UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q





(Mark One)





|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30, 2010





or





|_|TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the transition period from _______ to ______





Commission File Number:  333-107824





PATIENT PORTAL TECHNOLOGIES, INC.


(Exact name of registrant as specified in its charter)








Delaware
02-0656132(State or other jurisdiction of
(I.R.S. Employerincorporation or organization)
Identification No.)








8276 Willett ParkwayBaldwinsville, NY
13027(Address of principal executive offices)
(Zip Code)








(315) 638-6708


(Registrant's telephone number, including area code)





N/A


(Former name, former address and former fiscal year,


if changed since last report)










Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  |X| No  |_|





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filer |_|
Accelerated filer |_|Non-accelerated filer |_|
Smaller reporting company |X|(Do not check if a smaller reporting company)





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|





Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.





As of December 31, 2009, there were 45,979,553 shares of common stock, $.001 par value per share, outstanding.










TABLE OF CONTENTS




Page No.PART I - Financial InformationItem 1.
Condensed Consolidated Financial Statements
1Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
10Item 3.
Quantitative and Qualitative Disclosures About Market Risk
19Item 4.
Controls and Procedures
19PART II - Other InformationItem 1.
Legal Proceedings
20Item 4.
Submission of Matters to a Vote of Security Holders
20Item 6.
Exhibits
20Signatures

21













Part I. Financial Information




Item 1.  Condensed Consolidated Financial Statements





PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY


CONSOLIDATED BALANCE SHEET




(Unaudited)June 30,


December 31,ASSETS

2010


2009Cash

$
113,164


$
34,781Accounts Receivable, Net


701,941



1,692,924Prepaids


332,251



290,999Other


412,615



63,192TOTAL CURRENT ASSETS

$
1,559,971


$
2,081,896Property, Plant & Equipment, Net


4,517,169



4,167,115Investments


1,475,000



1,475,000Hospital Contracts, Net


6,353,645



6,784,619Debt Issuance Costs


236,231



283,477Note Receviable


-



-TOTAL ASSETS

$
14,142,016


$
14,792,106LIABILITIES AND CAPITALAccounts Payable


1,398,829


$
2,049,316Current Portion - LTD / Leases


535,340



530,852Accrued Expenses


238,769



555,774Notes Payable - Current


127,442



-Other Current Liabilities


-



-TOTAL CURRENT LIABILITIES

$
2,300,380


$
3,135,942Long Term Debt, net of discount


3,302,916



3,205,492Long Term Leases


107,714



168,460TOTAL LIABILITIES

$
5,711,010


$
6,509,894STOCKHOLDER'S EQUITYSeries C Convertible Preferred Stock , $.01 par value authorized 1,000,000:8,138 issued and outstanding June 30, 2010;7,937 issued and outstanding Dec 31, 2009


81



79Common Stock, $.001 par value, authorized 100,000,000:(49,990,023 June 30, 2010 and45,979,553 Dec 31, 2009) issued and outstanding


49,990



45,980Additional Paid in Capital


17,882,311



17,241,308Retained Deficit


(9,441,376
)


(9,005,155
)TOTAL STOCKHOLDER'S EQUITY

$
8,491,006


$
8,282,212TOTAL LIABILITIES ANDSTOCKHOLDER'S EQUITY

$
14,202,016


$
14,792,106






See notes to the condensed consolidated financial statements





1





PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)





THREE MONTHS ENDED


SIX MONTHS ENDEDJune 30,


June 30,


June 30,


June 30,2010


2009


2010


2009Total Revenue

$
2,579,416


$
4,135,516


$
5,151,120


$
8,018,277Cost of Revenue


1,095,752



2,495,653



2,134,640



4,752,909Gross Profit

$
1,483,663


$
1,639,863


$
3,016,480


$
3,265,367Operating ExpensesSelling, General & Administrative


1,067,121



1,412,923



2,124,660



2,821,523Depreciation and Amortization


428,611



358,569



842,709



729,465Income from Operations

$
(12,069
)

$
(131,628
)

$
49,112


$
(285,621
)Interest Expense


78,001



375,918



159,806



875,354Income (Loss) Before Taxes


(90,070
)


(507,546
)


(110,694
)


