UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2001
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[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________________ to _______________________
Commission file number: 0-22052
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PROXYMED, INC.
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(Exact name of registrant as specified in its charter)
Florida 65-0202059
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2555 Davie Road, Suite 110, Ft. Lauderdale, Florida 33317
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(Address of principal executive offices) (Zip Code)
(954) 473-1001
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(Registrant's telephone number)
_____________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [_] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $.001 Par Value
3,077,875 Shares as of November 9, 2001
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1 - FINANCIAL STATEMENTS.
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
September 30, December 31,
Assets 2001 2000
------ ------------ -----------
Current assets:
Cash and cash equivalents $ 5,448,300 $ 8,841,100
Accounts receivable - trade, net 5,817,200 4,174,700
Other receivables 83,300 198,400
Inventory 3,784,000 2,640,700
Other current assets 517,500 860,800
------------ -----------
Total current assets 15,650,300 16,715,700
Property and equipment, net 3,793,300 3,905,000
Goodwill, net 8,873,100 3,038,600
Purchased technology, capitalized software and other intangibles, net 2,108,500 3,942,400
Other assets 53,300 64,700
------------ -----------
Total assets $ 30,478,500 $27,666,400
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Note payable $ 7,000,000 $ -
Accounts payable and accrued expenses 6,192,800 4,246,400
Deferred revenue and other current liabilities 646,300 313,800
------------ -----------
Total current liabilities 13,839,100 4,560,200
Long-term deferred revenue and other long-term liabilities 527,600 729,100
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Total liabilities 14,366,700 5,289,300
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Stockholders' equity:
Series B 6% Convertible preferred stock - $.01 par value.
Authorized and issued 15,000 shares; outstanding 110 shares;
liquidation preference $110,000 - -
Series C 7% Convertible preferred stock - $.01 par value.
Authorized 300,000 shares; issued and outstanding 209,290 and
253,265 shares, respectively; liquidation preference $21,050,000
and $25,326,500, respectively 2,100 2,500
Common stock - $.001 par value. Authorized 13,333,333 shares;
issued and outstanding 3,024,530 (after deducting 15,061
shares in treasury) and 1,372,899 shares, respectively 3,000 1,400
Additional paid-in capital 113,084,900 113,234,500
Accumulated deficit (96,542,300) (90,425,400)
Note receivable from stockholder (435,900) (435,900)
------------ -----------
Total stockholders' equity 16,111,800 22,377,100
------------ -----------
Total liabilities and stockholders' equity $ 30,478,500 $27,666,400
============ ===========
See accompanying notes.
2
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2001 2000 2001 2000
----------- ------------ ------------- ------------
Revenues:
Transaction fees, services and license fees $ 6,365,300 $ 4,404,000 $ 16,479,700 $ 13,305,400
Communication devices, computer systems
and other tangible goods 5,485,700 4,709,700 13,977,400 11,470,000
----------- ----------- ------------ ------------
11,851,000 9,113,700 30,457,100 24,775,400
----------- ----------- ------------ ------------
Costs and expenses:
Cost of services 1,962,900 372,100 4,247,800 1,254,900
Cost of tangible goods 3,900,400 3,178,200 9,662,900 7,889,500
Selling, general and administrative expenses 5,233,400 6,302,600 15,921,100 20,911,800
Restructuring charges - - - 1,415,000
Depreciation and amortization 1,419,900 3,414,900 6,722,100 9,950,500
----------- ----------- ------------ ------------
12,516,600 13,267,800 36,553,900 41,421,700
----------- ----------- ------------ ------------
Operating loss (665,600) (4,154,100) (6,096,800) (16,646,300)
Litigation settlement, net - 688,700 - 688,700
Interest expense, net (90,700) (353,200) (20,100) (4,265,600)
------- ----------- ------------ ------------
Loss from continuing operations (756,300) (3,818,600) (6,116,900) (20,223,200)
Discontinued operations:
Loss from discontinued operations - - - (303,900)
Gain on disposal of discontinued operations - - - 511,100
----------- ----------- ------------ ------------
- - - 207,200
----------- ----------- ------------ ------------
Net loss (756,300) (3,818,600) (6,116,900) (20,016,000)
Deemed dividends and other charges 3,563,000 992,400 8,219,400 15,628,200
----------- ----------- ------------ ------------
Net loss applicable to common shareholders $ (4,319,300) $(4,811,000) $(14,336,300) $(35,644,200)
============ =========== ============ ============
Weighted average common shares outstanding 2,339,700 1,334,172 1,783,637 1,281,747
=========== =========== ============ ============
Basic and diluted net income (loss) per
share of common stock:
From continuing operations $ (1.85) $ (3.61) $ (8.04) $ (27.97)
From discontinued operations - - - 0.16
----------- ----------- ------------ ------------
Net loss $ (1.85) $ (3.61) $ (8.04) $ (27.81)
=========== =========== ============ ============
3
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Nine Months Ended September 30,
----------------------------------
2001 2000
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Cash flows from operating activities:
Net loss $ (6,116,900) $ (20,016,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 6,722,100 10,281,200
Amortization of private placement related costs - 4,474,000
Restructuring charges - 1,415,000
Provision for doubtful accounts 54,000 318,800
Provision for obsolete inventory 24,180 180,000
Compensatory stock options and warrants
and stock compensation awards issued 433,300 1,204,800
Payment for non-compete agreement - (200,000)
Net gain on sales of discontinued operations - (511,100)
Changes in net current assets of discontinued operations - (734,600)
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts receivable and other receivables (807,800) (1,876,000)
Inventory (1,119,180) (757,200)
Prepaid expenses (166,900) (107,200)
Accounts payable and accrued expenses 1,689,400 (641,400)
Deferred revenue (129,800) (61,200)
