CarePayment Technologies, Inc. - FORM 10-Q/A

Attached files

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EX-3.2 - CarePayment Technologies, Inc.	v206102_ex3-2.htm
EX-32.1 - CarePayment Technologies, Inc.	v206102_ex32-1.htm
EX-32.2 - CarePayment Technologies, Inc.	v206102_ex32-2.htm
EX-31.2 - CarePayment Technologies, Inc.	v206102_ex31-2.htm
EX-31.1 - CarePayment Technologies, Inc.	v206102_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
	THE SECURITIES EXCHANGE ACT OF 1934
	for the quarterly period ended March 31, 2010
OR

¨	TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934 for the Transition Period from to

Commission file number: 001-16781

CAREPAYMENT TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in its Charter)

Oregon		91-1758621
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

5300 Meadows Rd, Suite 400, Lake Oswego, Oregon		97035
(Address of Principal Executive		(Zip Code)
Offices)

(Registrant’s Telephone Number, Including Area Code): 503-419-3505

Former Name: microHelix, Inc.

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 ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-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.

Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company 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

Shares of Common Stock outstanding as of May 14, 2010 were:

Class A			1,390,616
Class B			6,510,092
			8,900,708

On March 31, 2010, the Company’s shareholders authorized the Company to effect a 1-for-10 reverse stock split of its Common Stock and subsequent conversion of each share of Common Stock into one share of Class A Common Stock. The consolidated financial statements, notes, and other references to share and per share data contained in this Report have been retroactively restated to reflect such reverse stock split and conversion for all periods presented.

EXPLANATORY NOTE

This Amendment No. 1 (this "Amendment") on Form 10-Q/A is being filed in response to comments the Registrant received from the Staff of the Securities and Exchange Commission (the "Commission" or the "SEC") regarding the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010, as originally filed with the SEC on May 17, 2010 (the "Original Form 10-Q"). This Amendment amends and restates the Original Form 10-Q in its entirety to provide a complete presentation.

Except as necessary to respond to the Staff's comments, the Registrant has not modified or updated disclosures presented in the Original Form 10-Q. Accordingly, this Amendment does not reflect events occurring after the date of filing of the Original Form 10-Q or modify or update those disclosures, including the exhibits to the Original Form 10-Q, affected by subsequent events. As such, this Amendment should be read in conjunction with the Original Form 10-Q and the Registrant's other reports filed with the SEC subsequent to the filing of the Original Form 10-Q, including any amendments to those filings.

As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), currently dated certifications by the Registrant's principal executive officer and principal financial officer are filed as exhibits to this Amendment.

CarePayment Technologies, Inc.

Quarterly Report on Form 10-Q

Quarter Ended March 31, 2010

TABLE OF CONTENTS

		Page

PART I. Financial Information		3

ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed consolidated balance sheets as of March 31, 2010 and December 31, 2009		3
Condensed consolidated statements of operations for the three months ended March 31, 2010 and 2009		4
Condensed consolidated statements of cash flows for the three months ended March 31, 2010 and 2009		5
Notes to condensed consolidated financial statements		6

ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations		17

ITEM 4T. Controls And Procedures		21

PART II. Other Information

ITEM I. Legal Proceedings		22

ITEM 2. Unregistered Sales Of Equity Securities And Use Of Proceeds		22

ITEM 6. Exhibits		22

SIGNATURE		22

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS — UNAUDITED

CAREPAYMENT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

March 31, 2010 and December 31, 2009

	2010			2009
Assets
Current Assets:
Cash and cash equivalents	$	23,264		$	69,097
Related party receivable		557,666			—
Prepaid expenses		36,080			—
Total current assets		617,010			69,097
Property and equipment, net		458,333			500,000
Servicing rights, net		9,454,500			9,550,000
Total assets	$	10,529,843		$	10,119,097

Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable	$	1,154,263		$	797,751
Accrued interest		396,589			324,082
Accrued liabilities		175,193			—
Current maturities of notes payable, net of debt discount		94,190			294,190
Total current liabilities		1,820,235			1,416,023
Notes payable, net of current potion		884,775			988,275
Mandatorily redeemable preferred stock, no par value, 1,200,000 shares authorized, 1,000,000 shares issued and outstanding, liquidation preference of $10,000,000		8,896,486			8,805,140
Total liabilities		11,601,496			11,209,438

Shareholders' Deficit:
CarePayment Technologies, Inc. shareholders’ deficit:
Common stock, no par value: Class A 65,000,000 shares authorized, 1,390,616 and 1,383,286 issued and outstanding at March 31, 2010 and December 31, 2009, respectively; Class B 10,000,000 shares authorized, no shares issued or outstanding at March 31, 2010 and December 31, 2009		18,022,850			18,022,591
Additional paid-in capital		11,773,640			11,755,211
Accumulated deficit		(30,870,568	)		(30,868,143	)
Total CarePayment Technologies, Inc. shareholders' deficit		(1,074,078	)		(1,090,341	)
Noncontrolling interest		2,425			—
Total shareholders’ deficit		(1,071,653	)		(1,090,341	)
Total liabilities and shareholders’ deficit	$	10,529,843		$	10,119,097

The accompanying notes are an integral part of these condensed consolidated financial statements.

CAREPAYMENT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31
	2010			2009

Service fees revenue	$	1,304,717		$	—
Cost of revenue		1,123,482			—
Gross margin		181,235			—

Operating Expenses:
Sales, general and administrative		890,224			131,901
Loss from operations		(708,989	)		(131,901	)

Other income (expense):
Loss reimbursement		873,371			—
Interest expense		(164,049	)		(77,770	)
Other income (expense), net		709,322			(77,770	)
Net income (loss) before income tax		333			(209,671	)
Income tax expense		333			—
Net income (loss)		—			(209,671	)
Less: Net income attributable to noncontrolling interest		(2,425	)		—
Net loss attributable to CarePayment Technologies, Inc.	$	(2,425	)	$	(209,671	)

Net loss per share
Basic and diluted	$	(0.00	)	$	(1.06	)
Weighted average number of shares outstanding
Basic and diluted		1,384,915			197,379

The accompanying notes are an integral part of these condensed consolidated financial statements.