(1,160,975
)Income Tax Expense


233



14,391



4,708



14,391Net (Loss)  from Continuing Operations

$
(90,303
)

$
(521,937
)

$
(115,402
)

$
(1,175,366
)Debt Distinguishment Charges

$
-


$
2,623,042


$
-


$
2,623,042Non Cash Preferred Stock Dividend


161,410


$
-



320,819


$
-Net Loss

$
(251,713
)

$
(3,144,979
)

$
(436,221
)

$
(3,798,409
)Net (Loss) Per Common Share

$
(0.01
)

$
(0.07
)

$
(0.01
)

$
(0.09
)Weighted Average Shares Outstanding


47,316,376



42,696,198



46,647,965



42,106,478





See notes to the condensed consolidated financial statements





2





PATIENT PORTAL TECHNOLOGIES, INC. AND SUBSIDIARY


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED), SIX MONTHS ENDED





June 30,


June 30,2010


2009CASH FLOWS FROM OPERATING  ACTIVITIES:Net Income (Loss)

$
(436,221
)

$
(3,798,409
)Adjustments to reconcile net (loss) to net cash used in operations:Depreciation and amortization


842,709



729,465Debt Discount and Loan Costs Amortization






2,785,156(Increase) decrease in assets:Accounts receivable


990,983



156,031Other current assets


(390,675
)


46,204Increase (decrease) in liabilities:Accounts payable


(395,487
)


(748,759
)Other current liabilities


(245,120
)


(78,121
)Short Term Notes payable


100,000



(800,000
)Total adjustments


902,410



2,089,976Net cash flows used in operating activities


466,188



(1,708,433
)CASH FLOWS INVESTING  ACTIVITIES:Purchase of property, plant and equipment


(695,613
)


(198,324
)Net cash used in investing activities


(695,613
)


(198,324
)CASH FLOWS FINANCING  ACTIVITIES:Deferred Loan Issuance Costs






(330,723
)Proceeds from equity investors


225,800



101,160Preferred stock dividend payment in kind


200,817



-Proceeds from long term debt and leases


28,167



2,500,000Payments on long-term debt and leases


(146,977
)


(78,920
)Net cash flows provided by financing activities


307,807



2,191,517NET  (DECREASE) INCREASE  IN  CASH


78,383



284,760CASH  AND  CASH  EQUIVALENTS,  BEGINNING  OF  PERIOD


34,781



411,229CASH  AND  CASH  EQUIVALENTS,  END  OF  PERIOD

$
113,164


$
695,989Supplemental disclosure of cash flow information:Cash paid during the period for:Interest, net

$
71,636


$
128,702








See notes to the condensed consolidated financial statements





3





PATIENT PORTAL TECHNOLOGIES, INC.,


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)








Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Operations and Basis of Presentation - Patient Portal Technologies, Inc. and its wholly owned subsidiaries (The "Company") are in two primary businesses. First, the sale of televisions and associated equipment to hospital facilities and second, providing non-medical management and patient support services assisting hospitals to improve patient satisfaction and outcomes. In the fourth quarter of 2009, the Company decided to exit the ownership of the television equipment sales business and instead work with third party distributors to provide equipment to customers as needed. This allows the company to focus its resources exclusively on its service business where it has a strong competitive advantage. 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 television equipment when the product is shipped to the customer. Revenue for its other management and patient center services is recognized when the service is rendered.





Income Taxes - Income taxes are not provided for in these financial statements since the Company has a significant net operating loss carry-forward from previous years and incurred a loss for the period.





Cash Equivalents- The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.




4





Cash Receivable - The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and the customer's current creditworthiness, as determined by review of their credit information. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collection issues that have been identified. Credit losses have historically been within management's expectations and the provisions established. The allowance for bad debts was approximately $336,000 as of March 31, 2010.





Debt Issuance Costs - Cost incurred to issue debt are deferred and amortized over the term of the related debt.




Recent Accounting Pronouncements - In September 2006, the FASB issued SFAS NO 157 "Fair Value Measurements" (SFAS 157) which provides guidance for measuring assets and liabilities at fair value. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The adoption of SFAS 157 is not expected to have a material impact on the Company's consolidated financial statements.





