CarePayment Technologies, Inc. - FORM 10-K/A - March 1, 2011

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EX-10.1 - CarePayment Technologies, Inc.v210025_ex10-1.htm
EX-31.1 - CarePayment Technologies, Inc.v210025_ex31-1.htm
EX-10.8 - CarePayment Technologies, Inc.v210025_ex10-8.htm
EX-10.9 - CarePayment Technologies, Inc.v210025_ex10-9.htm
EX-10.7 - CarePayment Technologies, Inc.v210025_ex10-7.htm
EX-10.4 - CarePayment Technologies, Inc.v210025_ex10-4.htm
EX-31.2 - CarePayment Technologies, Inc.v210025_ex31-2.htm
EX-32.2 - CarePayment Technologies, Inc.v210025_ex32-2.htm
EX-10.6 - CarePayment Technologies, Inc.v210025_ex10-6.htm
EX-10.2 - CarePayment Technologies, Inc.v210025_ex10-2.htm
EX-10.5 - CarePayment Technologies, Inc.v210025_ex10-5.htm
EX-32.1 - CarePayment Technologies, Inc.v210025_ex32-1.htm
EX-10.3 - CarePayment Technologies, Inc.v210025_ex10-3.htm
EX-10.10 - CarePayment Technologies, Inc.v210025_ex10-10.htm
EX-10.11 - CarePayment Technologies, Inc.v210025_ex10-11.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 2)

R
ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

£
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 Incorporation or
Organization)
(I.R.S. Employer Identification No.)
   
5300 Meadows, Suite 400, Lake Oswego,
Oregon
97035
(Address of Principal Executive Offices)
(Zip Code)

(Issuer's Telephone Number, Including Area Code): (503) 419-3505

Securities registered under Section 12(g) of the Exchange Act:  None

Securities registered under Section 12(b) of the Exchange Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes £ No R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Yes £ No R

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 R No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained in this form, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendments to this Form 10-K.  þ

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

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

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates, as of December 31, 2009, was approximately $18,277 based upon the last sale price reported for such date on the NASDAQ OTC Market.

There were 1,383,286 shares of the issuer's Common Stock outstanding as of March 5, 2010.

Transitional Small Business Disclosure Format: Yes £ No R

 
 
 
 
EXPLANATORY NOTES

Amendment to Annual Report. This Amendment No. 2 (this "Second Amendment") on Form 10-K/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 Amendment No. 1 on Form 10-K/A filed with the SEC on December 21, 2010 (the "First Amendment"), which amended and restated the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as originally filed with the SEC on March 31, 2010 (the "Original Form 10-K" and together with the First Amendment and the Second Amendment, this "Report").  In addition to the other changes discussed elsewhere in these Explanatory Notes, this Second Amendment:  (a) amends and restates Item 1A of Part I of the First Amendment to include two additional risk factors, (b) amends and restates Item 13 of Part III of the First Amendment to provide additional disclosure and clarification and (c) files additional exhibits and re-files certain exhibits to the First Amendment to include attachments originally omitted from those exhibits.

All of the Registrant's securities, other than its Class A Warrants, were deregistered under Section 12(b) of the Exchange Act during 2002 or 2005.  The Registrant's Class A Warrants were overlooked and were not deregistered until August 2010.  None of the Registrant's Class A Warrants were ever exercised and they expired by their terms in November 2003.  For additional information, see the Explanatory Note entitled "Potential Liability Regarding Exchange Act Reporting Deficiencies" in the First Amendment. The cover page of this Second Amendment has been revised to reflect that the Registrant no longer has a class of Securities registered under either Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

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

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

Amendments to Articles of Incorporation. On April 1, 2010, the Registrant filed Second Amended and Restated Articles of Incorporation (the "Restated Articles") with the Oregon Secretary of State.  Among other things, the Restated Articles:  (a) changed the name of the Registrant from "microHelix, Inc." to "CarePayment Technologies, Inc.", (b) authorized two classes of common stock, Class A Common Stock and Class B Common Stock and (c) included an Amended and Restated Certificate of Designation designating 1,200,000 shares of preferred stock as Series D Convertible Preferred Stock (the "Series D Preferred").  The information set forth herein reflects these changes to the Registrant's name and capital stock.  Additionally, WS Technologies LLC changed its name to "CP Technologies LLC" effective April 22, 2010, and the information set forth herein reflects this name change.  For additional information regarding the Restated Articles, see the Registrant's Current Report on Form 8-K, which was filed with the SEC on April 6, 2010.