CAREPAYMENT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31
	2010			2009
Cash Flows Provided by (Used In) Operating Activities:
Net income (loss)	$	—		$	(209,671	)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities:
Amortization of intangibles		137,167			—
Accretion of mandatorily redeemable preferred stock discount		91,346			—
Stock-based compensation		18,429			—
Common stock issued for services		—			1,001
Amortization of debt discount		—			32,940
Change in assets and liabilities:
Increase in assets:
Related party receivable		(557,666	)		—
Prepaid expenses		(36,080	)		(16,666	)
Increase in liabilities:
Accounts payable		356,512			—
Accrued interest		72,507			—
Accrued liabilities		175,193			30,076
Net cash provided by (used in) operating activities		257,408			(162,320	)

Cash Flows Provided By (Used In) Financing Activities:
Payments on notes payable		(303,500	)		—
Proceeds from revolving credit line		31,000			—
Payment on revolving credit line		(31,000	)		—
Proceeds from exercise of warrants		259			—
Proceeds from issue of notes payable to shareholders		—			100,000
Net cash provided by (used in) financing activities		(303,241	)		100,000

Change in cash		(45,833	)		(62,320	)
Cash, beginning of period		69,097			98,433
Cash, end of period	$	23,264		$	36,113

Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	196		$	—
Cash paid for income taxes	$	333		$	—

Supplemental Disclosure of Non-cash Financing Activities:
Warrants issued to lenders-recorded as debt discount	$	—		$	94,114
Refinance of accrued liability to note payable	$	—		$	101,834

The accompanying notes are an integral part of these condensed consolidated financial statements.

CAREPAYMENT TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Business

Overview

CarePayment Technologies, Inc. (formerly microHelix, Inc.) (“we,” “us,” “our,” “CarePayment” or the “Company”) was incorporated as an Oregon corporation in 1991. From inception until September 28, 2007, we manufactured custom cable assemblies and mechanical assemblies for the medical and commercial original equipment manufacturer (OEM) markets. We were experiencing considerable competition by late 2006 as our customers aggressively outsourced competing products from offshore suppliers. In the first quarter of 2007, a customer that accounted for over 30% of our revenues experienced a recall of one of its major products by the U.S. Food and Drug Administration. As a result the customer cancelled its orders with us, leaving us with large amounts of inventory on hand and significantly reduced revenue.

On May 31, 2007 we informed our three secured creditors, BFI Business Finance, VenCore Solution, LLC and MH Financial Associates, LLC ("MH Financial"), that we were unable to continue business operations due to continuing operating losses and a lack of working capital. At that time we voluntarily surrendered our assets to these secured creditors, following which we and our wholly owned subsidiary, Moore Electronics, Inc. ("Moore"), operated for the benefit of the secured creditors until September 2007, when we ceased manufacturing operations and became a shell company. MH Financial was, at that time, and currently is, an affiliate of ours due to its ownership of shares of our capital stock.

Following September 2007 and continuing until December 31, 2009, we had no operations. Our Board of Directors, however, determined to maintain us as a shell company to seek opportunities to acquire a business or assets sufficient to operate a business. To help facilitate our search for suitable business acquisition opportunities, among other goals, on June 27, 2008 we entered into an advisory services agreement with Aequitas Capital Management, Inc. (“Aequitas”) to provide us with strategy development, strategic planning, marketing, corporate development and other advisory services. In exchange for the services to be provided by Aequitas under that agreement, we issued to Aequitas warrants to purchase 106,667 shares of our Class A Common Stock at an exercise price of $0.01 per share.

Effective at the end of December 2009, we acquired certain assets and rights that enabled us to begin building a business that services accounts receivable for other parties. The assets and rights we acquired had been previously developed by Aequitas and its affiliate, CarePayment, LLC, under the CarePayment® brand for servicing accounts receivable generated by hospitals in connection with providing health care services to their patients. The assets and rights we acquired included the exclusive right to administer, service and collect patient accounts receivable generated by hospitals and purchased by CarePayment, LLC or its affiliates, and a proprietary software product that is used to manage the servicing. Typically CarePayment, LLC or one of its affiliates purchase patient accounts receivable from hospitals and then we administer, service and collect them on behalf of CarePayment, LLC for a fee. Although we intend to grow our business to include servicing of accounts receivable on behalf of other parties, currently CarePayment, LLC is our only customer.

To facilitate building the business, on December 30, 2009, we, Aequitas and CarePayment, LLC formed an Oregon limited liability company, CP Technologies LLC ("CP Technologies") (formerly WS Technologies LLC). We contributed shares of our newly authorized Series D Convertible Preferred Stock ("Series D Preferred") and warrants to purchase shares of our Class B Common Stock to CP Technologies. Aequitas and CarePayment, LLC contributed to CP Technologies the CarePayment® assets and rights described in the foregoing paragraph. CP Technologies then distributed the shares of Series D Preferred to Aequitas and CarePayment, LLC, and the warrants to purchase shares of Class B Common to CarePayment, LLC, to redeem all but half of one membership unit (a "Unit") held by each of them. Following these transactions, we own 99% of CP Technologies, and Aequitas and CarePayment, LLC each own 0.5% of CP Technologies as of December 31, 2009.

Aequitas and CarePayment, LLC are affiliates due to their common control by Aequitas Holdings, LLC (“Holdings”). Aequitas is a wholly owned subsidiary of Holdings. CarePayment, LLC is a wholly owned subsidiary of Aequitas Commercial Finance, LLC (“ACF”), which itself is a wholly owned subsidiary of Holdings. On December 30, 2009, prior to the contribution of assets, Holdings and its affiliates owned 13.1% of the Company’s common stock and controlled 46.3% of the Company on a fully diluted basis.

The Receivables Servicing Business

On January 1, 2010 and as a result of the transactions described above, CP Technologies began building a business to service hospital patient receivables for an affiliate of the Company, CarePayment, LLC.

Generally, a majority of a hospital's accounts receivable are paid by medical insurance, Medicare and Medicaid. The balance of accounts receivable due directly from the patient is not always a priority for many hospitals, due primarily to the effort and expense required to collect those balances from individuals. CarePayment, LLC, acting alone or through its affiliates, purchases patient receivables from hospitals. CP Technologies administers, services and collects the receivables; CarePayment, LLC maintains ownership of the receivables.