In December 2007, the FASB issued Statements of Financial Accounting Standards NO. 141 (revised 2007), "Business Combinations" (FAS 141(R)) and No. 160, "Non-controlling Interests in Consolidated Financial Statements, an amendment for ARB No. 41 (FAS 160)". FAS 141(R) will change how business acquisitions are accounted for and FAS 160 will change the accounting and reporting for minority interests, which will be characterized as non-controlling interests and classified as a component of equity. FAS 141(R) and FAS 160 are effective for fiscal years beginning on or after December 15, 2008 (January 1, 2009 for the Company). The adoption of FAS 141(R) and FAS 160 will not have a material impact on the Company's consolidated financial statements.





Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about the fair value measurements. The adoption of SFAS 157 did not have a material impact on the Company's financial condition and results of operations. For additional information on the fair value of certain financial assets and liabilities, see Note 8, "Fair Value Measurements".





Fair Value Option: In February 2007, the FASB issues SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115," which permits an entity to measure certain financial assets and financial liabilities at fair value, with unrealized gains and losses reported in earnings at each subsequent measurement date. The fair value option may be elected on an instrument-by-instrument basis, as long as it is applied to the instrument in its entirety. The fair value option election is irrevocable, unless an event specifies in SFAS No. 159 occurs that results in a new election date. This statement is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 159 as of January 1, 2008 and has elected not to measure any additional financial instruments and other itemsat fair value.




5




Note 2 - BUSINESS DISCONTINUATIONS AND ACQUISITIONS





In December 2009 the Company decided to exit the ownership of the television equipment sales business and instead work with third party distributors to provide equipment to customers as needed. This decision allows the company to focus its resources exclusively on it service business where it has a strong competitive advantage.




Note 3 - PROPERTY, PLANT & EQUIPMENT





Property and equipment are stated at cost and depreciated and amortized generally on the straight-line method over their estimated useful lives of three to fifteen years. Property and equipment consist of the following at June 30, 2010 and December 31, 2009.





June 30,


December 31,2010


2009Television sets/system installations, equipment

$
4,225,821


$
3,757,328Computer equipment and Software


1,658,090



1,405,372Office equipment


333,042



339,4926,216,953



5,502,192Accumulated depreciation


1,699,783



1,335,077Total

$
4,517,169


$
4,167,115




6


Note 4 - INTANGIBLE ASSETS





In accordance with SFAS No. 142 the Company's intangible assets are being amortized over the anticipated useful life of the assets. At the end of June 30, 2010 there was a balance of $ 6,353,645 in intangible assets which reflected the unamortized portion of multiyear hospital contracts purchased during 2007 and 2008. The contracts are being amortized over a 120 month period using the straight line method. A summary of the balances follows:





June 30,


December 31,2010


2009Hospital Contracts

$
8,795,156


$
8,795,156Accumulated Amortization


2,441,511



2,010,537Total

$
6,353,645


$
6,784,619





The amortization expense for the six month period ended June 30, 2010 was approximately $ 431,000 and for fiscal 2009 was approximately $908,000. The estimated annual amortization for the next five years will be $850,000.




7




Note 5 - LONG TERM DEBT





Long-term debt consists of the following:





June 30,


December 31,2010


2009Bank Term Loan

$
2,931,891


$
2,979,122Other Long-term Debt


792,572



632,2153,724,463



3,611,337Less: Current portion of long-term debt


421,547



405,845$
3,302,916


$
3,205,492




On June 19, 2009 the Company closed on a credit facility with a commercial bank. The facility included a $2.5 million term loan and a $500,000 equipment facility. The term loan is repayable over 42 months with interest only payments for the first twelve months. Interest is payable at prime plus 2% with a floor of 5.25%. During July 2010 we were notified by the bank that they believe there was a technical default of a financial ratio covenant relating debt coverage at December 31, 2009. We believe we were in compliance and are working with the bank to resolve the issue.





Other Long term Debt - Debt is payable in monthly installments of $833 to $4804 including interest at 12 % expiring at various dates through January 2012. These notes are either unsecured or secured by television equipment.




Note 6     COMMITMENTS AND CONTINGENCIES





Lease Commitments - The Company finances its use of certain facilities and equipment under committed lease arrangements provided by various institutions. At June 30, 2010, future lease payments under the long-term real estate leases totaled approximately $1.5 million.





