Edgar Filing: PROXYMED INC /FT LAUDERDALE/

ProxyMed Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(Mark One)


þ	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004
or


o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 000-22052

PROXYMED, INC.

(Exact name of registrant as specified in its charter)


Florida		65-0202059

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


1854 Shackleford Court, Suite 200, Atlanta, Georgia		30093

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (770)-806-9918

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 Par Value
(Title of class)

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. þ Yes o No

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). þ Yes o No

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed using $17.07 per share, the closing price of the registrant’s common stock on the Nasdaq National Market as of the last business day of the registrant’s most recently completed second fiscal quarter, was $90,445,875.

As of March 11, 2005, 12,626,567 shares of the registrant’s common stock were issued and outstanding.

Documents Incorporated by Reference: Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Shareholders to be held on or about June 1, 2005, are incorporated by reference into Part III of this Annual Report on Form 10-K.

Explanatory Note

This Amendment No. 1 on Form 10-K/A, or Amendment No. 1, is being filed by ProxyMed, Inc. to amend our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed with the Securities and Exchange Commission, or SEC, on March 17, 2005.

This Amendment No. 1 corrects two typographical errors in Item 15. Exhibits And Financial Statement Schedules. Corrected data includes only the following:

	•	In the Consolidated Balance Sheet, the number of authorized shares of the Company.

	•	In Note 15 to the Financial Statements, the amount of Cash Paid for Interest for 2004.

The Exhibit Index is being supplemented to include a Letter Agreement dated as of March 8, 2005, between the Company and John D. Guinan (filed as Exhibit 10.46), which was inadvertently omitted from the Annual Report. The complete text of Item 15 and the Exhibit Index is included in this Amendment pursuant to Rule 12b-15 promulgated under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).

In addition, Item 15 and the Exhibit Index include the certifications required pursuant to Rules 13a-14(a)/15d-14(a) of the Exchange Act, which have been re-executed and re-filed as of the date of this Amendment. The certifications of our Chief Executive Officer and Chief Financial Officer are attached to this Amendment as Exhibits 31.1 and 31.2, respectively.

This Amendment No. 1 does not update any other disclosures to reflect developments since the original date of filing. Unaffected items have not been repeated in this Amendment No. 1, and no other changes have been made.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Page

)

The following financial statements are included in Part II, Item 8:

Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm

F-2

Report of Independent Registered Public Accounting Firm

F-3

Consolidated Balance Sheets — December 31, 2004 and 2003

F-4

Consolidated Statements of Operations — Years Ended December 31,

F-5

2004, 2003 and 2002

Consolidated Statements of Stockholders’ Equity — Years Ended

F-6

December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows — Years Ended December 31,

F-7

2004, 2003 and 2002

Notes to Consolidated Financial Statements

F-8 — F-48

)

The following schedule for the years 2004, 2003 and 2002 is submitted herewith:

Schedule II — Valuation and Qualifying Accounts — Years Ended

F-49

December 31, 2004, 2003 and 2002

)

Exhibits required to be filed by Item 601 of Regulation S-K as exhibits to this Report are listed in the Exhibit Index appearing on pages 60 through 65.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to Form 10-K for the year ended December 31, 2004 to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated: March 30, 2005	PROXYMED, INC.
	By:	/s/ Kevin M. McNamara
		Kevin M. McNamara
		Interim Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin M. McNamara and Gregory J. Eisenhauer and each of them, his true and lawful attorney-in-fact and agents, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities and 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.


SIGNATURES	TITLE	DATE

/s/ Kevin M. McNamara Kevin M. McNamara	Chairman of the Board and Interim Chief Executive Officer (principal executive officer)	March 30, 2005

/s/Gregory J. Eisenhauer Gregory J. Eisenhauer, CFA	Executive Vice President and Chief Financial Officer (principal financial and accounting officer)	March 30, 2005

/s/ William L. Bennett William L. Bennett	Director	March 30, 2005

/s/ Edwin M. Cooperman Edwin M. Cooperman	Director	March 30, 2005

/s/ Michael S. Falk Michael S. Falk	Director	March 30, 2005

/s/ Thomas E. Hodapp Thomas E. Hodapp	Director	March 30, 2005

/s/ Braden R. Kelly Braden R. Kelly	Director	March 30, 2005

/s/ Eugene R. Terry Eugene R. Terry	Director	March 30, 2005

PROXYMED, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements and Schedule