A patient whose health care receivable is acquired by CarePayment, LLC becomes a CarePayment® finance card customer and is issued a CarePayment® card, which has an initial outstanding balance equal to the receivable purchased by CarePayment, LLC. Balances due on the CarePayment ® card are generally payable over 25 months with no interest. From the customer's point of view, the CarePayment ® card functions much like a credit card even though CP Technologies advances no credit to the customer. In addition to servicing the receivables, CP Technologies also analyzes potential receivable acquisitions for CarePayment, LLC and recommends a course of action when it determines that collection efforts for existing receivables are no longer effective.

In exchange for its services, CP Technologies receives origination fees at the time CarePayment, LLC purchases and delivers receivables to CP Technologies for servicing, a monthly servicing fee based on the total principal amount of receivables being serviced, and a quarterly fee based upon a percentage of CarePayment, LLC's quarterly net income. CP Technologies’ servicing agreement with CarePayment, LLC includes additional compensation during the first six months of 2010 to cover the Company’s start up costs as it builds a receivables servicing business. This compensation is equal to the Company's actual monthly losses for the first quarter of 2010 and an amount equal to 50% of actual monthly losses for the second quarter of 2010. The Company received $873,371 of such compensation from CarePayment, LLC in the three-month period ended March 31, 2010.

CP Technologies contracts with various vendors to service the CarePayment® finance card product, send customer statements, accept payments, and transmit all transaction history back to CP Technologies. Since CP Technologies is responsible for the CarePayment® finance card's compliance with various laws and regulations relating to consumer credit, these vendors are selected for their specific expertise in such areas.

2. Summary of Significant Accounting Policies

Basis of presentation:

The unaudited condensed consolidated financial statements have been prepared by the management of CarePayment and in the opinion of management include all material adjustments (consisting of normal recurring accruals) which are necessary to present fairly the Company’s financial position and operating results for the periods indicated. The results of operations for the three months ended March 31, 2010 are not necessarily indicative of the results to be expected for the entire year ending December 31, 2010.

Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q pursuant to the rules and regulations of the SEC. These unaudited condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2009.

Estimates and assumptions:

The preparation of 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 of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of consolidation:

The consolidated financial statements include the accounts of CarePayment, its wholly owned subsidiary, Moore, and its 99% owned subsidiary, CP Technologies. All intercompany transactions have been eliminated.

Concentration of credit risk:

Receivables — The Company’s receivables are all with a related party. The Company does not anticipate any collection issues.

Revenue from one source — The Company currently generates all its revenue through one servicing agreement with a related party.

Cash and investments — The Company maintains its cash in bank accounts; at times, the balances in these accounts may exceed federally insured limits. The Company has not experienced any losses in such accounts.

Cash and cash equivalents:

Cash and cash equivalents are stated at cost, which approximates fair value, and include investments with maturities of three months or less at the date of acquisition. Cash and cash equivalents consist of bank deposits.

Property and equipment:

Property and equipment is comprised of servicing software which is stated at original estimated fair value, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful life of the software is 3 years. The Company evaluates long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Amortization expense was $41,667 for the three months ended March 31, 2010.

Servicing rights:

Servicing rights represent the fair value of the identifiable intangible asset associated with the acquisition of certain business assets. Effective January 1, 2010, the Company began to amortize the cost associated with this asset on a straight line basis over an estimated useful life of 25 years, which is based on the term of the servicing agreement that expires in 2034. The Company evaluates servicing rights for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable by analyzing the undiscounted and discounted future cash flows under the servicing agreement with CarePayment, LLC. Amortization expense was $95,500 for the three months ended March 31, 2010.

Revenue recognition:

The Company recognizes revenue in conjunction with a servicing agreement with CarePayment, LLC. The Company receives a servicing fee equal to 5% annually of total funded receivables being serviced and an origination fee equal to 6% of the original balance of newly generated funded receivables. The servicing agreement also provides that the Company receives 25% of CarePayment, LLC’s quarterly net income, adjusted for certain items. The Company recognizes revenue related to this agreement, which is evidence of an arrangement, at the time the services are rendered; the servicing fee is recognized as revenue monthly at 1/12 of the annual percent of the funded receivables being serviced for the month; the origination fee is recognized as revenue at the time CarePayment, LLC funds its purchased receivables and the Company assumes the responsibility for servicing these receivables; the 25% of CarePayment, LLC’s net income is recognized as revenue in the quarter that CarePayment, LLC records the net income. The collectability of the revenue recognized from these related party transactions is considered reasonably assured.

Cost of revenue:

Cost of revenue is comprised primarily of compensation and benefit costs for servicing employees, costs associated with outsourcing billing, collections and payment processing services, and amortization of servicing rights and servicing software.

Income taxes:

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities that are determined based on the differences between the financial statement bases and tax bases of assets and liabilities using enacted tax rates. A valuation allowance is recorded to reduce a deferred tax asset to that portion of the deferred tax asset that is expected to more likely than not be realized.

The Company reports a liability, if any, for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties, if any, are recorded as a component of interest expense and other expense, respectively. No liability has been recorded for uncertain tax positions, or related interest or penalties as of March 31, 2010 and December 31, 2009. Tax years that remain subject to examination by federal and state authorities are the years ended 2006 through 2009.

Stock-based compensation:

Stock-based compensation cost is estimated at the grant date based on the award’s fair value and is recognized as expense over the requisite service period using the straight-line attribution method. Stock-based compensation for stock options granted is estimated using the Black-Scholes option pricing model.

Warrants to purchase the Company’s stock:

The fair value of warrants to purchase the Company’s stock issued for services or in exchange for assets is estimated at the issue date using the Black-Scholes model.

Earnings (loss) per common share:

Basic earnings (loss) per common share, (“EPS”), is calculated by dividing net income (loss) attributable to the Company by the weighted average number of shares of common stock outstanding during the period. Fully diluted EPS assumes the conversion of all potentially dilutive securities and is calculated by dividing net income by the sum of the weighted average number of shares of common stock outstanding plus potentially dilutive securities determined using the treasury stock method. Dilutive loss per share does not consider the impact of potentially dilutive securities in periods in which there is a loss because the inclusion of the potentially dilutive securities would have an anti-dilutive effect.