Other, net (52,100) (32,500)
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Net cash provided by (used in) operating activities 530,300 (7,063,400)
------------- --------------
Cash flows from investing activities:
Acquisition of business (3,000,000) -
Short term investments (3,000,000) -
Redemption of short term investments 3,000,000 -
Capital expenditures (783,800) (821,000)
Capital expenditures of discontinued operations - (230,100)
Capitalized software - (1,610,700)
Payments for acquisition-related costs (42,400) (13,200)
------------- --------------
Net cash used in investing activities (3,826,200) (2,675,000)
------------- --------------
Cash flows from financing activities:
Proceeds from sale of convertible debt securities - 21,332,300
Proceeds from sale of preferred stock - 1,000,000
Redemption of convertible preferred stock - (15,774,100)
Proceeds from exercise of stock options and warrants 426,800
Dividends on preferred stock (4,900) -
Collections on notes receivable 34,200 1,636,500
Draw on line of credit - 2,000,000
Repayment of line of credit - (3,000,000)
Payment of note payable, capital leases and long-term debt (126,200) (426,100)
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Net cash provided by (used in) financing activities (96,900) 7,195,400
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Net decrease in cash and cash equivalents (3,392,800) (2,543,000)
Cash and cash equivalents at beginning of period 8,841,100 11,487,900
------------- --------------
Cash and cash equivalents at end of period $ 5,448,300 $ 8,944,900
============= ==============
See accompanying notes.
4
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Basis of Presentation - The accompanying unaudited condensed
---------------------
consolidated financial statements of ProxyMed, Inc. and subsidiaries
("ProxyMed" or the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
disclosures required by accounting principles generally accepted in the
United States of America. However, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair statement of
results for the interim periods.
The results of operations for the three and nine months ended September
30, 2001 are not necessarily indicative of the results to be expected
for the full year. The unaudited consolidated financial statements
included herein should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 2000.
On March 31, 2000, the Company sold its non-core network integration
and prescription drug dispensing segments. These two segments are shown
as discontinued operations and the consolidated financial statements
and related notes have been reclassified to segregate the net assets
and operating results of these segments (see Note 3).
In May 2001, the Company acquired substantially all of the assets and
the business of MDP Corporation ("MDP") for $10 million (see Note 2).
ProxyMed paid $3 million cash at closing and obligated itself with
monthly cash interest payments and a $7 million debt payment due in May
2002. ProxyMed believes that its current operations, including the
operations of MDP, will provide funding for a portion of this debt, but
that it will need to raise funds through the issuance of additional
equity or debt in the public or private capital markets, the securing
of an asset-based line of credit, or the sale of non-core assets in
order to pay off any remaining portion of the debt. The Company's
ability to raise additional funds may be adversely affected if the
Company does not continue to improve its operating performance or
achieve increased market acceptance of its products and services. There
can be no assurance that additional funding will be available to the
Company or that, if available, it will be available on terms favorable
to the Company. Failure to obtain additional financing could have a
material adverse impact on the Company's financial position and its
ability to operate in the ordinary course of business.
On August 21, 2001, the Company's Board of Directors effected a
1-for-15 reverse stock split of the Company's common stock, par value
$.001 per share. All share and per share amounts have been restated to
reflect this transaction.
5
(b) Revenue Recognition - Electronic transaction processing fee revenue is
-------------------
recorded in the period the service is rendered. Revenue from sales of
software, software licenses, computer hardware and manufactured goods
is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the price is fixed or determinable and
collectibility is probable. The same criteria is applied to each
element of multiple element arrangements after allocating the amounts
paid to individual elements based on vendor-specific objective evidence
of fair value. Revenue from certain up-front fees is amortized ratably
over the expected life of the customer. Revenue from hardware leases,
software rentals and maintenance fees is recognized ratably over the
applicable period.
(c) Net Loss Per Share - Basic net loss per share of common stock is
------------------
computed by dividing net loss applicable to common shareholders by the
weighted average shares of common stock outstanding during the year.
Diluted per share results reflect the potential dilution from the
exercise or conversion of securities into common stock; however, stock
options, warrants and contingent shares totaling 1,009,268 shares and
2,414,989 shares at September 30, 2001 and 2000, respectively, as well
as common shares issuable on conversion of both Series B and Series C
preferred stock (1,403,333 and 1,695,411 shares, if converted on
September 30, 2001 and 2000, respectively), were excluded from the
calculation of diluted per share results because their effect was
antidilutive.
(d) New Accounting Pronouncements - In June 2001, the Financial Accounting
-----------------------------
Standards Board issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141
eliminates the pooling-of-interest method for business combinations and
requires application of the purchase method. SFAS No. 142 changes the
accounting for goodwill from an amortization approach to a non-
amortization (impairment) approach. SFAS No. 142 requires amortization
of goodwill recorded in connection with previous business combinations
to cease upon adoption of the SFAS No. 142 by calendar year companies
on January 1, 2002. The Company is currently studying the impact of
these statements on its financial position, results of operations and
cash flows.