	PAGE
Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm		F-2

Report of Independent Registered Public Accounting Firm		F-3

Consolidated Balance Sheets — December 31, 2004 and 2003		F-4

Consolidated Statements of Operations — Years Ended December 31, 2004, 2003 and 2002		F-5

Consolidated Statements of Stockholders’ Equity — Years Ended December 31, 2004, 2003 and 2002		F-6

Consolidated Statements of Cash Flows — Years Ended December 31, 2004, 2003 and 2002		F-7

Notes to Consolidated Financial Statements		F-8 – F-48

Schedule II — Valuation and Qualifying Accounts — Years Ended December 31, 2004, 2003, and 2002		F-49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
ProxyMed, Inc.
Atlanta, Georgia

We have audited the accompanying consolidated balance sheet of ProxyMed, Inc. and its subsidiaries (the “Company”) as of December 31, 2004, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the Index at Item 15(a)(2) for the year ended December 31, 2004. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audit. The financial statements and financial statement schedule of the Company for the years ended December 31, 2003 and 2002 were audited by other auditors whose report, dated March 25, 2004, expressed an unqualified opinion on the financial statements and financial statement schedule and included an explanatory paragraph that described the adoption of Financial Accounting Standards Board Statement No. 142, Goodwill and Other Intangible Assets discussed in Note 9 to the financial statements.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ProxyMed, Inc. and its subsidiaries as of December 31, 2004, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein for the year ended December 31, 2004.

The accompanying consolidated financial statements for the year ended December 31, 2004 have been prepared assuming that the Company will continue as a going concern. As discussed in Note 21 to the financial statements, the Company’s potential inability to pay certain current debt obligations when due raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are described in Note 12(a). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 16, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ Deloitte & Touche LLP

Atlanta, Georgia
March 16, 2005

F-2

REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the
Shareholders of ProxyMed, Inc.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(l) on page (57) present fairly, in all material respects, the financial position of ProxyMed, Inc. and its subsidiaries (the “Company”) at December 31, 2003 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) on page (57) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 8 to the consolidated financial statements, pursuant to the adoption of Financial Accounting Standards Board Statement No. 142, Goodwill and Other Intangible Assets, the Company changed its method of accounting for goodwill in 2002.

/s/ PricewaterhouseCoopers LLP

Fort Lauderdale, Florida
March 25, 2004

F - 3

PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2004 and 2003
(amounts in thousands except for share and per share data)


Assets	2004			2003
Current assets:
Cash and cash equivalents	$	12,374		$	5,333
Accounts receivable — trade, net of allowance for doubtful accounts of $3,168 and $882 respectively		17,591			10,434
Other receivables		312			187
Inventory, net		1,775			3,347
Other current assets		1,399			1,908

Total current assets		33,451			21,209
Property and equipment, net		4,801			4,772
Goodwill, net		93,604			30,775
Purchased technology, capitalized software and other intangible assets, net		52,305			15,884
Restricted cash		75			291
Other long-term assets		167			199


Total assets	$	184,403		$	73,130

Liabilities and Stockholders’ Equity

Current liabilities:
Notes payable and current portion of long-term debt	$	2,178		$	1,712
Related party debt - See Notes 12(a) and 21		18,394			—
Accounts payable and accrued expenses and other current liabilities		13,637			8,264
Deferred revenue		691			721
Income taxes payable		215			—

Total current liabilities		35,115			10,697
Convertible notes		13,137			13,137
Other long term debt		206			2,057
Long-term deferred revenue and other long-term liabilities		863			1,461

Total liabilities		49,321			27,352


Commitments and contingencies — see Notes 18 and 19

Stockholders’ equity:
Series C 7% Convertible preferred stock — $.01 par value Authorized 300,000 shares; issued 253,265 shares; outstanding 2,000; liquidation preference $200		—			—
Common stock — $.001 par value. Authorized 30,000,000 shares; issued and outstanding 12,626,182 and 6,784,118 shares, respectively		13			7
Additional paid-in capital		239,255			146,230
Unearned compensation		(113	)		—
Accumulated deficit		(104,073	)		(100,273	)
Note receivable from stockholder		—			(186	)