 
 
 
 
PART I
 
Item 1A.  Risk Factors

The Company is subject to various risks that could have a material adverse effect on it, including without limitation the following:

We are dependent on the performance of a single subsidiary and line of business.

The Company's only operating assets are held by its subsidiary CP Technologies, which itself has only one line of business.  We have no significant assets or financial resources other than CP Technologies.

The Company has a limited operating history in its current business.

Prior to January 1, 2010, the Company had never operated a hospital receivables servicing business. Our business plan must be considered in light of the risks, expenses and problems frequently encountered by companies in their early stages of development.  Specifically, such risks include a failure to anticipate and adapt to a developing market and an inability to attract, retain and motivate qualified personnel.  There can be no assurance that the Company will be successful in addressing such risks.  To the extent that we are not successful in addressing these risks, our business, results of operations and financial condition will be materially and adversely affected.  There can be no assurance that the Company will ever achieve or sustain profitability.

The provision of hospital receivables servicing is a new business for the Company.  We have no experience in such a business.  Although we hired certain employees from Aequitas who have previously provided such services to CarePayment, there is no assurance that we will be able to provide satisfactory services to CarePayment through such employees, or such other employees or contractors as we may retain.

Our activities for the foreseeable future will be limited to servicing hospital receivables, CarePayment being our only direct customer.  Our inability to diversify our activities into a number of areas may subject us to economic fluctuations related to the business of CarePayment and therefore increase the risks associated with our operations.  CarePayment's ability to acquire receivables for us to service depends on its ability to acquire adequate funding sources.  The inability of CarePayment to acquire a sufficient amount of receivables for us to service would have a material adverse effect on us.

 
1
 

A deterioration in the economic or inflationary environment in the United States may have a material adverse effect on us.

The Company's performance may be affected by economic or inflationary conditions in the United States.  If the United States economy deteriorates or if there is a significant rise in inflation, personal bankruptcy filings may increase, and the ability of hospital customers to pay their debts could be adversely affected.  This may in turn adversely impact our financial condition, results of operations, revenue and stock price.

The recent financial turmoil affecting the banking system and financial markets and the possibility that financial institutions may consolidate, go out of business or be taken over by the federal government have resulted in a tightening in credit markets.  These and other economic factors could have a material adverse effect on us.

Adequate financing may not be available when needed.

Additional sources of funding will be required for us to continue operations.  There is no assurance that the Company can raise working capital or that any capital will be available to the Company at all.  Failure to obtain financing when needed could result in curtailing operations, acquisitions or mergers and investors could lose some or all of their investment.

We may be unable to manage growth adequately.

The implementation of our business plan requires an effective planning and management process. We anticipate significant growth and will need to continually improve our financial and management controls, reporting systems and procedures on a timely basis and expand, train and manage our personnel.  There can be no assurance that our systems, procedures or controls will be adequate to support our operations or that our management will be able to achieve the rapid execution necessary to successfully implement our business plan.

The Company has many conflicts of interest.

Most of the Company's agreements are with affiliates.  Although we believe that the terms and conditions of the agreements with such parties are fair and reasonable to the Company, such terms and conditions may not be as favorable to us as those that could be obtained from independent third parties.  In addition, the Company's officers and directors participate in other competing business ventures.

There is no public market for our securities.

There is currently no active public market for the Company's securities.  No predictions can be made as to whether a trading market will ever develop for any of the Company's securities.  The sale of Company securities is not being registered under the Securities Act, or any state securities laws, and such securities may not be resold or otherwise transferred unless they are subsequently registered under the Securities Act and applicable state laws, or unless exemptions from registration are available.  Accordingly, investors may not be able to liquidate their investment in any of the Company's securities.