Employment Agreements - As of June 30, 2010, the Company has three employment agreements in effect for key executives.





Litigation - The Company is presently involved in two lawsuits which management, as well as outside counsel, believes are without 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.





Warrants and Options - As of June 30, 2010, 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:





ExerciseDescription

Number


Price


ExpirationClass "A" Warrants


365,000


$
2.00


12/31/11Class "B" Warrants


365,000


$
3.00


12/31/11Class "C" Warrants


365,000


$
4.00


12/31/11Class "D" Warrants


9,480,050


$
.50


12/31/11




On September 30, 2009  the Shareholders of the Company ratified the ompany's "2009 Incentive Stock Option Plan" and reserved 10,000,000 shares for ssuance pursuant to said Plan. As of September 30, 2009, 8,000,000 shares under this plan have been issued to officers of the company under this Plan and in accordance to their employment agreements.




8





Note 8     FAIR VALUE MEASUREMENTS





As described in Note 2, "New Accounting Standards", the Company adopted FAS 157 effective January 1, 2008. SFAS 157 defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also describes three levels of inputs that may be used to measure fair value:





Level 1 - quoted prices in active markets for identical assets and liabilities.





Level 2 - observable inputs other than quoted prices in active markets for identical assets and liabilities.





Level 3 - unobserved inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.







9





Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations





Forward-Looking Statements





In addition to historical information, this Report contains forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, management of growth, competition, pricing pressures on the Company's products, industry growth and general economic conditions. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's opinions only as of the date hereof. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.





General





This discussion and analysis should be read in conjunction with our financial statements and accompanying notes, which are included elsewhere in this prospectus. This discussion includes forward-looking statements that involve risks and uncertainties. Operating results are not necessarily indicative of results that may occur in future periods. When used in this discussion, the words "believes", "anticipates", "expects" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected.





Our business and results of operations are affected by a wide variety of factors, as we discuss under the caption "Risk Factors" and elsewhere in this prospectus, which could materially and adversely affect us and our actual results. As a result of these factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results and stock price.





Any forward-looking statements herein speak only as of the date hereof.  Except as required by applicable law, we undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.





Income Taxes





We make estimates to determine our current provision for income taxes, as well as our income taxes payable. Our estimates with respect to the current provision for income taxes take into account current tax laws and our interpretation of current tax laws, as well as possible outcomes of any future tax audits. Changes in tax laws or our interpretation of tax laws and the resolution of any future tax audits could significantly impact the amounts provided for income taxes in our financial statements.








10


Legal Contingencies





The Company is presently involved in two lawsuits 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.





In the opinion of management, the ultimate resolution of such matters will not have a material adverse effect on our financial position, results of operations or liquidity.










CORPORATE INFORMATION





The Company is a Delaware corporation which was originally organized on November 22, 2002 as Suncoast Naturals, Inc. and commenced business operations in January, 2003. 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. (formerly known as Gambino Apparel Group, Inc., hereafter referred to as "PPRG")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 PPRG, we became a leading provider of innovative non-medical service solutions for hospitals. The Company's services are delivered over the Company's state-of-the-art proprietary technology platform. The Company uses the technology to create a communication portal between patients, hospitals and third parties, allowing the delivery of many useful services focused on impacting satisfaction and improving financial outcomes for hospitals.





On November 1, 2007 the Company raised $7,000,000 through the issuance of a convertible debenture agreements with Dutchess Private Equities Fund, Ltd. These funds were primarily utilized for acquisition purposes.





In June, 2009 the Company closed on a transaction  with Dutchess Private Equities Fund, Ltd. to restructure the convertible debenture.




11




On November 2, 2007, the Company acquired 100% of the capital stock of TB&A Hospital Television, Inc. (hereinafter "TB&A").





The Company's offices are located at 8276 Willett Parkway, Suite 200, Baldwinsville, New York 13027. The telephone number is (888) 774-3579. The Company's website is www.patientportal.com.





CURRENT PLAN OF OPERATIONS


The healthcare industry is in the midst of dramatic change which is redefining the way hospitals provide services to patients. Education, safety, entertainment, comfort and enhanced communication all contribute greatly to a quality experience for patients and their families. Not surprisingly, these non-medical services rank higher on importance and lower on satisfaction than most care delivery needs.