Comprehensive income (loss):

The Company has no components of Other Comprehensive Income (Loss) and, accordingly, no statement of Comprehensive Income (Loss) is included in the accompanying Condensed Consolidated Financial Statements

Operating segments and reporting units:

The Company operates as a single business segment and reporting unit.

Recently adopted accounting standards:

In February 2010, the Financial Accounting Standards Board (“FASB”) issued amended guidance on subsequent events. Under this amended guidance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted these new requirements for the period ended March 31, 2010.

Recently issued accounting standards:

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires disclosure of transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy, including the reasons and the timing of the transfers and information on purchases, sales, issuance, and settlements on a gross basis in the reconciliation of the assets and liabilities measured under Level 3 of the fair value measurement hierarchy. This guidance is effective for the Company beginning January 1, 2011. The Company does not expect the adoption of this guidance will have an impact on its consolidated financial position or results of operations.

3. Notes Payable

A summary of the Company's notes payable outstanding as of March 31, 2010 and December 31, 2009 is as follows:

	2010			2009
MH Financial Associates, LLC	$	874,243		$	977,743
Aequitas Capital Management, Inc.		94,190			294,190
Other		10,532			10,532
Total Notes Payable		978,965			1,282,465
Current maturities		(94,190	)		(294,190	)
Notes Payable, less current maturities	$	884,775		$	988,275

On June 27, 2008, the Company refinanced a promissory note payable to MH Financial by issuing a note payable (the”Note”) in the amount of $977,743. The loan amount included $477,743 that was owed to MH Financial as of June 27, 2008 and an additional loan of up to $500,000. The Company was advanced $200,000 on June 27, 2008, $100,000 on December 31, 2008, $100,000 on February 27, 2009, and $100,000 on November 6, 2009. Effective as of the date of this refinance, interest accrued on the outstanding principal balance of the loan at a rate of 20% per annum. The original due date of the Note was December 27, 2008 and, as a condition of the December 31, 2008 advance, the due date was extended to December 31, 2009. On December 31, 2009, the Company was granted a note extension to December 31, 2011, at which time all unpaid interest and principal are due. In addition, the interest rate on the principal amount outstanding under the Note decreases from 20% to 8% per annum after the Company makes principal payments totaling $400,000. As of March 31, 2010, the Company has made principal payments of $103,500; the interest rate on the loan will decrease after the Company makes additional principal payments of $296,500. The note continues to be secured by substantially all of the assets of the Company.

On December 31, 2008, the Company entered into a multiple advance promissory note payable to Aequitas. The note is a multiple advance note, with a maximum advance amount of $360,000. Effective December 31, 2009, there will be no additional advances made under the note and the note was amended and was modified to reflect modified payment and maturity date information. The maturity date was further extended on March 31, 2010 to be September 30, 2010. Under these modified terms all amounts outstanding under this note are due and payable on the earliest of the following: (a) September 30, 2010; (b) the closing of a loan or other financing provided to the Company by a senior lender or other source in an amount sufficient to pay off this note; (c) the closing of a private investment in public equity financing and/or any other financing event with gross proceeds to the Company in excess of $1,000,000; provided, however, that after the occurrence of an event of default under the note, the outstanding principal and all accrued interest will be payable on demand. Unless otherwise agreed or required by applicable law, payments will be applied first to expenses for which the Company is liable under the note (including unpaid collection costs and late charges), next to accrued and unpaid interest, and the balance to principal. In addition, the outstanding principal balance and all accrued and unpaid interest will be due and payable in the event of (x) a sale of all or substantially all of the assets of the Company, or (y) the transfer of ownership or beneficial interest, by merger or otherwise, of 50% or more of the stock of the Company.

On January 15, 2010, CarePayment entered into agreements pursuant to which it could borrow up to a maximum of $500,000 from ACF, an affiliate of Aequitas. The Company was advanced $31,000 on January 14, 2010, which was repaid on February 12, 2010. As of March 31, 2010, there are no outstanding advances under these agreements with ACF. These agreements expired on March 31, 2010.

4. Mandatorily Redeemable Convertible Preferred Stock

On December 30, 2009, the Company issued 1,000,000 shares of Series D Preferred in connection with the transactions described in Note 1 above. Holders of the Series D Preferred receive a preferred dividend of $0.50 per share per annum, when and if declared by our Board of Directors, and a liquidation preference of $10 per share, plus cumulative unpaid dividends. The Company may redeem all of the Series D Preferred at any time upon 30 days' prior written notice, and is required to redeem all of the Series D Preferred in January 2013 at a purchase price equal to the liquidation preference in effect on January 1, 2013. If the Company is unable to redeem the Series D Preferred with cash or other immediately available funds for any reason, the holders of Series D Preferred will have the right to exchange all shares of Series D Preferred for an aggregate 99% ownership interest in CP Technologies.

The fair value of the Series D Preferred was determined using a dividend discount model assuming a 9% discount rate and that the cumulative dividends of $0.50 per share will be accrued and received at the mandatory redemption date (Level 3 inputs in the fair value hierarchy). The resulting fair value of the 1,000,000 shares of Series D Preferred issued on December 30, 2009 was $8,805,140.

The difference between the fair value of the Series D Preferred at December 31, 2009 of $8,805,140 and the redemption value of $10,000,000 will be accreted to interest expense over the period to redemption in January 2013 using the level yield method. The carrying value at March 31, 2010 is $8,896,486.

5. Shareholders’ Deficit

Preferred Stock:

As of April 1, 2010, the Company's Certificate of Designation for Series D Preferred was amended by adding a provision allowing for the conversion of the Series D Preferred at any time after one year after its issuance. Each share of Series D Preferred Stock is convertible into such number of fully paid and nonassessable shares of Class A Common Stock of the Company as is determined by dividing the amount of $10.00 per share (as adjusted for stock splits, stock dividends, reclassification and the like with respect to the Series D Preferred) by the Conversion Price (defined in the following sentence) applicable to such share in effect on the date the certificate is surrendered for conversion. The Conversion Price per share of Series D Preferred is 80% of the volume weighted average price of the Class A Common Stock; provided, however, that in no event will the Conversion Price be less than $1.00 per share.