(e) Reclassifications - Certain prior year amounts have been reclassified
-----------------
to conform to the current year presentation.
(2) Acquisition of Business
-----------------------
In May 2001, the Company acquired substantially all of the assets and the
business of MDP Corporation, a privately-owned electronic claims clearinghouse
and patient statement processor based in Atlanta, Georgia, for $10 million cash.
ProxyMed paid $3 million at closing and executed a $7 million promissory note
payable in May 2002. Interest on this note is payable monthly at 7% simple
interest. The assets of MDP collateralize the note. The acquisition was
accounted for as a purchase and the purchase price was allocated as follows:
working capital ($302,400); property and equipment
6
($165,000); and other assets ($3,800). The excess of the consideration paid over
the estimated fair value of net assets acquired in the amount of $9,578,800 was
recorded as goodwill.
The following unaudited pro forma summary presents the consolidated results
of operations of ProxyMed and MDP as if the acquisition of this business had
occurred at the beginning of 2000, including additional pro forma amortization
of goodwill of $1,064,400 and $2,396,300 and interest expense of $161,100 and
$366,900 for the nine months ended September 30, 2001 and 2000, respectively.
These pro forma results do not necessarily represent results that would have
occurred if the acquisition had taken place at those dates, or of results which
may occur in the future.
Nine Months Ended September 30,
---------------------------------
2001 2000
------------ ------------
Revenues $ 32,711,700 $ 29,571,300
Loss from continuing operations $ (7,095,500) $(22,671,100)
Net loss applicable to
common shareholders $(15,314,900) $(38,299,300)
Basic and diluted net loss
per share of common stock $ (8.59) $ (28.71)
(3) Discontinued Operations
-----------------------
In March 2000, ProxyMed sold its non-core network integration and
prescription drug dispensing segments in separate transactions. Proceeds from
the sale of the network integration segment were $3,398,000 and were paid with
13,928 shares of ProxyMed common stock (valued at $1,776,000, the closing market
price of the common stock on the date of closing, and recorded as treasury
stock) and a note receivable of $1,622,000 due on July 31, 2000. The sale
resulted in a final gain of $608,400 (originally reported as a gain of $574,200
at June 30, 2000). As of August 3, 2000, all amounts due under this note
receivable had been collected.
Proceeds from the sale of the prescription drug dispensing segment were
$255,000 and were paid with 1,133 shares of ProxyMed common stock (valued at
$154,000, the closing market price of the common stock on the date of closing,
and recorded as treasury stock) and a note receivable of $101,000 payable in
monthly installments over two years and bearing interest at 9% per annum. The
sale resulted in a loss of $63,100.
7
The following table represents the results of discontinued operations for the
nine months ended September 30, 2001 and 2000:
2001 2000
----------- -----------
Net revenues:
Network integration $ - $ 2,371,700
Prescription drug dispensing - 574,700
----------- -----------
$ - $ 2,946,400
=========== ===========
Net income (loss):
Network integration $ - $ (327,700)
Prescription drug dispensing - 23,800
----------- -----------
$ - $ (303,900)
=========== ===========
(4) Inventory
---------
Inventory consists of the following at September 30, 2001:
Materials, supplies and component parts $ 2,334,700
Work in process 307,800
Finished goods 1,141,500
-----------
$ 3,784,000
===========
(5) Equity Transactions
-------------------
(a) Series B Warrants - In April 2001, the Company entered into exchange
-----------------
agreements (the "Series B Exchange Agreements") with the former holders
of $13,000,000 of its $15,000,000 Series B 6% Convertible Preferred
Stock (the "Series B Preferred"). The Company and such holders had
previously entered into a Redemption and Exchange Agreement, dated
May 4, 2000 (the "Redemption Agreement"). Under the terms of the
Redemption Agreement, 46,222 warrants to purchase the Company's common
stock issued to the holders of the Series B Preferred subject to the
Redemption Agreement were exchanged for new warrants (the "Exchanged
Warrants") with an exercise price of $22.50 per share. In addition, such
holders received, in the aggregate 43,333 additional warrants (the "New
Warrants") at an exercise price of $22.50 per share. In February 2001,
the Exchanged Warrants were reset under anti-dilution provisions
contained therein into an aggregate of 228,366 warrants with a new
exercise price of $18.88245 per share. As a result of this warrant
reset, the Company recorded a deemed dividend charge of $1,968,000 in
the quarter ended March 31, 2001.
Under the Series B Exchange Agreements, the Company canceled and
exchanged all outstanding Exchanged Warrants and New Warrants for an
aggregate of 218,828 shares of common stock. In accordance with the
terms of the Series B Exchange Agreements, the Company registered these
shares under Form S-3
8
effective on June 25, 2001. For this transaction, the Company recorded a
deemed dividend charge of $1,854,600 in the quarter ended June 30, 2001.
In connection with the cancellation and exchange of these warrants, the
holders of the Series B Preferred and the holders of Series C 7%
Convertible Preferred Stock (the "Series C Preferred") agreed to waive
certain anti-dilution rights afforded by certain outstanding warrants, the
Series B Preferred and the Series C Preferred.