Rule 144 is not available for the resale of Company securities.

The Company has been a "shell company" as defined in the Securities Act.  Therefore, Rule 144 will not be available for the resale of Company securities until the following conditions are met:

 
·
The Company must be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.
 
·
The Company must have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports; and
 
·
One year must have elapsed since the Company has filed current "Form 10 information" with the Securities and Exchange Commission reflecting its status as an entity that is no longer a shell company.

The Company has not yet satisfied the above conditions, and there can be no assurance that the Company will ever satisfy the above conditions.  The unavailability of Rule 144 may prevent an investor from liquidating its investment in the Company's securities.

The Company does not intend to pay dividends on Common Stock in the foreseeable future.

For the foreseeable future, we intend to retain any earnings to finance the development and expansion of the Company, and we do not anticipate paying any cash dividends on any of our Common Stock.  Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent on then-existing conditions, including the Company's financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the Board of Directors considers relevant.

 
2
 

Disruptions in service or damages to our data center or operations center, or other software or systems failures, could adversely affect our business.

The Company's data center and operations center are essential to our business.  Our operations depend on our ability to maintain and protect our computer systems.  We intend to conduct business continuity planning and maintain insurance against fires, floods, other natural disasters and general business interruptions to mitigate the adverse effects of a disruption, relocation or change in operating environment at our offices. However, our planning and insurance coverage may not be adequate in any particular case. The occurrence of any of these events could result in interruptions, could impair or prohibit our ability to provide services and materially adversely impact us.

In addition, despite the implementation of security measures, the Company's infrastructure, data center and systems, including the internet and related systems, are vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks, terrorist attacks or other attacks by third parties or similar disruptive problems. Any of these can cause system failure, including network, software or hardware failure, which can result in service disruptions or increased response time for our products and services. As a result, the Company may be required to expend significant capital and other resources to protect against security breaches and hackers or to alleviate problems caused by such breaches.

We also rely on a limited number of suppliers to provide us with a variety of products and services, including telecommunications and data processing services necessary for operations and software developers for the development and maintenance of certain software products we use to provide solutions.  If these suppliers do not fulfill their contractual obligations or choose to discontinue their products or services, our business and operations could be disrupted, our brand and reputation could be harmed and we could be materially and adversely affected.

We may be unable to protect our intellectual property.

We rely, and expect to continue to rely, on a combination of copyright, trademark and trade secret laws and contractual restrictions to establish and protect our technology. We do not currently have any issued patents or registered copyrights, and have only one registered trademark.  There can be no assurance that the steps we have taken will be adequate to prevent misappropriation of our technology or other proprietary rights, or that our competitors will not independently develop technologies that are substantially equivalent or superior to our technology.  To the extent we become involved in litigation to enforce or defend our intellectual property rights, such litigation can be a lengthy and costly process causing diversion of our effort, resources and management with no guarantee of success.

We face significant competition for our services.

The markets for our services are intensely competitive, continually evolving and, in some cases, subject to rapid technological change.  We face competition from many servicing and collections companies and other technology companies within segments of the revenue and payment cycle markets. Most of our competition is significantly larger and has greater financial resources than we do.  We may not be able to compete successfully with these companies, and these or other competitors may commercialize products, services or technologies that render our services obsolete or less marketable.

Some hospitals perform the services we offer for themselves.

Some hospitals perform the services we offer for themselves, or plan to do so, or belong to alliances that perform such services, or plan to do so.  The ability of hospitals to replicate our services may adversely affect the terms and conditions the Company is able to negotiate in agreements with hospitals, or may prevent the Company from negotiating any such agreements.

Recent developments in the healthcare industry could adversely affect our business.