Effective April 15, 2010, the Company sold 200,000 shares of Series D Preferred for aggregate consideration of $2,000,000, which was paid pursuant to a promissory note that accrues interest at 5% per annum and is due in full on or before April 15, 2011 (See Note 13).

Stock Warrants:

As of March 31, 2010, the Company had 4,417 warrants outstanding for Class A Common Stock and 6,510,092 warrants outstanding for Class B Common Stock which are exercisable as follows:

Warrants			Exercise Price		Expiration Date
	3,189	(1)	$	37.50	April 2015
	487	(1)	$	72.00	June 2016
	667	(1)	$	75.00	July 2011
	74	(1)	$	4,077.00	March 2012
	6,510,092	(2)	$	0.01	December 31, 2014

(1)

Warrants are exercisable for Class A Common Stock

(2)

Warrants are exercisable for Class B Common Stock. The Warrants were exercised in full on April 2, 2010 (See Note 13).

Warrants for 7,330 shares of Class A Common Stock were exercised on March 11, 2010, resulting in $259 proceeds to the Company.

On April 15, 2010, the Company issued warrants for the purchase of up to 1,200,000 shares of the Company's Class A Common Stock at an exercise price of $0.001 per share (See Note 13).

Common Stock:

At the annual meeting of the shareholders held on March 31, 2010, the Company's shareholders voted to amend the Company’s Articles of Incorporation to effect a reverse stock split (“Reverse Stock Split”) of the Company's common stock. Pursuant to the Reverse Stock Split, each ten shares of Common Stock issued and outstanding immediately prior to the Reverse Stock Split were combined and reclassified as one share of fully paid and nonassessable common stock.

At the same annual meeting of the shareholders on March 31, 2010, the Company's shareholders also voted to amend the Company’s Articles of Incorpration to create two classes of common stock, Class A Common Stock and Class B Common Stock. The Articles authorize 75 million shares of common stock, of which 65 million shares are designated as Class A Common Stock and 10 million shares are designated as Class B Common Stock. Holders of Class A Common Stock are entitled to one vote per share, and holders of Class B Common Stock are entitled to ten votes per share, on any matter submitted to the shareholders. Effective immediately after the Reverse Stock Split, each share of common stock outstanding was automatically converted into one share of Class A Common Stock.

The condensed consolidated financial statements and notes thereto have been retroactively restated to reflect the Reverse Stock Split and such conversion for all periods presented.

6. Revenue

Fees Revenue

The Company recognizes revenue in conjunction with a servicing agreement with CarePayment, LLC. CarePayment, LLC pays the Company a servicing fee equal to 5% annually of total funded receivables being serviced, an origination fee equal to 6% of the original balance of newly generated funded receivables, and a “back end fee” based on 25% of CarePayment, LLC’s quarterly net income, adjusted for certain items. The Company recognized revenue related to this servicing agreement of $1,304,717 for the three months ended March 31, 2010.

7. Other Income (Expense)

Loss Reimbursement

The Company’s servicing agreement with CarePayment, LLC provides for CarePayment, LLC to pay additional compensation equal to the Company’s actual monthly losses for the first quarter of 2010 and an amount equal to 50% of actual monthly losses for the second quarter of 2010. This additional compensation is intended to reimburse the Company for transition costs that are not specifically identifiable. For the three months ended March 31, 2010, the Company recorded this loss reimbursement of $873,371 as other income.

Interest Expense

Interest expense of $164,049 for the three months ended March 31, 2010 includes $91,346 of accretion of the discount on the mandatorily redeemable preferred stock (See Note 4). Interest expense of $77,770 for the three months ended March 31, 2009 includes $32,940 of amortization of debt discount.

8. Earnings (Loss) per Common Share

The shares used in the computation of the Company’s basic and diluted loss per common share are reconciled as follows:

	Three Months Ended March 31
	2010			2009

Weighted average basic common shares outstanding		1,384,915			197,379
Dilutive effect of convertible preferred stock		(1	)		(2	)
Dilutive effect of warrants		(1	)		(2	)
Dilutive effect of employee stock options		(1	)		—
Weighted average diluted common shares outstanding		1,384,915			197,379

(1)

Common stock equivalents outstanding for the three months ended March 31, 2010 excluded in the computation of diluted EPS because their effect would be anti-dilutive as a result of applying the treasury stock method are: warrants to purchase 6,510,092 shares of Class B Common Stock, warrants to purchase 4,417 shares of Class A Common Stock, 1 million shares of Series D Preferred Stock convertible to purchase 1,000,000 shares of Class A Common Stock, and stock options to purchase 787,030 shares of Class A Common Stock.

(2)

Common stock equivalents outstanding for the three months ended March 31, 2009 excluded in the computation of diluted EPS because their effect would be anti-dilutive as a result of applying the treasury stock method are: warrants to purchase 1,072,414 shares of Class A Common Stock and Series C Preferred Stock convertible to purchase 18,605 shares of Class A Common Stock.

9. Employee Benefit Plans

Stock Incentive Plan

In February 2010, the Company adopted the 2010 Stock Option Plan (the "Plan") pursuant to which the Company may grant restricted stock and stock options for the benefit of selected employees and directors. The Plan authorized grants of 878,338 shares of Class A Common Stock. Grants are issued at prices equal to the estimated fair market value of the stock as defined in the Plan on the date of the grant, vest over various terms (generally three years), and expire ten years from the date of the grant. The Plan allows vesting based upon performance criteria; all current grants outstanding are time-based vesting instruments. Certain option and share awards provide for accelerated vesting if there is a change in control of the Company (as defined in the Plan). The fair value of share based options granted is calculated using the Black-Scholes option pricing model. A total of 91,308 shares of Class A Common Stock remained reserved for issuance under the Plan at March 31, 2010.

The Company accounts for stock-based compensation by estimating the fair value of options granted using a Black-Scholes option valuation model. The Company recognizes the expense for grants of stock options on a straight-line basis in the statement of operations as operating expense based on their fair value over the requisite service period.

