain
technology, people and products which complement or augment overall product and
services strategy. Both time-to-market and potential market share
growth, among other factors, are considered when evaluating acquisitions of
technologies, product lines or companies. Management may acquire
and/or dispose of other technologies and products in the future.
As a
technology and services Company, we realize that we must maintain our investment
in research and development to design both new, experimental products and
marketing campaigns. Management anticipates incurring additional
research and development expenditures as its business grows and adequate cash
flow becomes available to fund such costs.
EMPLOYEES
As
of March 31, 2008, the Company and its affiliates had approximately 50 full
time employees.We also have a comprehensive National Master Dealer Agreement
with VOX Technologies, Inc., through which we utilize over one hundred
independent dealer representatives throughout the United States to market the
Company's products and services to healthcare institutions on a commission-only
basis. In addition, we have a long-term contract to out-source our
24/7 Operator Call Center and Data Management Services with Worldnet
Communications, Inc. of Syracuse, NY.
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.
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ITEM
1A.
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RISK
FACTORS
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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. Therefore, the Company has had limited revenue from operations or other
financial results upon which investors may base an assessment of its potential.
The prior business operations of the newly-acquired subsidiaries are not reflect
in our past results from operations.
We May Need Additional
Funding.
Management
believes that the net proceeds of the Dutchess financing transaction, together
with net cash flow from its newly-acquired subsidiary and other ongoing business
operations will be sufficient to satisfy the Company's cash requirements through
its calendar year ending December 31, 2008. 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 have 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 and exercise and discharge in full of Company’s obligations under
the Warrants . This “first lien” on certain of our assets may limit our ability
to obtain additional asset-based financing or other types of secured or
unsecured debt.
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, its 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, as approximately 88% of our outstanding shares are unregistered
and cannot yet be traded. 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:
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Quarterly
variations in our results of operations or those of our
competitors.
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Announcements
by us or our competitors of acquisitions, new products, significant
contracts, commercial relationships or capital
commitments.
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Disruption
to our operations.
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The
emergence of new sales channels in which we are unable to compete
effectively.
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Our
ability to develop and market new and enhanced products on a timely
basis.
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Commencement
of, or our involvement in,
litigation.
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Any
major change in our board of directors or
management.
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Changes
in governmental regulations or in the status of our regulatory
approvals.
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Changes
in earnings estimates or recommendations by securities
analysts.
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General
economic conditions and slow or negative growth of related
markets.
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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:
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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.
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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.
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Our
Certificate of Incorporation prohibits cumulative voting in the election
of directors. This limits the ability of minority stockholders to elect
director candidates.
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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.
You may
experience substantial dilution if Dutchess converts its Debentures 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, or
sales of shares currently being registered on behalf of Dutchess may negatively
affect the market price of our Common Stock.
As of
April 4, 2008, the most recent trading day in our Common Stock, there were
36,120,707 shares of our Common Stock outstanding, at a closing market price
(average of best bid and ask prices) of $1.52 for a total market valuation of
approximately $54,903,474. Our Common Stock has a public float of approximately
12,800,000 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 12,800,000 shares are held by approximately 3,400 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 27,646,086 Common Stock Purchase Warrants, future shares issued upon
the exercise of stock options (of which none are outstanding as of April 4, 2008
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 ou