Total stockholders’ equity		135,082			45,778

Total liabilities and stockholders’ equity	$	184,403		$	73,130

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

F-4

PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2004, 2003 and 2002
(amounts in thousands except for share and per share data)


	2004			2003			2002
Net revenues:
Transaction fees, cost containment services and license fees	$	73,538		$	51,813		$	28,455
Communication devices and other tangible goods		16,708			19,743			21,727

		90,246			71,556			50,182


Costs and expenses:
Cost of transaction fees, cost containment services and license fees excluding depreciation and amortization		22,626			15,917			8,858
Cost of laboratory communication devices and other tangible goods excluding depreciation and amortization		11,586			16,504			17,158
Selling, general and administrative expenses		48,023			35,809			20,152
Depreciation and amortization		9,763			6,316			2,636
Loss on disposal of assets		47			111			—
Litigation settlement		175			—			—
Write-off of impaired and obsolete assets		—			541			38

		92,220			75,198			48,842


Operating income (loss)		(1,974	)		(3,642	)		1,340

Other income (expense), net		134			(496	)		265
Interest income (expense), net		(1,920	)		(862	)		345


Income (loss) before income taxes		(3,760	)		(5,000	)		1,950

Provision for income taxes		40			—			—


Net income (loss)		(3,800	)		(5,000	)		1,950

Deemed dividends and other charges		—			—			612


Net income (loss) applicable to common shareholders	$	(3,800	)	$	(5,000	)	$	1,338


Basic weighted average shares outstanding		11,617,601			6,783,742			6,322,086


Basic earnings (loss) per share	$	(0.33	)	$	(0.74	)	$	0.21


Diluted weighted average shares outstanding		11,617,601			6,783,742			6,396,893


Diluted earnings (loss) per share	$	(0.33	)	$	(0.74	)	$	0.21

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

F-5

PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
Years Ended December 31, 2004, 2003 and 2002
(amounts in thousands except for share and per share data)


	Series C																		Note
	Preferred stock					Common stock													receivable
	Number			Par		Number		Par		Additional			Unearned			Accumulated			from
	of shares			value		of shares		value		paid-in capital			Compensation			deficit			stockholder			Total
Balances, December 31, 2001		34,650		$	—		4,894,433	$	5	$	120,277		$	—		$	(97,223	)	$	(186	)	$	22,873
Sales of common stock, net of expenses of $139		—			—		1,569,366		2		24,884			—			—			—			24,886
Common stock issued for acquired business		—			—		30,034		—		600			—			—			—			600
Conversions of Series C preferred stock pursuant to Conversion Offer		(31,650	)		—		242,508		—		—			—			—			—			—
Conversions of Series C preferred stock		(1,000	)		—		6,666		—		—			—			—			—			—
Exchange of Series B warrants into common stock		—			—		34,500		—		450			—			—			—			450
Exchange of Series C warrants into common stock		—			—		1,190		—		—			—			—			—			—
Dividends on preferred stock		—			—		4,241		—		—			—			—			—			—
Other, net		—			—		—		—		(24	)		—			—			—			(24	)
Net income		—			—		—		—		—			—			1,950			—			1,950

Balances, December 31, 2002		2,000			—		6,782,938		7		146,187			—			(95,273	)		(186	)		50,735
Exercise of stock options		—			—		555		—		7			—			—			—			7
Other, net		—			—		625		—		36			—			—			—			36
Net loss		—			—		—		—		—			—			(5,000	)		—			(5,000	)

Balances, December 31, 2003		2,000			—		6,784,118		7		146,230			—			(100,273	)		(186	)		45,778
Exercise of stock options		—			—		1,558		—		16			—			—			—			16
Exercise of warrants		—			—		549,279		—		8,750			—			—			—			8,750
Common stock issued for acquired Business		—			—		3,600,000		4		59,756			—			—			—			59,760
Sales of common stock, net		—			—		1,691,227		2		24,048			—			—			—			24,050
Unearned compensation charge for options		—			—		—		—		295			(295	)		—			—			—
Compensatory option charges		—			—		—		—		92			182			—			—			274
Compensatory option charge included in loss on disposal of assets		—			—		—		—		68			—			—			—			68
Repayment of note receivable from shareholder		—			—		—		—		—			—			—			186			186
Net loss		—			—		—		—		—			—			(3,800	)		—			(3,800	)