(b) Series C Warrants - In June 2001, the Company offered to exchange into
-----------------
shares of common stock (the "Series C Exchange Offer") (i) 843,667 warrants
(the "Investor Warrants") that were issued to holders of the Series C
Preferred, (ii) 552,867 warrants (the "Agent's Warrants") that were issued
to Commonwealth Associates, L.P. ("Commonwealth") in connection with the
private placement of the Series C Preferred, and (iii) 66,667 warrants (the
"Advisory Warrants") that were issued to Commonwealth for certain advisory
services that Commonwealth provided to the Company. Under the terms of the
Series C Exchange Offer, the Company would issue 0.75 shares of its common
stock for each Investor Warrant, 0.75 shares of its common stock for each
Agent's Warrant, and 0.625 shares of its common stock for each Advisory
Warrant. The Investor Warrants, the Agents' Warrants and the Advisory
Warrants are collectively known as the "Series C Warrants".
On August 15, 2001, the Company canceled and exchanged 1,409,297, or 96.3%,
of the 1,463,201 Series C Warrants for 1,048,639 shares of common stock.
The shares issued in this exchange are not yet registered but are required
to be registered in accordance with terms of the original Subscription
Agreement dated June 15, 2000. In connection with the cancellation and
exchange of the Series C Warrants, the exchanged shares are subject to an
additional lock-up period through February 15, 2002. Additionally, for
this transaction, the Company recorded a deemed dividend charge of
$3,195,000 in the quarter ended September 30, 2001.
(c) Stock Options - In April 2001, the Company's Board of Directors authorized
-------------
the issuance of 65,000 options to purchase the Company's common stock to
ProxyMed's executive and senior management as part of their compensation
plan for the 2001 year. Of these options granted, 19,333 options were
issued with an exercise price of $15.15 under available stock option plans,
and the balance of 45,667 options were granted under the Company's proposed
2001 Stock Option Plan, subject to approval by the Company's shareholders
at its annual meeting on July 25, 2001. In July 2001, the shareholders of
the Company approved the 2001 Stock Option Plan pursuant to which options
to purchase 333,333 shares of common stock may be issued to employees,
officers and directors and, as a result, the 45,667 options were issued
with an exercise price of $13.80 per share. These options are for a ten-
year term and vest after five years. In addition, these options contain a
clause which enables the accelerated vesting of a portion or all of the
options if specific, pre-determined individual performance goals are met
during the 2001 year.
9
(d) Conversions of Preferred Stock - As of September 30, 2001, 43,975 shares
------------------------------
of Series C Preferred had been converted into 293,167 shares of common
stock. In October 2001, the remaining 110 shares of Series B Preferred
were converted into 8,766 shares of common stock.
(e) Authorized Shares - In July 2001 at its annual meeting of shareholders, the
-----------------
shareholders of the Company amended the Company's Articles of Incorporation
and approved an increase in the number of authorized shares of common
stock, par value $.001 per share, from 6,666,667 to 13,333,333.
(f) Reverse Stock Split - On August 21, 2001, the Company's Board of Directors
-------------------
effected a 1-for-15 reverse stock split of its common stock whereby each 15
shares of common stock was exchanged for one new share of common stock. As
a result of this reverse stock split, the par value of the common stock
remained unchanged at $.001 per share and no cash was issued for fractional
interests.
(6) Segment Information
-------------------
ProxyMed operates in two reportable segments that offer different services
and products: (i) electronic healthcare transaction processing; and (ii)
laboratory communication devices and services. Electronic healthcare transaction
processing includes transaction and value-added services principally between
physicians and insurance companies (payer services) and physicians and
pharmacies (prescription services); and laboratory communication devices and
services includes the sales, leasing and servicing of communication devices
principally to laboratories and the contract manufacturing of printed circuit
boards (laboratory services). Inter-segment sales are not material, and there
were no foreign sales for any periods presented. The operations of MDP are
included in the electronic healthcare transaction processing segment (payer
services).
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------- --------------------------------
2001 2000 2001 2000
------------- ------------ ------------ -------------
Net revenues:
Electronic healthcare transaction processing $ 4,726,200 $ 2,305,000 $ 11,533,600 $ 7,095,700
Laboratory communication devices and services 7,124,800 6,808,700 18,923,500 17,679,700
------------- ------------ ------------- -------------
$ 11,851,000 $ 9,113,700 $ 30,457,100 $ 24,775,400
============= ============ ============= =============
Operating income (loss):
Electronic healthcare transaction processing $ (1,014,600) $ (4,083,900) $ (6,208,400) $ (12,703,600)
Laboratory communication devices and services 1,020,800 1,622,600 2,900,300 3,196,000
Corporate and consolidating (671,800) (1,692,800) (2,788,700) (5,723,700)
Restructuring charges - - - (1,415,000)
------------- ------------ ------------- -------------
$ (665,600) $ (4,154,100) $ (6,096,800) $ (16,646,300)
============== ============= ============== ==============
September 30,
-----------------------------------
Total assets: 2001 2000
-------------- -------------
Electronic healthcare transaction processing $ 9,174,600 $ 12,991,300
Laboratory communication devices and services 14,967,800 10,316,700
Corporate and consolidating 6,336,100 12,107,800
-------------- -------------
$ 30,478,500 $ 35,415,800
============== =============
10
(7) Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Nine Months Ended September 30,
----------------------------------
2001 2000
------------ -----------
Common stock issued for payment of preferred stock dividends $ 1,196,900 $ 223,800
============ ===========
Acquisition of business:
Debt issued for business acquired $ 7,000,000 $ -
Other acquisition costs accrued 50,000 -
Details of acquisition:
Working capital components, other than cash (302,400) -
Property and equipment (165,000) -
Goodwill (9,578,800) -
Other assets (3,800) -
------------ -----------
Net cash used in acquisition $ (3,000,000) $ -
============ ===========
Disposition of businesses:
Common stock received $ - $(1,929,800)
Notes and other receivables received - (1,723,100)
Net gain recognized - 511,100
Detail of dispositions:
Working capital components, other than cash - 1,940,100
Property and equipment - 1,070,900
Goodwill - 109,700
Other assets - 21,100
------------ -----------
Net cash provided by dispositions $ - $ -
============ ===========
(8) Contingency
-----------
In December 2000, the Company accrued $200,000 for a deficiency in its
licensing of software used in its internal computer systems. In March 2001, an
additional $175,000 was accrued for this contingency. In October 2001, the
Company settled this software licensing contingency for $350,000.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
-------
ProxyMed is an electronic healthcare transaction processing services company
providing connectivity services and related value-added products to physicians,
payers, medical laboratories, pharmacies, and other healthcare providers. Our
electronic transaction processing services support a broad range of both
financial and clinical transactions. To facilitate these services, we operate
ProxyNet(R), our secure, proprietary national electronic information network,
which provides physicians and other primary care providers with direct
connectivity to one of the industry's largest group of payers, the largest group
of clinical laboratories and the largest group of chain and independent
pharmacies. Our products and services are currently provided from our operating
facilities located in Fort Lauderdale, Florida; New Albany, Indiana; Santa Ana,
California; and Atlanta, Georgia.