National healthcare reform legislation was signed into law on March 23, 2010.  This reform legislation attempts to address the issues of increasing access to and affordability of healthcare, increasing effectiveness of care, reducing inefficiencies and costs, emphasizing preventive care, and enhancing the fiscal sustainability of the federal healthcare programs.  It is not yet clear how this reform legislation may affect the services provided by the Company.  In addition, there are currently numerous federal, state and private initiatives and studies seeking ways to increase the use of information technology in healthcare as a means of improving care and reducing costs. These initiatives may result in additional or costly legal and regulatory requirements that are applicable to us and our customers, may encourage more companies to enter our markets, and may provide advantages to our competitors.  Any such legislation or initiatives, whether private or governmental, may result in a reduction of expenditures by the customers or potential customers of the hospitals serviced by the Company, which could have a material adverse effect on us. We cannot predict what healthcare initiatives, if any, will be enacted and implemented, or the effect any future legislation or regulation will have on us.

 
3
 

Even if general expenditures by industry constituents remain the same or increase, other developments in the healthcare industry may result in reduced spending on the Company's services or in some or all of the specific markets we serve or are planning to serve. In addition, expectations regarding pending or potential industry developments may also affect the budgeting processes of the hospitals serviced by the Company and spending plans with respect to the types of products and services the Company provides.

The healthcare industry has changed significantly in recent years, and the Company expects that significant changes will continue to occur.  The timing and impact of developments in the healthcare industry are difficult to predict.  There can be no assurance that the markets for the services provided by the Company will continue to exist at current levels or that we will have adequate technical, financial and marketing resources to react to changes in those markets.

We face potential liability concerning disclosure of health-related information.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") required the United States Department of Health and Human Services to adopt standards to protect the privacy and security of individually identifiable health-related information. The department released final regulations containing privacy standards in December 2000 and published revisions to the final regulations in August 2002. The privacy regulations extensively regulate the use and disclosure of individually identifiable health-related information. The regulations also provide patients with significant new rights related to understanding and controlling how their health information is used or disclosed.
 
The Company may come into contact with protected health-related information.  Although we will take measures to ensure that we comply with all applicable laws and regulations, including HIPAA, if there is a breach, we may be subject to various penalties and damages and may be required to incur costs to mitigate the impact of the breach on affected individuals.
 
We face potential liability related to our handling and storage of personal consumer information.
 
The privacy of consumers’ personal information is protected by various federal and state laws.  Any penetration of our network security or other misappropriation of consumers' personal information could subject us to liability.  Other potential misuses of personal information, such as for unauthorized marketing purposes, could also result in claims against us. These claims could result in litigation. In addition, the Federal Trade Commission and several states have investigated the use by certain internet companies of personal information. We could incur unanticipated expenses, especially in connection with our settlement database, if and when new regulations regarding the use of personal information are enacted.
 
Changes in governmental laws and regulations could increase our costs and liabilities or impact our operations.

Changes in laws and regulations and the manner in which they are interpreted or applied may alter our business environment. This could affect our results of operations or increase our liabilities. These negative impacts could result from changes in collection laws, laws related to credit reporting or consumer bankruptcy, accounting standards, taxation requirements, employment laws and communications laws, among others.  We may become subject to additional liabilities in the future resulting from changes in laws and regulations that could result in a material adverse effect on us.

We are subject to examinations and challenges by tax authorities.

Our industry is relatively new and unique and, as a result, there is not a set of well defined laws, regulations or case law for us to follow that match our particular facts and circumstances for some tax positions. Therefore, certain tax positions we take are based on industry practice, tax advice and drawing similarities of our facts and circumstances to those in case law relating to other industries. These tax positions may relate to tax compliance, sales and use, franchise, gross receipts, payroll, property and income tax issues, including tax base and apportionment. Challenges made by tax authorities to our application of tax rules may result in adjustments to the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions and in inconsistent positions between different jurisdictions on similar matters. If any such challenges are made and are not resolved in our favor, they could have a material adverse effect on us.

We are dependent on key personnel and the loss of one or more of our senior management team could have a material adverse effect on us.

Our business strongly depends upon the services and management experience of our senior management team.  If any of our executive officers resign or otherwise are unable to serve, our management expertise and our ability to effectively execute our business strategy could be diminished.