Balances, December 31, 2004		2,000		$	—		12,626,182	$	13	$	239,255		$	(113	)	$	(104,073	)	$	—		$	135,082

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

F-6

PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2004, 2003 and 2002
(amounts in thousands except for share and per share data)


	2004			2003			2002
Cash flows from operating activities:
Net income (loss)	$	(3,800	)	$	(5,000	)	$	1,950
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		9,763			6,316			2,636
Provision for doubtful accounts		858			152			38
Provision for obsolete inventory		92			28			—
Non-cash interest (income) expense		(59	)		54			—
Gain on settlement of liability		(134	)		—			—
Write-off of obsolete and impaired assets		—			541			38
Compensatory stock options and warrants and stock compensation awards issued		275			—			—
Write-off of investment		—			496			—
Loss on disposal of fixed assets		47			111			—
Changes in assets and liabilities, net of effect of acquisitions and dispositions:
Accounts and other receivables		548			(498	)		(1,445	)
Inventory		(1,329	)		(601	)		747
Other current assets		465			430			(30	)
Accounts payable and accrued expenses		124			(1,173	)		(1,150	)
Accrued expenses of PlanVista paid by ProxyMed		(4,011	)		—			—
Deferred revenue		137			222			76
Income taxes		(418	)		—			—
Prepaid and other, net		(727	)		440			(12	)

Net cash provided by operating activities		1,831			1,518			2,848


Cash flows from investing activities:
Acquisition of businesses, net of cash acquired		782			—			(14,453	)
Acquisition of assets		—			—			(700	)
Short term investments		—			—			(15,000	)
Redemption of short term investments		—			—			15,000
Capital expenditures		(3,440	)		(2,601	)		(1,561	)
Capitalized software		(909	)		(1,426	)		(445	)
Collection of notes receivable		374			120			65
Proceeds from sale of fixed assets		4,526			395			—
Decrease in restricted cash		215			534			—
Payments for acquisition-related costs		(884	)		(6,623	)		(96	)

Net cash provided by (used in) investing activities		664			(9,601	)		(17,190	)


Cash flows from financing activities:
Net proceeds from sale of common stock		24,100			—			24,886
Proceeds from exercise of stock options and warrants		8,766			7			450
Draws on line of credit		4,900			—			—
Repayments of line of credit		(4,900	)		—			—
Payment of note payable related to acquisition of business		—			—			(7,000	)
Payment of related party note payable		(2,000	)		—			—
Payment of notes payable, long-term debt and capital leases		(26,320	)		(2,969	)		(217	)

Net cash provided by (used in) financing activities		4,546			(2,962	)		18,119


Net increase (decrease) in cash and cash equivalents		7,041			(11,045	)		3,777
Cash and cash equivalents at beginning of year		5,333			16,378			12,601

Cash and cash equivalents at end of year	$	12,374		$	5,333		$	16,378

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

F-7

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(1) Business and Summary of Significant Accounting Policies

	(a)	Business of ProxyMed — ProxyMed, Inc. (“ProxyMed” or “the Company”) is an electronic healthcare transaction and cost containment processing services company providing connectivity and related value-added products to physician offices, payers, medical laboratories, pharmacies and other healthcare providers. ProxyMed’s corporate headquarters are located in Atlanta, Georgia and its products and services are provided from various operational facilities located throughout the United States. The Company also operates its clinical computer network and portions of its financial and real-time production computer networks from a secure, third-party co-location site in Atlanta, Georgia.

	(b)	Principles of Consolidation — The consolidated financial statements include the accounts of ProxyMed and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

	(c)	Use of Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

	(d)	Revenue Recognition — Revenue is derived from the Company’s Transaction Services and Laboratory Communication Solutions segments.

		In its Transaction Services segment, the Company provides transaction and value-added services principally between healthcare providers and insurance companies, and physicians and pharmacies. Such transactions and services include Electronic Data Interchange (“EDI”) claims submission and reporting, insurance eligibility verification, claims status inquiries, referral management, electronic remittance advice, patient statement processing, encounters, and cost containment transaction services including claims repricing and bill renegotiation. In the Laboratory Communication Solutions segment, the Company sells, rents and services intelligent remote reporting devices and provides lab results reporting through its software products.