In March 2000, we sold our non-core network integration and prescription
drug dispensing segments. These two segments are shown as discontinued
operations in the consolidated financial statements.
In May 2001, the Company acquired substantially all of the assets and the
business of MDP Corporation ("MDP"), a privately-owned electronic claims
clearinghouse and patient statement processor based in Atlanta, Georgia, for $10
million. ProxyMed paid $3 million at closing and executed a $7 million
promissory note payable in May 2002. Interest on this note is payable monthly
at 7% simple interest. The assets of MDP collateralize the note.
On August 21, 2001, the Company's Board of Directors effected a 1-for-15
reverse stock split of the Company's common stock, par value $.001 per share.
All share and per share amounts have been restated to reflect this transaction.
Results of Operations
---------------------
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000.
Net Revenues. Consolidated net revenues for the three months ended
September 30, 2001 increased by $2,737,300, or 30%, to $11,851,000 from
consolidated net revenues of $9,113,700 for the three months ended
September 30, 2000. This net increase is primarily due to (i) a 56% increase in
the volume of electronic clinical and financial healthcare transactions
(included is the first full quarter of patient statement and claims transaction
volume from MDP) offset by decreases in implementation and other fees in our
prescription services division (net increase of $2,421,200); and (ii) a 5%
revenue increase in our laboratory services division primarily as a result of
increased sales in communication device units and contract manufacturing offset
by decreases in
12
other lab services such as communication device leases and field service events
(net increase of $316,100).
Cost of Sales. Cost of transaction fees, services and license fees include
third-party electronic transaction processing costs, certain telecommunication
costs, revenue sharing and rebate arrangements with our business partners,
third-party databases licenses, and certain labor and travel expenses. Cost of
sales for communication devices, computer systems and other tangible goods
includes hardware, third-party software, and consumable materials. Consolidated
cost of sales for the three months ended September 30, 2001 increased as a
percentage of revenues compared to the three months ended September 30, 2000
primarily due to (i) direct costs at MDP for our statement processing services
(which have a higher direct cost than other payer services transactions
currently offered); and (ii) a shift in the revenue mix in our laboratory
services division from lower cost leases to higher cost communication device
units and contract manufacturing. For the remainder of 2001, cost of sales as a
percentage of revenues may continue to rise, primarily as a result of the
sources of revenue in our payer services division, including our acquisition of
MDP and revenue derived from our agreement with EDS for the transition of
customers of the Maryland Health Information Network ("MHIN") to ProxyMed's
clearinghouse. A growing percentage of revenues for this division may be
dependent upon paying rebates to our strategic partners.
Selling, General and Administrative Expenses. Consolidated selling, general
and administrative expenses ("SG&A") for the three months ended September 30,
2001 decreased by $1,069,200, or 20%, to $5,233,400 from consolidated SG&A
expenses of $6,302,600 for the three months ended September 30, 2000. This
decrease is representative of our goal to closely monitor our expenses and is
primarily due to (i) decreases in net payroll, outside labor and related
expenses due to the effect of our restructuring plan which commenced in May
2000, additional personnel reductions enacted at the end of 2000 and in the
first quarter of 2001 (decrease of $635,600); (ii) decreases in
telecommunication expenses resulting from renegotiating contracts with carriers,
the elimination of certain telecommunication services and lower usage (decrease
of $104,000); (iii) decrease in charges for the issuance of compensatory options
and warrants to outside consultants as fees related to our financial advisory
agreement with Commonwealth Associates ceased to be amortized in April 2001
(decrease of $550,500); offset by (iv) increases in selling and marketing
expenses for our products and services (increase of $98,000); and (v) net
increases in other general expenses (net increase of $122,400). As a result of
these factors, consolidated SG&A expenses as a percentage of consolidated net
sales decreased to 44% in the 2001 period compared to 69% in the 2000 period.