For stock options issued in February 2010, the following assumptions were used:

Expected life (in years)		5.5
Expected volatility		40.90	%
Risk-free interest rate		2.58	%
Expected dividend		—
Weighted average fair value per share	$	0.061

Expected volatilities are based on historic volatilities from traded shares of a selected publicly traded peer group. Historic volatility has been calculated using the previous two years’ daily share closing price of the index companies. The Company has no historical data to estimate forfeitures. The expected term of options granted is the safe harbor period approved by the Securities and Exchange Commission using the vesting period and the contract life as factors. The risk-free rate for periods matching the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of option activity under the Plan as of March 31, 2010 and changes during the three months ended is presented below:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
Options outstanding at December 31, 2009		—
Granted		787,030	$	0.20
Cancelled		—
Exercised		—
Options outstanding at March 31, 2010		787,030	$	0.20		9.9	$	2,991
Options exercisable at March 31, 2010		262,343	$	0.20		9.9	$	997

The Company recorded compensation expense for the estimated fair value of options issued of $18,429 for the three months ended March 31, 2010. As of March 31, 2010, the Company had $29,580 of unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. The unamortized cost is expected to be recognized over a weighted-average period of 1.9 years.

401(k) Savings Plan

Employees of the Company are eligible to participate in a 401(k) Savings Plan. The Company matches 100% of the first 3% of eligible compensation and 50% of the next 2% of eligible compensation that employees contribute to the plan; the Company’s matching contributions vest immediately. The Company recorded expense of $11,051 for the three months ended March 31, 2010.

10. Commitments and Contingencies

Operating Leases:

The Company and its subsidiaries lease office space and personal property used in their operations from Aequitas, an affiliate of the Company. At March 31, 2010, the Company's aggregate future minimum payments for operating leases with the affiliate having initial or non-cancelable lease terms greater than one year are payable as follows:

Year	Required Minimum Payment
2010	$	168,000
2011	$	229,000
2012	$	233,000
2013	$	238,000
2014	$	202,000

For the three months ended March 31, 2010 and 2009, the Company incurred rent expense of $56,058 and $15,000, respectively.

Off-Balance Sheet Arrangements:

The Company does not have any off-balance sheet arrangements.

Litigation:

From time to time the Company may become involved in ordinary, routine or regulatory legal proceedings incidental to the Company’s business. The Company is not engaged in any legal proceedings nor is the Company aware of any pending or threatened legal proceedings that, singly or in the aggregate, could have a material adverse effect on the Company.

11. Fair Value Measures

Fair Value:

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Level 1 –

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2 –

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 –

Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Fair Value of Financial Instruments:

The carrying value of the Company's cash and cash equivalents, related party receivable, accounts payable and other accrued liabilities approximate their fair values due to the relatively short maturities of those instruments.

The fair value of the Company’s mandatorily redeemable Series D Preferred issued on December 30, 2009 (Note 4), was determined using a discounted cash flow on December 31, 2009; the assumptions used in the fair value calculation at December 31, 2009 would be the same at March 31, 2010. The difference between the fair value at issue date and the redemption value is being accreted into expense over the period to redemption in January 2013 using the level yield method. The carrying value of the Series D Preferred at March 31, 2010 is $8,896,486, which approximates fair value.

The fair value of the notes payable was calculated using our estimated borrowing rate for similar types of borrowing arrangements for the periods ended March 31, 2010 and December 31, 2009. The Company’s estimated borrowing rate has not changed; therefore, the carrying amounts reflected in the unaudited condensed consolidated balance sheets for notes payable approximate fair value.

12. Related-Party Transactions

Effective January 1, 2010, Aequitas began providing CP Technologies certain management support services such as accounting, financial, human resources and information technology services, under the terms of the Administrative Services Agreement dated December 31, 2009. The total fee for the services is approximately $65,100 per month. The fees will increase by 3% on January 1 of each year, beginning January 1, 2011. Either party may change the services (including terminating a particular service) upon 180 days prior written notice to the other party, and the Administrative Services Agreement is terminable by either party on 180 days notice. The Company paid fees under the Administrative Services Agreement to Aequitas of $195,300 for the three months ended March 31, 2010, which are included in sales, general and administrative expense.

Under the terms of the Sublease dated December 31, 2009 between CP Technologies and Aequitas, CP Technologies leases certain office space and personal property from Aequitas pursuant to the Sublease. The rent for the real property is $12,424 per month, and will increase by 3% each year beginning January 1, 2011. The rent for the personal property is $6,262 per month, and CP Technologies also pays all personal property taxes related to the personal property it uses under the Sublease. The Company paid fees under the Sublease to Aequitas of $56,058 for the three months ended March 31, 2010, which are included in sales, general and administrative expense.

Effective on December 31, 2009, the Company and Aequitas entered into an amended and restated Advisory Agreement (“Advisory Agreement”). Under the terms of the Advisory Agreement, Aequitas provides services to the Company relating to strategy development, strategic planning, marketing, corporate development and such other advisory services as the Company reasonably requests from time to time. The Company pays Aequitas a monthly fee of $15,000 for such services. In addition, Aequitas will receive a success fee in the event of certain transactions entered into by the Company. The Company paid fees under the Advisory Agreement to Aequitas of $45,000 for the three months ended March 31, 2010, which are included in sales, general and administrative expense.

Effective December 31, 2009, a Royalty Agreement was entered into between CP Technologies and Aequitas, whereby CP Technologies pays Aequitas a royalty based on new products (the "Products") developed by CP Technologies or its affiliates or co-developed by CP Technologies or its affiliates, and Aequitas or its affiliates and that are based on or use the Software. The royalty is calculated as either (i) 1.0% of the net revenue received by CP Technologies or its affiliates and generated by the Products that utilize funding provided by Aequitas or its affiliates, or (ii) 7.0% of the face amount, or such other percentage as the parties may agree, of receivables serviced by CP Technologies or its affiliates that do not utilize such funding. No fees were paid under the Royalty Agreement to Aequitas for the three months ended March 31, 2010.

Beginning January 1, 2010, the Company recognized revenue in conjunction with a servicing agreement with CarePayment, LLC. CarePayment, LLC pays the Company a servicing fee based on the total funded receivables being serviced, an origination fee on newly generated funded receivables, and a “back end fee” based on CarePayment, LLC’s quarterly net income, adjusted for certain items. The Company received fee revenue under this agreement of $1,304,717 for the three months ended March 31, 2010.