 
4
 

We may not be able to hire and retain enough sufficiently trained employees to support our operations, and/or we may experience high rates of personnel turnover.

Our industry is very labor-intensive, and companies in our industry typically experience a high rate of employee turnover.  We will not be able to service our clients' receivables effectively, continue our growth or operate profitably if we cannot hire and retain qualified personnel.  Further, high turnover rate among our employees could increase our recruiting and training costs and may limit the number of experienced personnel available to service our receivables.

The Company may not be able to successfully anticipate, invest in or adopt technological advances within our industry.

The Company's business relies on computer and telecommunications technologies, and our ability to integrate new technologies into our business is essential to our competitive position and our success.  We may not be successful in anticipating, managing, or adopting technological changes on a timely basis.  Computer and telecommunications technologies are evolving rapidly and are characterized by short product life cycles.  While we believe that our existing information systems are sufficient to meet our current and foreseeable demands and continued expansion, our future growth may require additional investment in these systems.  We depend on having the capital resources necessary to invest in new technologies to service receivables.  There can be no assurance that we will have adequate capital resources available.  We may not be able to anticipate, manage or adopt technological advances within our industry, which could result in our services becoming obsolete and no longer in demand.

A significant majority of our equity securities are beneficially owned by a group of related parties whose interests in our business may be different than yours.

Aequitas Holdings and its affiliates collectively beneficially own approximately 41% of our shares of Class A Common Stock outstanding as of March 31, 2010.  These shareholders also own all of the issued and outstanding shares of our Class B Common Stock and Series D Convertible Preferred Stock, each share of which is convertible into Class A Common Stock.  Additionally, each share of Class B Common Stock is entitled to 10 votes per share, which gives Aequitas Holdings control over approximately 97% of all votes eligible to be cast on most corporate matters.  The concentration of voting power among our principal shareholders enables our principal shareholders to significantly influence all matters requiring approval by our shareholders, including the election of directors and the approval of mergers or other business combination transactions. Our principal shareholders may have strategic or other interests that conflict with the interests of our other shareholders.  The Company is required to redeem the Series D Convertible Preferred Stock during January 2013.  For more information about the redemption feature of the Series D Preferred Stock, see the discussion of the Investor Rights Agreement in Item 1 and Item 13 of this Report.

Provisions of our charter documents and Oregon law may have anti-takeover effects that could hinder a change in our corporate control.

Our Second Amended and Restated Articles of Incorporation and Amended and Restated Bylaws contain provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our Board of Directors.  These provisions may also delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our shareholders receiving a premium over the market price for their Class A Common Stock.  These provisions include, among others:

 
·
The ability of our Board of Directors to issue up to 10 million shares of preferred stock and to fix the rights, preferences, privileges and restrictions of those shares without any further vote or action by our shareholders;

 
·
The 10 vote-per-share feature of our Class B Common Stock and the ability of our Board of Directors to issue up to 10,000,000 shares of our Class B Common Stock (of which 6,410,092 shares were issued and outstanding as of September 30, 2010); and

 
·
Provisions that set forth advance notice procedures for shareholder nominations of directors and proposals for consideration at meetings of shareholders.

In addition, we are subject to the Oregon Control Share Act and business combination law, each of which could limit parties who acquire a significant amount of voting shares from exercising control over us for specific periods of time. These laws could lengthen the period for a proxy contest or for a shareholder to vote his, her or its shares to elect the majority of our Board of Directors and change management.

 
5
 
 
PART III
 
Item 13.   Certain Relationships and Related Transactions, and Director Independence.

Certain Relationships and Related Transactions

Although we believe that the terms and conditions of the transactions described in this Item 13 are fair and reasonable to the Company, such terms and conditions may not be as favorable to us as those that could be obtained from independent third parties.  In addition, our officers and directors participate in other competing business ventures.

See "Overview" in Item 1 of this Report for additional information about our affiliates and their relationships to us.