Depreciation and Amortization. Depreciation and amortization for the three
months ended September 30, 2001 decreased by $1,995,000 to $1,419,900 from
depreciation and amortization of $3,414,900 for the three months ended September
30, 2000. This decrease is primarily the result of (i) concluding the
amortization of goodwill and purchased technology associated with the 1997 and
1998 acquisitions of IMS and USHDI in the 2001 period (decrease of $2,377,800);
(ii) the write-off of obsolete and impaired fixed assets and previously
capitalized software in December 2000 (decrease of $336,300); (iii) decreases in
other amortization expense (net decrease
13
of $79,100); offset by (iv) the commencement of goodwill amortization from our
May 2001 acquisition of MDP (increase of $798,200).
Interest, Net. We incurred net interest expense of $90,700 for the three
months ended September 30, 2001 compared to net interest expense of $353,200 for
the three months ended September 30, 2000. The 2001 period amount includes
interest expense of $123,500 related to the note payable for our acquisition of
MDP while the 2000 period reflects charges related to the amortization of costs
from our private placement of convertible debt securities completed in June 2000
of $480,800. Additionally, as a result of lower cash balances and interest
rates, interest income earned decreased by $95,200 between the periods noted.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $665,600 for the three months ended
September 30, 2001 compared to a loss of $4,154,100 for the three months ended
September 30, 2000.
Deemed Dividends and Other Charges. We incurred total deemed dividend and
other charges of $3,563,000 in the three months ended September 30, 2001
primarily as a result of (i) non-cash accounting charges from the exchange of
1,409,297 warrants into 1,048,639 shares of common stock by our Series C
preferred stockholders in August 2001 ($3,195,000) and (ii) quarterly dividends
paid to our Series C preferred shareholders through issuance of shares of common
stock in October 2001 and throughout the quarter from conversions of Series C
preferred stock into common stock (issued 27,360 shares valued at $366,300).
Net Loss Applicable to Common Shareholders. As a result of the foregoing,
we recorded a net loss applicable to common shareholders of $4,319,300 for the
three months ended September 30, 2001 compared to $4,811,000 for the three
months ended September 30, 2000.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000
Net Revenues. Consolidated net revenues for the nine months ended
September 30, 2001 increased by $5,681,700, or 23%, to $30,457,100 from
consolidated net revenues of $24,775,400 for the nine months ended
September 30, 2000. This net increase is primarily due to (i) a 40% increase in
the volume of electronic clinical and financial healthcare transactions
(including patient statement and claims transaction volume from MDP) offset by
decreases in implementation and other fees in our prescription services division
(net increase of $4,437,900); and (ii) a 7% revenue increase in our laboratory
services division primarily as a result of increased sales of communication
device units and contract manufacturing offset by decreases in other lab
services such as communication device leases and field service events (net
increase of $1,243,800).
Cost of Sales. Cost of transaction fees, services and license fees include
third-party electronic transaction processing costs, certain telecommunication
costs, revenue
14
sharing and rebate arrangements with our business partners, third-party
databases licenses, and certain labor and travel expenses. Cost of sales for
communication devices, computer systems and other tangible goods includes
hardware, third-party software, and consumable materials. Consolidated cost of
sales for the nine months ended September 30, 2001 increased as a percentage of
revenues compared to the nine months ended September 30, 2000 primarily due to
(i) direct costs at MDP for our statement processing services (which have a
higher direct cost than our other payer services transactions currently
offered); and (ii) a shift in the revenue mix in our laboratory services
division from lower cost leases to higher cost communication device units and
contract manufacturing.
Selling, General and Administrative Expenses. Consolidated selling, general
and administrative expenses for the nine months ended September 30, 2001
decreased by $4,990,700 or 24%, to $15,921,100 from consolidated SG&A expenses
of $20,911,800 for the nine months ended September 30, 2000. This decrease is
representative of our goal to closely monitor our expenses and is primarily due
to (i) decreases in payroll, outside labor and related expenses (net of
capitalization for software development primarily for proxyMed.com in the 2000
period) due to the effect of our restructuring plan which commenced in May 2000,
additional personnel reductions enacted at the end of 2000 and in the first
quarter of 2001, and includes issuance of stock options in lieu of temporary
salary reductions in the 2001 period (decrease of $3,281,000); (ii) decreases in
selling and marketing expenses for our products and services (decrease of
$839,600); (iii) decreases in telecommunication expenses resulting from
renegotiating contracts with carriers, the elimination of certain
telecommunication services and lower usage (decrease of $370,300); (iv) decrease
in bad debt expense as a result of improved collection efforts (decrease of
$255,600); (v) decrease in charges for the issuance of compensatory options and
warrants to outside consultants as fees related to our financial advisory
agreement with Commonwealth Associates ceased to be amortized in April 2001
(decrease of $486,500); offset by (vi) an increase in D&O liability insurance
premiums (increase of $170,300); and (vii) net increases in other general
expenses (net increase of $43,200). As a result of these factors, consolidated
SG&A expenses as a percentage of consolidated net sales decreased to 52% in the
2001 period from 84% in the 2000 period.
Restructuring Charges. In May 2000, we had announced a reorganization plan
aimed at reducing costs and reallocating resources. As a result, we reduced our
workforce by approximately 70 employees, including the resignation of our chief
executive officer, president/chief operating officer, chief financial officer,
chief marketing officer, and other management positions. For this plan, we
recorded a charge of $1,415,000 in the nine months ended September 30, 2000
primarily for severance payments and marketing and termination fees due under
telecommunication contracts that were canceled.