CarePayment, LLC also paid the Company additional compensation equal to the Company’s actual monthly losses for the first quarter of 2010. The Company received $873,371 under this agreement for the first three months ended March 31, 2010 (See Note 7).

The Company issued a note payable to MH Financial as described in Notes 1 and 3. The Company recorded interest expense on the note payable to MH Financial of $61,811 and $38,145 for the three months ended March 31, 2010 and 2009, respectively. The Company also recorded interest expense on the note payable to Aequitas of $10,696 and $6,592 for the three months ended March 31, 2010 and 2009, respectively. The Company paid $196 of interest expense to ACF, an affiliate of Aequitas, for the three months ended March 31, 2010.

As of March 31, 2010, the Company had a receivable of $557,666, due from CarePayment, LLC. The Company had accrued interest payable to MH Financial of $344,523 and $282,711 as of March 31, 2010 and December 31, 2009, respectively. Additionally, the Company had accrued interest payable to Aequitas of $52,066 and $41,371 as of March 31, 2010 and December 31, 2009.

13. Subsequent Events

On April 15, 2010, the Company sold 200,000 shares of Series D Preferred to Aequitas CarePayment Founders Fund, LLC (“Founders Fund”) for a purchase price of $10.00 per share. The Company received a promissory note from Founders Fund for $2,000,000 which bears interest at 5% per annum and is due April 15, 2011. In connection with the sale of the Series D Preferred, effective April 15, 2010, and for no additional consideration, the Company issued a warrant to Founders Fund to purchase up to 1,200,000 shares of the Company's Class A Common Stock at an exercise price of $0.001 per share. The warrant expires on April 15, 2015.

In connection with the formation of CP Technologies, the Company contributed to CP Technologies 1,000,000 shares of its Series D Preferred, and warrants to purchase 65,100,917 shares of Class B Common Stock of the Company at an exercise price of $0.001 per share in exchange for Units representing a 50% ownership interest in CP Technologies (See Notes 1 and 4). On December 31, 2009, CP Technologies redeemed from Aequitas and CarePayment, LLC all but one half Unit each of their CP Technologies ownership Units in exchange for all of the Company’s Series D Preferred and the Warrants that were held by CP Technologies, resulting in the Company owning 99% of CP Technologies. On March 31, 2010 the Company's shareholders approved a 1-for-10 reverse stock split of the Company's Common Stock, with the result that the Warrants became exercisable for 6,510,092 shares of Class B Common Stock at an exercise price of $0.01 per share. The Warrants were exercised in full on April 2, 2010 by Aequitas Holdings, LLC, an affiliate of and as the assignee of CarePayment, LLC resulting in $65,101 proceeds to the Company.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information that management believes is relevant to an assessment and understanding of the Company's operations and financial condition. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Such statements reflect management's current view and estimates of future economic and market circumstances, industry conditions, company performance and financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are subject to risks and uncertainties that could cause our future results to differ materially from the results discussed herein. Factors that might cause such a difference include, but are not limited to, those discussed elsewhere in this Quarterly Report on Form 10-Q. We do not intend, and undertake no obligation, to update any such forward-looking statements to reflect events or circumstances that occur after the date of this filing.

Overview

Effective at the end of December 2009, we acquired certain assets and rights that enabled us to begin building a business that services accounts receivable for other parties. The assets and rights we acquired had been previously developed by Aequitas and its affiliate, CarePayment, LLC, under the CarePayment® brand for servicing accounts receivable generated by hospitals in connection with providing health care services to their patients. The assets and rights we acquired included the exclusive right to administer, service and collect patient accounts receivables generated by hospitals and purchased by CarePayment, LLC or its affiliates, and a proprietary software product that is used to manage the servicing. Typically CarePayment, LLC or one of its affiliates purchase patient accounts receivable from hospitals and then we administer, service and collect them on behalf of CarePayment, LLC for a fee. Although we intend to grow our business to include servicing of accounts receivable on behalf of other parties, currently CarePayment, LLC is our only customer.

Following the transactions described above, our current corporate structure and relationships with certain affiliates are depicted in the following diagram:

•

Aequitas controls approximately 46% of the issued and outstanding shares of the Company’s Class A Common Stock on a fully diluted basis.

The Receivables Servicing Business

A patient whose health care receivable is acquired by CarePayment, LLC becomes a CarePayment® finance card customer and is issued a CarePayment® card, which has an initial outstanding balance equal to the receivable purchased by CarePayment, LLC. Balances due on the CarePayment® card are generally payable over 25 months with no interest. From the customer's point of view, the CarePayment® card functions much like a credit card even though CP Technologies advances no credit to the customer. In addition to servicing the receivables, CP Technologies also analyzes potential receivable acquisitions for CarePayment, LLC and recommends a course of action when it determines that collection efforts for existing receivables are no longer effective.

In exchange for its services, CP Technologies receives origination fees at the time CarePayment, LLC purchases and delivers receivables to CP Technologies for servicing, a monthly servicing fee based on the total principal amount of receivables being serviced, and a quarterly fee based upon a percentage of CarePayment, LLC's quarterly net income. CP Technologies' servicing agreement with CarePayment, LLC includes additional compensation during the first six months of 2010 to cover the Company’s start up costs as it builds a receivables servicing business. This compensation is equal to the Company's actual monthly losses for the first quarter of 2010 and an amount equal to 50% of actual monthly losses for the second quarter of 2010. The Company received $873,371 of such compensation from CarePayment, LLC in the three months ended March 31, 2010.

Other

Currently, shares of our Class A Common Stock trade on the Pink Sheets under the symbol CPYT.PK.

As of August 2010, no class of our securities is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and we are not subject to the information requirements of the Exchange Act. For additional information, see the Explanatory Notes in our amendment to our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2009. On April 30, 2010, we filed a Form 10 with the Securities and Exchange Commission (the "SEC") to register our Class A Common Stock under Section 12(g) of the Exchange Act. We voluntarily withdrew the Form 10 on June 16, 2010 while we respond to comments to the Form 10 that we received from the staff of the SEC. We intend to re-file the Form 10, but cannot predict when we will do so or, once re-filed, when the registration will be declared effective.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company's consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. The Company based the estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which formed the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

The Company believes the critical accounting policy and related judgments and estimates identified in Note 2 to the Condensed Consolidated Financial Statements (Unaudited) contained in this Report affect the preparation of the Company's consolidated financial statements.