Administrative Services Agreement:

Effective January 1, 2010, Aequitas began providing CP Technologies with certain management support services, such as accounting, treasury, budgeting and other financial services, financial reporting and tax planning services, human resources services and information technology services (including providing an infrastructure platform, software management, voice and data services and desktop and platform support services) under the terms of an Administrative Services Agreement dated December 31, 2009.  The total fee for these services is approximately $65,100 per month.  This fee 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.  We paid fees to Aequitas under the Administrative Services Agreement of $585,900 for the nine months ended September 30, 2010.

Sublease:

During each of the years ended December 31, 2009 and 2008, we paid rent of approximately $60,000 to Aequitas to lease office space and personal property used by us and our affiliates in our business operations.  On December 31, 2009, CP Technologies and Aequitas entered into a Sublease to memorialize the lease of office space and personal property from Aequitas.  Under 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.  CP Technologies paid fees under the Sublease to Aequitas of $168,176 for the nine months ended September 30, 2010.

Advisory Services Agreement:

On June 27, 2008, we entered into an Advisory Services Agreement (the "Advisory Agreement") with Aequitas pursuant to which Aequitas has provided us with strategy development, strategic planning, marketing, corporate development and other advisory services as reasonably requested by us from time to time for a monthly fee of $10,000.  For additional information regarding the Advisory Agreement, see "Overview" in Item 1 of this Report.  We paid fees to Aequitas under the Advisory Agreement of $120,000 for each of the years ended December 31, 2009 and 2008.

Effective December 31, 2009, the Company and Aequitas amended and restated the Advisory Agreement.  Under the terms of the amended and restated Advisory Agreement, Aequitas continues to provide us with strategy development, strategic planning, marketing, corporate development and such other advisory services as we reasonably request.  We pay Aequitas a monthly fee of $15,000 for such services.  We also agreed to pay success fees to Aequitas upon the successful completion of debt facilities provided by lenders to, or equity placements made by investors in, us, or our acquisition of targets that are identified by Aequitas.  The success fee for those transactions will equal an amount between 1.5% and 5.0% of the transaction value.  We also agreed to pay Aequitas success fees determined at mutually agreeable rates upon a sale of the Company and for new customer referrals made by Aequitas.  We paid fees to Aequitas under the amended and restated Advisory Agreement of $185,000 for the nine months ended September 30, 2010, which includes a $50,000 success fee related to our acquisition of a corporation in July 2010.

 
6
 

Royalty Agreement:

Effective December 31, 2009, Aequitas and CP Technologies entered into a Royalty Agreement whereby CP Technologies pays Aequitas a royalty based on new products (the "Products") that are developed by CP Technologies or its affiliates or co-developed by CP Technologies or its affiliates and Aequitas or its affiliates and are based on or use the CarePayment proprietary accounting software system that was contributed to CP Technologies by Aequitas (the "Software") (see "Overview" in Item 1 of this Report for additional information regarding 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.  CP Technologies has not paid any fees to Aequitas under the Royalty Agreement through September 30, 2010.

Servicing Agreement:

Beginning January 1, 2010, we recognize revenue in conjunction with a Servicing Agreement between us and CarePayment, LLC ("CarePayment") dated December 31, 2009.  CarePayment pays us a servicing fee based on an amount 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’s quarterly net income, adjusted for certain items.  We recorded fee revenues in conjunction with the Servicing Agreement of $4,415,940 for the nine months ended September 30, 2010, which was comprised of $1,329,836 of servicing fees, $3,086,104 of origination fees and no “back end fees.”  As of September 30, 2010, we had a receivable of $42,177 due from CarePayment, LLC for servicing fees.

CarePayment pays us additional compensation under the Servicing Agreement equal to our actual monthly losses for the first quarter of 2010, and an amount equal to 50% of our actual monthly losses for the second quarter of 2010.  We received $1,241,912 in such compensation from CarePayment for the nine months ended September 30, 2010.  We do not expect to receive any further such additional compensation under the Servicing Agreement.