Depreciation and Amortization. Depreciation and amortization for the nine
months ended September 30, 2001 decreased by $3,228,400 to $6,722,100 from
depreciation and amortization of $9,950,500 for the nine months ended September
30, 2000. This decrease is primarily the result of (i) concluding the
amortization of goodwill and purchased technology associated with the 1997 and
1998 acquisitions of IMS and USHDI in the 2001 period (decrease of $3,659,500);
(ii) the termination of the exclusivity period related to our 1997 acquisition
of PreScribe(R) in
15
September 2000 (decrease of $250,000); (iii) the write-off of obsolete and
impaired fixed assets and previously capitalized software in December 2000
(decrease of $649,300); offset by (iv) the commencement of goodwill amortization
from our May 2001 acquisition of MDP (increase of $1,330,400).
Interest, Net. We incurred net interest expense of $20,100 for the nine
months ended September 30, 2001 compared to net interest expense of $4,265,600
for the nine months ended September 30, 2000. The 2001 period amount includes
interest expense of $205,400 related to the note payable for our acquisition of
MDP while the 2000 period reflects charges related to the amortization of costs
from our private placement of convertible debt securities completed in June 2000
including $3,202,900 for a beneficial conversion charge resulting from the
conversion price of the convertible debt being less than the market price of our
stock on the dates of issuance. Additionally, as a result of lower cash
balances and interest rates, interest income earned decreased by $163,600
between the periods noted.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $6,116,900 for the nine months ended
September 30, 2001 compared to $20,223,200 for the nine months ended
September 30, 2000.
Deemed Dividends and Other Charges. We incurred total deemed dividend and
other charges of $8,219,400 in the nine months ended September 30, 2001
primarily as a result of (i) non-cash accounting charges from the anti-dilution
reset in number and price of certain warrants issued to our Series B preferred
stockholders in February 2001 ($1,968,000); (ii) non-cash accounting charges
from the exchange of 271,700 warrants into 218,828 shares of common stock by our
Series B preferred stockholders in April 2001 ($1,854,600); (iii) non-cash
accounting charges from the exchange of 1,409,297 warrants into 1,048,639 shares
of common stock by our Series C preferred stockholders in August 2001
($3,195,000) and (iv) dividends paid to our Series C preferred shareholders
through issuance of shares of common stock and from conversions of Series C
preferred stock into common stock (issued 85,856 shares valued at $1,196,900).
In the nine months ended September 30, 2000, as a result of the Redemption and
Exchange Agreement entered into in May 2000 with the holders of 13,000 of the
15,000 Series B preferred stock issued in December 1999 and the private
placement of convertible debt securities in September 2000, we incurred charges
of $14,412,100 consisting of the following: (i) the unamortized beneficial
conversion feature of the debt upon the conversion to the new Series C preferred
stock ($9,762,800); (ii) the premiums paid on the redemption of the Series B
preferred shares ($2,873,000); (iii) the repricing of existing warrants
($610,100); (iv) the issuance of new warrants ($715,000); and (v) professional
and other fees ($451,200). Additionally, in the nine months ended
September 30, 2000, we paid dividends to the holders of our Series B preferred
stock by issuing 1,952 shares of our common stock in April 2000 ($223,770).
Net Loss Applicable to Common Shareholders. As a result of the foregoing,
we recorded a net loss applicable to common shareholders of $14,336,300 for the
nine months ended September 30, 2001 compared to $35,644,200 for the nine months
ended September 30, 2000.
16
Liquidity and Capital Resources
-------------------------------
In the nine month period ended September 30, 2001, cash provided by
operating activities totaled $530,300. This was primarily due to our net loss
partially offset by depreciation and amortization charges and non-cash
compensatory stock options and warrants. During this period, we paid $3,000,000
as our initial payment for our acquisition of MDP in May 2001; paid $783,800 for
fixed assets; paid $126,200 against our capital leases, including the payoff of
a note payable assumed as a result of our acquisition of MDP; paid dividends to
the holders of Series B preferred stock with cash payments of $4,900; and paid
dividends totaling $1,196,900 to the holders of our Series C preferred stock by
issuing 85,856 shares of our common stock. These activities were principally
financed through available cash resources. After these activities, we had cash
and cash equivalents totaling $5,448,300 as of September 30, 2001.
These available funds continue to be used for operations, strategic
acquisitions, the further development of our products and services, and other
general corporate purposes. In May 2001, we acquired the assets of MDP
Corporation. We paid $3 million at closing and executed a $7 million promissory
note payable in May 2002. The acquisition of MDP has been and is expected to
continue to be accretive to our operations. In addition to our acquisition of
MDP, we continue to evaluate other acquisition opportunities and strategic
alternatives that may add synergies to our product offerings and business
strategy.
Through the second quarter of 2000, we had been aggressively implementing
our strategic plan which concentrated on providing a one-stop solution for
physicians and empowering them with Internet-enabled tools as desktop solutions.