Patient Portal is positioned in the marketplace as the nation's first Total Satisfaction Company. We are focused on developing and delivering a broad array of patient-centric, non-medical services. Our leading edge technologies and 24/7 personal call communication center leverage a hospital's existing infrastructure to connect patients and their families to a whole suite of customizable services designed to enhance the patient experience, reduce costs, increase efficiency, and generate revenue.





Patient Portal works with healthcare facilities to address patient needs in three simple stages - before, during, and after a hospital stay. At each stage, we have the opportunity to add value to the patient experience, which in turn, adds value to the hospital. We work with hospitals to achieve Total Satisfaction - for patients and their families, the hospital, and other third parties.





The advantages of our solution is that it requires minimal capital, can integrate with legacy systems, has a low per patient cost and can be installed with minimal physical modification. All of which will make perfect sense to healthcare facilities challenged with making the best use of every dollar for maximum impact in a competitive market. Additionally we support our service platform with a 24/7 employee staffed communication center, which provides a market distinction and results in a very personable and customer centric outcome.





Our business objective is to support hospitals as they work to improve patient outcomes and enhance satisfaction throughout the continuum of care cycle. The benefit of our proprietary technology platform supported by our communication center is that it allows us to be in a unique position to deliver a variety of services aimed at impacting these areas of hospital performance. From a financial perspective our services are high impact, high margin, low cost and are scalable with the addition of new hospital accounts, with low fixed costs.




12




The Company has adopted a recurring subscription based revenue model that utilizes patient interactions. We have approximately 60 long term contracts with hospitals, serving over 1 million patients annually.





Our sophisticated technology platform can be expanded to support additional revenue streams, with minimal cost, as market demand changes. This scalable architecture creates even greater profitability by enabling multiple services to be delivered over the Company's service delivery platform.





Our growth strategy involves gaining market share through competitive advantage as well as utilizing acquisitions where appropriate.





PATIENT PORTAL TECHNOLOGY SERVICES





The Company offers a menu of services under its Total Satisfaction program. All of these services are aimed at impacting the non-medical patient experience before, during, and after the hospital stay.





The services are paid for by hospitals, patients, and third parties based upon the type and benefit of the service. Most of the services are fully supported and delivered over the Company's proprietary technology platform supported by an employee staffed communication center that is available to patients 24/7.





The Company is focused on delivering patient services at three points in time; prior to entry and admission into the hospital; during the hospital stay, and post-discharge. The pre-admission services include a reminder call to patients at their home, information package that can be emailed or direct mailed and condition specific 30 second med clip videos. Services during the hospital stay include installation, support and management of the bedside entertainment system (TV and phone) inside a patient's room (including the remote activation, billing / collecting and deactivation of the service), patient education through the monitor, concierge response line, and in room patient surveys. Post-discharge services include medication management service including coordination of hand off of prescriptions between doctor / hospital / third party and home delivery of medication, post discharge follow up call and survey, and after care med clips.





13




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 education and 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. 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)Home Delivery: MedEx(SM) Home Delivery coordinates the information flow between the doctor/ hospital / fulfillment company for the patients medication upon discharge from the hospital. The patient also receives home delivery of their prescription with a short time after discharge. The fulfillment and delivery service is provide through third party partners.  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. 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.





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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 facility 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 facility 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.





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.





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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 June 30, 2010 the Company and its affiliates had approximately 40 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.




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RESULTS OF OPERATIONS




Critical Accounting Estimates





The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.





Management believes there are no material charges to net income in the current period related to sales from a prior period.





Net sales for the three month period ended June 30, 2010 were $2,579,416, reflecting a decrease of approximately $1.5 million from the net sales of $ 4,135,516 for the comparable three month period ended June 30, 2009. The decrease was attributable to a reduction in equipment sales revenue of approximately $1,533,000.  Sales for the six month period ended June 30, 2010 were $5,151,120, a decrease of approximately $2,867,000 from the net sales of $8,018,277 for the comparable six month period ended June 30, 2009. Again, the decrease was attributable to a reduction in equipment sales revenue of approximately $2,775,000 in the comparable period. In December 2009 the Company decided to exit the ownership of the television equipment sales business and instead work with third party distributors to provide equipment to customers as needed. This decision allows the company to focus its resources exclusively on it service business where it has a strong competitive advantage.