Notes Payable:

On June 27, 2008, we refinanced a promissory note from MH Financial by issuing a note payable to MH Financial in the amount of $977,743 (the "MH Note").  The original principal balance of the MH Note included $477,743 that was owed to MH Financial as of June 27, 2008 and an additional loan of up to $500,000.  MH Financial loaned us $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.  The MH Note is secured by substantially all of our assets.  As of June 27, 2008, interest accrued on the outstanding principal balance of the MH Note at the rate of 20% per annum, which rate was reduced to 8% in September 2010 after we made principal payments totaling $400,000.  Through subsequent amendments to the MH Note, the maturity date of the MH Note has been extended to December 31, 2011.  Additionally, the outstanding principal balance and all accrued and unpaid interest will become due and payable in the event of (a) a sale of all or substantially all of our assets, or (b) the transfer of ownership or beneficial interest, by merger or otherwise, of 50% or more of the stock of the Company.  We made no payments of principal or interest on the MH Note during 2008 or 2009.  As of September 30, 2010, the principal amount outstanding under the MH Note was $577,743 and we have accrued interest payable to MH Financial of $411,560.  We have made a total of $400,000 in principal payments on the MH Note through September 2010.

On December 31, 2008, we issued a multiple advance promissory note payable to Aequitas with a maximum advance amount of $360,000 (the "Aequitas Note"), which accrued interest at the rate of 20% per annum.  In 2008 and 2009, we borrowed $101,834 and $192,356, respectively, on the Aequitas Note.  Since December 31, 2009 no additional advances have been made under the Aequitas Note.  We made no payments of principal or interest on the Aequitas Note during 2008 or 2009.  In June 2010, we paid all principal ($294,190) and accrued interest ($55,415) due under the Aequitas Note.

On January 15, 2010, we entered into agreements to borrow up to $500,000 from Aequitas Commercial Finance, LLC ("ACF"), which is a wholly-owned subsidiary of Aequitas and the parent company of CarePayment, at the rate of 8% per annum.  ACF advanced $31,000 to us on or about January 14, 2010, which we repaid on February 12, 2010.  The agreements between ACF and us expired on March 31, 2010.  We paid $196 of interest to ACF in connection with this loan.

Investor Rights Agreement:

On December 31, 2009, the Company, Aequitas and CarePayment entered into an Investor Rights Agreement.  Pursuant to that agreement, we agreed that as long as Aequitas and CarePayment (or their affiliates) own securities in us, we will pay all expenses incurred by them in connection with the preparation and filing with the SEC of reports or other documents related to us or any of our securities owned by Aequitas or CarePayment.  In addition, if we fail to redeem the Series D Preferred by January 31, 2013 in accordance with Section 5.1(b) of our Second Amended and Restated Certificate of Designation for the Series D Preferred, Aequitas or its assignee will have the right to exchange all of its shares of Series D Preferred for 55.5 Units of CP Technologies, and CarePayment or its assignee will have the right to exchange all of its shares of Series D Preferred for 42.5 Units of CP Technologies.  If such exchanges occur, Aequitas and CarePayment, or their respective assignees, will own approximately 99% of CP Technologies.

 
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Issuances of Securities:

On June 27, 2008, we issued warrants exercisable for 746,667 shares of our Class A Common Stock at an exercise price of $0.01 per share to MH Financial in consideration for an initial loan disbursement made to us by MH Financial.  MH Financial subsequently assigned some of these warrants to certain of its investors as follows:  (a) warrants to purchase 116,661 shares of Class A Common Stock to Aequitas Catalyst Fund, LLC; (b) warrants to purchase 282,287 shares of Class A Common Stock to Thurman Holdings I, LP; (c) warrants to purchase 5,996 shares of Class A Common Stock to NTC & Co. fbo Robert J. Jesenik; and (d) warrants to purchase 33,238 shares of Class A Common Stock to CTK Capital Corporation, a corporation controlled by James M. Williams, a former Chairman of our Board of Directors.

On June 27, 2008, we issued warrants exercisable for 106,667 shares of our Class A Common Stock at an exercise price of $0.01 to Aequitas in consideration for strategy development, strategic planning, marketing, corporate development and other services that Aequitas provides to us pursuant to the Advisory Agreement that we entered into with Aequitas on that date.