As a result of our reassessment of our business plan, our new strategy is now
more tightly focused on leveraging our leading position as an independent back-
end connectivity provider rather than developing products and services for the
physician's desktop. Through strategic relationships and partnerships with
front-end solutions providers, our goal is to drive more healthcare transactions
through ProxyNet(R), our secure proprietary national electronic healthcare
information network, while remaining neutral in the battle for the physician's
desktop. Additionally, since we do have an existing customer base of physicians
and other healthcare providers, we expect that there will be opportunities to
increase revenues by cross-selling our existing products and services to these
current customers, as well as revenue opportunities from the development of new
services from our development efforts, including proxyMed.com, our healthcare
Internet portal. While we have reduced the specific groups within our
development workforce in an effort to control expenses, nevertheless, we remain
committed to developing additional capabilities and value-added products and
services to our back-end connectivity network and to proxyMed.com.
At the current time, we do not have any material commitments for capital
expenditures. However, we have identified approximately $700,000 in capital
expenditure purchases to be made in 2001 relating to HIPAA compliance for our
computer networks and facilities. Through September 30, 2001, we have spent
approximately $297,700 towards this project and may consider additional
expenditures in
17
2002. Additionally, we have reserved $350,000 for the software licensing
contingency deficiency that was brought to our attention in late 2000, and this
amount was paid in October 2001.
With our completed acquisition of MDP, we have monthly cash interest
charges of approximately $41,000 and a $7 million debt payment due in May 2002.
Based on our current level of revenues and expenditures, we believe that our
operations, including the operations of MDP, will provide funding for a portion
of this debt, but that we will need to raise funds through the issuance of
additional equity or debt in the public or private capital markets, the securing
of an asset-based line of credit, or the sale of non-core assets in order to pay
off any remaining debt, to fund specific research and development projects or to
pursue additional strategic acquisitions. Our ability to raise any additional
funds may be adversely affected if, among other things, we do not continue to
improve our operating performance or achieve increased market acceptance of our
products and services. There can be no assurance that any additional funding
will be available to us, or if available, that it will be available on
acceptable terms. If we are successful in obtaining additional financing, the
terms of the financing may have the effect of significantly diluting or
adversely affecting the holdings or the rights of the holders of our common
stock. Failure to obtain additional financing could have a material impact on
our financial position, our ability to operate in the ordinary course of
business, and our ability to successfully execute our business plan, and may put
us at a competitive disadvantage.
Through April 2000, we were incurring significant expense to expand our
proxyMed.com portal and to support our corporate staff. As a result, we reduced
expenditures, including the layoff of operations and corporate employees between
the fourth quarter of 2000 and the first quarter of 2001. Subsequent to
December 2000, we have successfully increased revenues and reduced our
expenses. We continue to achieve our goal of positive operational cash flows;
however, we must be able to maintain and increase our revenues and keep our
expenses in check to sustain this positive momentum. We believe that we can
continue to make progress in our business strategy and achieve net income
profitability in early 2002. While our payer services and laboratory services
divisions continue to generate positive cash flows, our prescription services
division has not generated positive cash flows to date. However, we continue
to believe that there will ultimately be significant opportunities in the
electronic prescription transaction industry segment. Today, we continue to
support our existing prescription services customers with appropriate levels of
service. Going forward, as the market generates greater transaction volume
through increased physician adoption and utilization, we intend to be ready to
take advantage of such opportunities.
18
New Accounting Pronouncements
-----------------------------
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 eliminates the pooling-of-interest method for business
combinations and requires application of the purchase method. SFAS No. 142
changes the accounting for goodwill from an amortization approach to a non-
amortization (impairment) approach. SFAS No. 142 requires amortization of
goodwill recorded in connection with previous business combinations to cease
upon adoption of the SFAS No. 142 by calendar year companies on January 1, 2002.
The Company is currently studying the impact of these statements on its
financial position, results of operations and cash flows.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
----------------------------------------------------------------------
Securities Litigation Reform Act of 1995
----------------------------------------
This document contains forward-looking statements that reflect our current
assumptions and expectations regarding future events. While these statements
reflect our current judgment, they are subject to risks and uncertainties.
Actual results may differ significantly from projected results due to a number
of factors, including, but not limited to, the soundness of our business
strategies relative to the perceived market opportunities; the successful
integration of our acquisition of MDP; our ability to successfully develop,
market, sell, cross-sell, install and upgrade our clinical and financial
transaction services and applications to new and current physicians, payers,
medical laboratories and pharmacies; our ability to compete effectively on price
and support services; our assessment of the healthcare industry's need, desire
and ability to become technology efficient; and our ability and that of our
business associates to comply with various government rules regarding healthcare
information and patient privacy. These and other risk factors are more fully
discussed in our filings with the Securities and Exchange Commission, which we
strongly urge you to read. We expressly disclaim any intent or obligation to
update any forward-looking statements. When used in this document, the words
"believes", "estimated", "expects", "anticipates", "may" and similar expressions
are intended to identify forward-looking statements.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Not Applicable.
19
PART II - OTHER INFORMATION
---------------------------
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 4. - Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits:
- None
(b) Reports on Form 8-K:
- July 2, 2001 - Amendment to report on the acquisition of the
assets of MDP Corporation previously filed on May 1, 2001.
- July 20, 2001 - Report on Second Quarter 2001 Teleconference call
held on July 11, 2001, including transcript thereon, pursuant to
Regulation FD.
- August 21, 2001 - Report on completion of exchange of warrants
issued in connection with ProxyMed's Series C Preferred
warrantholders and 1-for-15 reverse stock split.
20
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ProxyMed, Inc.
(Registrant)
November 13, 2001 /s/ Judson E. Schmid
----------------- -----------------------------
(Date) Judson E. Schmid
Executive Vice President and
Chief Financial Officer
21