RESULTS OF OPERATIONS

The following discussion should be read in the context of the above overview and the notes to the Condensed Consolidated Financial Statements (Unaudited) contained in this Report.

THREE MONTHS ENDED MARCH 31, 2010 AND 2009

Revenues:

The Company had no revenue in 2009. As of January 1, 2010, the Company began recognizing revenue in conjunction with a servicing agreement with its affiliate, CarePayment, LLC. CarePayment, LLC pays the Company a servicing fee equal to 5% annually of total funded receivables being serviced, an origination fee equal to 6% of the original balance of newly generated funded receivables, and a “back end fee” based on 25% of CarePayment, LLC’s quarterly net income, adjusted for certain items. The Company recorded fee revenues of $1,304,717 in the first three months of operations, which were comprised of $408,448 of servicing fees, $896,269 of origination fees and no “back end fees.”

Cost of Revenues:

Cost of revenue is comprised primarily of compensation and benefit costs for servicing employees, costs associated with outsourcing billing, collection and payment processing servicing, and the amortization of the servicing rights and servicing software. For the three months ended March 31, 2010, compensation expense was $303,784, outsourced processing and collections services were $679,530, and amortization expense was $137,167. Outsourced services from four primary vendors include hosting and maintenance of cardholder accounts including all customer transaction processing, collection and mailing services, card processing and customer service administration,

Operating Expenses:

Operating expenses for the three months ended March 31, 2010 were $890,224 as compared to $131,901 for the same period in 2009. The sales, general and administrative expenses for the three months ended March 31, 2010 related to the servicing operations which began on January 1, 2010, while the expense for the same period in 2009 related to managing a shell company and preparing filings of reports with the SEC.

Operating expenses for the three months ended March 31, 2010 were comprised of the following: sales and marketing expense of approximately $291,000; legal, consulting and other professional fees of approximately $179,000; executive compensation of approximately $106,000; related party agreements with Aequitas for office and equipment lease expense of $56,000, accounting services of $195,000 and advisory services of $45,000; and general office expense of approximately $18,000.

Other Income (Expense):

Loss reimbursement – The Company’s servicing agreement with CarePayment, LLC provides for CarePayment, LLC to pay additional compensation equal to the Company’s actual monthly losses for the first quarter of 2010 and an amount equal to 50% of actual monthly losses for the second quarter of 2010. This additional compensation is intended to reimburse the Company for transition costs that are not specifically identifiable. For the three months ended March 31, 2010, the Company recorded a loss reimbursement of $873,371 as other income.

Interest expense – Interest expense of $164,049 for the three months ended March 31, 2010 includes $91,346 of the accreted discount on the Series D Preferred. See Note 4 to the Condensed Consolidated Financial Statements (Unaudited) contained in this Report. Interest expense of $77,770 for the three months ended March 31, 2009 includes $32,940 of warrant discount expense.

Net Income:

Net income for the three months ended March 31, 2010 was $0 as the result of the loss reimbursement agreement whereby CarePayment, LLC reimbursed the Company for its losses of $873,371 for the first quarter of 2010. The loss reimbursement, which is compensation for additional responsibilities under the agreement for the Company to transition the servicing operations for the existing outstanding accounts from the previous servicing company, is recorded as other income.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2010, the Company had $23,264 of cash. Cash provided by operating activities during the three-month period ended March 31, 2010 was $257,408 compared to cash used in operating activities of $162,320 in the same period a year ago. Cash provided from operating activities during the first three months of 2010 included net income of $0 adjusted for amortization of $137,167, interest expense related to the accretion of the discount on the mandatorily redeemable Series D Preferred Stock of $91,346, $18,429 of stock-based compensation expense, and $10,466 related to the net change in assets and liabilities.

For the three months ended March 31, 2010, the Company used $303,241 for financing activities as compared to $100,000 of cash provided by financing activities during the first three months of 2009. The primary use of cash for financing activities for the three month period ending March 31, 2010 was $303,500 for repayment on notes payable.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

Attached as exhibits to this Quarterly Report on Form 10-Q are certifications (the "Certifications") of the Company's principal executive officer and principal financial officer, which are required pursuant to Rule 13a-14 of the Exchange Act. This Item 4 includes information concerning the controls and controls evaluation referenced in the Certifications. This Item 4 should be read in conjunction with the Certifications for a more complete understanding of the matters presented.

The Company’s Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of March 31, 2010.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not designed at a reasonable assurance level nor are they effective to give reasonable assurance that the information the Company must disclose in reports filed with the Securities and Exchange Commission are properly recorded, processed, summarized, and reported as required, and that such information is not accumulated and communicated to our management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

The Company restarted operations on January 1, 2010 and has not had sufficient time or financial resources to design and implement adequate disclosure controls and procedures. The Company is in the process of doing so, and anticipates that it will complete these activities during 2010.

There were no changes to the Company’s internal controls during the three months ended March 31, 2010.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company may become involved in ordinary, routine, or regulatory legal proceedings incidental to the Company’s business. As of the date of this Report, the Company is not engaged in any legal proceedings nor is the Company aware of any pending or threatened legal proceedings that, singly or in the aggregate, could have a material adverse effect on the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On March 11, 2010, warrants were exercised for the purchase of 7,330 shares of Class A Common Stock, resulting in net proceeds for the Company of $259.

ITEM 6. EXHIBITS

(a) Exhibits:

3.1(1)		Second Amended and Restated Articles of Incorporation of CarePayment Technologies, Inc
3.2(2)		Amended and Restated Bylaws of CarePayment Technologies, Inc.
31.1(2)		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2(2)		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1(2)		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2(2)		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to the Company's Form 8-K filed on April 6, 2010.

(2) Filed herewith.

SIGNATURE

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.

	CAREPAYMENT TECHNOLOGIES, INC.
Dated: December 22, 2010	(Registrant)

	/s/ PATRICIA J. BROWN
	Patricia J. Brown
	Chief Financial Officer

Attached files

CarePayment Technologies, Inc. Reports

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