Cost of sales as a percentage of net sales for the three months ended June 30, 2010 was 42%, compared to 60% for the comparable 2009 period. Cost of sales as a percentage of net sales for the six months ended June 30, 2010 was 41%, compared to 59% for the comparable 2009 period.  The cost of sales percentage reduction was due to the company exiting the equipment sales business segment at the end of 2009 and focusing on its service business, which carries a higher gross margin than the equipment sales segment.





Selling and administrative expenses for the three month period ended June 30, 2010 totaled $1,012,621, a reduction of over 28%, or $400,000, from the 2009 level of $1,412,923. For the six months ended June 30, 2010, selling and administrative expenses declined by more than $750,000, or 27%, from $2,821,523 to $2,070,160.  This reduction was achieved by the elimination of the equipment business unit as well as additional efficiencies gained from operational improvements. Interest expense for the three month period ending June 30, 2010 was $78,000 compared to over $375,000 in the second quarter of 2009.  For the six months ended June 30, 2010, interest expense declined to about $160,000 from about $875,000 in the comparable period of 2009. The reduction in interest expense is due largely to the restructuring of Dutchess Capital debt that occurred in the second quarter of 2009 as well as repayment of higher interest debt.





Net Loss for the three month period ended June 30, 2010 was ($251,713) compared to a net loss of ($3,144,979) for the quarter ended June 30, 2009.  Net Loss for the six month period ended June 30, 2010 was ($436,221) compared to a net loss of ($3,798,409) for the quarter ended June 30, 2009. The second quarter of 2009 included a one-time debt restructuring charge of $2.6 million, while the second quarter of 2010 included an extraordinary charge of $54,500 related to the closure of an office.





Subtracting interest, taxes, depreciation and amortization from the Company’s net loss results in an EBITDA measurement. Management utilizes the EBITDA measurement as it reflects the Company’s operating performance before these deductions which can mask true operating performance due to the nature of previous hospital contract acquisitions which tend to inflate amortization and depreciation expenses. We believe that this information is useful for investors to fully understand the operating performance of the business. In the six months ended June 30, 2010, the Company’s EBITDA improved 113% over the same period of 2009, from approximately $444,000 to about $946,000.




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Liquidity and Capital Resources





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 its core business will continue to experience positive growth and the restructuring transaction with Dutchess Capital will have a significant positive impact on the company’s liquidity and overall operations.





As part of the debt restructuring transaction the Company closed on a $3.0 million credit facility to be used to fund working capital. The new debt was obtained at competitive commercial bank rates.





The Company intends to continue its efforts to complete the necessary steps in order to meet its cash flow requirements throughout fiscal 2010 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.





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.




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Inflation





The rate of inflation has had little impact on the Company's results of operations and is not expected to have a significant impact on continuing operations.





Capital Expenditures





Capital expenditures during the remainder of 2010 are not expected to be material.





Item 3.   Quantitative and Qualitative Disclosures about Market Risk





The Company's operations are not subject to risks of material foreign currency fluctuations, nor does it use derivative financial instruments in its investment practices. The Company places its marketable investments in instruments that meet high credit quality standards. The Company does not expect material losses with respect to its investment portfolio or exposure to market risks associated with interest rates. The impact on the Company's results of one percentage point change in short-term interest rates would not have a material impact on the Company's future earnings, fair value, or cash flows related to investments in cash equivalents or interest-earning marketable securities.





Item 4.  Controls and Procedures




Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.




Changes in internal control over financial reporting. There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our first quarter of fiscal 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




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Part II. Other Information





Item 1.   Legal Proceedings





The Company is presently involved in two lawsuits, which management believes do not have any merit and will not have a material effect upon the financial condition of the Company. There are no other lawsuits pending nor are any such material legal proceedings anticipated.




Item 4.   Submission of Matters to a Vote of Security Holders





None.





Item 6.   Exhibits




(1)
Exhibit 31.1
Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(2)
Exhibit 31.2
Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002(3)
Exhibit 32.1
Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(4)
Exhibit 32.2
Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.








PATIENT PORTAL TECHNOLOGIES, INC.







By:
/s/ Kevin J. KellyKEVIN J. KELLYChief Exec. OfficerDate:
August 10, 2010


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