On each of December 31, 2008, February 27, 2009 and November 6, 2009, we issued to Aequitas Catalyst Fund, LLC warrants exercisable for 106,667 shares of our Class A Common Stock at an exercise price of $0.01 in consideration for loan disbursements in the amount of $100,000 made by MH Financial to us on each of these dates.

On December 22, 2009, MH Financial converted all of its shares of our Series C Preferred Stock into 18,605 shares of our Class A Common Stock.

On December 30, 2009, each of the following parties exercised warrants for the following number of shares of our Class A Common Stock for aggregate consideration of $11,674:  (a) MH Financial – 308,486 shares; (b) Aequitas – 106,667 shares; (c) Aequitas Catalyst Fund, LLC – 436,660 shares; (d) Thurman Holdings I, LP – 282,287 shares; and (e) CTK Capital Corporation –33,238 shares.

On December 30, 2009, we issued 1,000,000 shares of Series D Preferred and warrants exercisable for 6,510,092 shares of our Class B Common Stock at an exercise price of $0.01 per share to CP Technologies pursuant to the Company Contribution Agreement described in Item 1 of the First Amendment.  CP Technologies subsequently assigned the warrants to purchase shares of our Class B Common Stock to Aequitas Holdings.

On March 11, 2010, NTC & Co. fbo Robert J. Jesenik exercised warrants to purchase 7,330 shares of Class A Common Stock for aggregate consideration of $259.

The issuances of securities described in this Item 13 were made in reliance upon the exemption from registration under Section 4(2) of the Securities Act, including, without limitation, Regulation D promulgated thereunder.

Director Independence

We had no independent directors in 2009.

 
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Item 15.  Exhibits

Exhibit
Number
  
Description
     
10.1
  
Contribution Agreement dated December 30, 2009 between CP Technologies LLC and Aequitas Capital Management, Inc.
     
10.2
  
Contribution Agreement dated December 30, 2009 between CP Technologies LLC and CarePayment, LLC
     
10.3
  
Contribution Agreement dated December 30, 2009 between CP Technologies LLC and CarePayment Technologies, Inc.
     
10.4
  
Servicing Agreement dated December 31, 2009 between CP Technologies LLC and CarePayment, LLC
     
10.5
  
Trademark License Agreement dated December 31, 2009 between CP Technologies LLC and Aequitas Holdings, LLC
     
10.6
  
Sublease Agreement dated December 31, 2009 between CP Technologies LLC and Aequitas Capital Management, Inc.
     
10.7
  
Warrant Agreement dated December 30, 2009 by CarePayment Technologies, Inc. to CP Technologies LLC
     
10.8
  
Series D Preferred Stock Subscription Agreement dated December 30, 2009 between CarePayment Technologies, Inc. and CP Technologies LLC
     
10.9
  
Amended and Restated Advisory Services Agreement dated December 31, 2009 between CarePayment Technologies, Inc. and Aequitas Capital Management, Inc.
     
10.10
  
Service Mark Assignment dated December 30, 2009 between CarePayment, LLC and CP Technologies LLC
     
10.11
  
Domain Name Assignment dated December 30, 2009 between CarePayment, LLC and CP Technologies LLC
     
31.1
  
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
  
Certification of Chief 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
  
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
  
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
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SIGNATURES

In accordance with the requirements of Section 13 or 15 (d) 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, on March 1, 2011.
 
CAREPAYMENT TECHNOLOGIES, INC.
   
By:   
/s/ James T. Quist
 
James T. Quist
 
Chief Executive Officer (Principal Executive Officer)
   
 
/ s/ Patricia J. Brown
 
Patricia J. Brown
 
Chief Financial Officer (Principal Financial and Accounting Officer)
 
In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature
  
Title
  
Date
         
 /s/ James T. Quist
  
Director
  
March 1, 2011
James T. Quist
        
         
 /s/ Brian A. Oliver
  
Director
  
March 1, 2011
Brian A. Oliver
        
 
 
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CarePayment Technologies, Inc. Reports