		Transaction Services revenues are derived from insurance payers, pharmacies and submitters (physicians and other entities including billing services, practice management software vendors, claims aggregators, etc.). Such revenues are recorded on either a per transaction fee basis or on a flat fee basis (per physician, per tax ID, etc.) and are recognized in the period the service is rendered. Agreements between the Company and payers or pharmacies are for one to three years on a non-exclusive basis. Agreements with submitters are generally for one year, renew automatically, and are generally terminable thereafter upon 30 to 90 days notice. Transaction fees vary according to the type of transaction and other factors, including volume level commitments.

F-8

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		Revenue from Medical Cost Containment business in the Transaction Services segment is recognized when the services are performed and are recorded net of their estimated allowances. These revenues are primarily in the form of fees generated from the discounts the Company secures for the payers that access its provider network. The Company enters into agreements with its healthcare payer customers that require them to pay a percentage of the cost savings generated from the Company’s network discounts with participating providers. These agreements are generally terminable upon 90 days notice. Revenue from a percentage of savings contract is generally recognized when the related claims processing and administrative services have been performed. The remainder of the Company’s revenue from its Medical Cost Containment business is generated from customers that pay a monthly fee based on eligible employees enrolled in a benefit plan covered by the Company’s health benefits payers’ clients.

		Also in the Transaction Services segment, certain transaction fee revenue is subject to revenue sharing pursuant to agreements with resellers, vendors or gateway partners and is recorded as gross revenues in accordance with EITF No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” Such revenue sharing amounts are based on a per transaction amount or a percentage of revenue basis and may involve increasing amounts or percentages based on transaction or revenue volumes achieved.

		Revenue from certain up-front fees charged primarily for the development of EDI for payers and the implementation of services for submitters in the Transaction Services segment is amortized ratably over three years, which is the expected life of the customer, in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition” (“SAB No. 104”).

		Revenue from support and maintenance contracts on the Company’s products in both the Transaction Services and Laboratory Communication Solutions segments is recognized ratably over the contract period, which does not exceed one year. Such amounts are billed in advance and established as deferred revenue.

		In the Company’s Laboratory Communication Solutions segment, revenue from sales of inventory 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 in accordance with SAB No. 104.

		Revenues from maintenance fees on laboratory communication devices are charged on an annual or quarterly basis and are recognized ratably over the service period. Service fees may also be charged on a per event basis and are recognized after the service has been performed.

		Revenue from the rental of laboratory communication devices is recognized ratably over the applicable period of the rental contract. Such contracts require monthly rental payments and are for a one to three year term, then renewing on a month to month basis after the initial term is expired. Contracts may be cancelled upon 30 days notice. A significant amount of rental revenues are derived from contracts that are no longer under the initial non-cancelable term. At the end of the rental period, the customer may return or purchase the unit for fair market value. Upon sale of the revenue earning equipment, the gross proceeds are included in net revenues and the undepreciated cost of the equipment sold is included in cost of sales.

F-9

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

	(e)	Fair Value of Financial Instruments — Cash and cash equivalents, notes and other accounts receivable, and restricted cash are financial assets with carrying values that approximate fair value. Accounts payable, other accrued expenses and liabilities, notes payable, and short-term and long-term debt are financial liabilities with carrying values that approximate fair value. The notes payable bear interest rates that approximate market rates.

	(f)	Cash and Cash Equivalents — The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash balances in excess of immediate needs are invested in bank certificates of deposit, money market accounts and commercial paper with high-quality credit institutions. At times, such amounts may be in excess of FDIC insurance limits. The Company has not experienced any loss to date on these investments. Cash and cash equivalents used to support collateral instruments, such as letters of credit, are reclassified as either current or long-term assets depending upon the maturity date of the obligation they collateralize.

	(g)	Reserve for Doubtful Accounts/Revenue Allowances/Bad Debt Estimates — The Company relies on estimates to determine the bad debt expense and the adequacy of the reserve for doubtful accounts receivable. These estimates are based on the Company’s historical experience and the industry in which it operates. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Additionally, in the Medical Cost Containment business, the Company evaluates the collectibility of its accounts receivable based on a combination of factors, including historical collection ratios.

		In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, it records a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount it reasonably believes will be collected. For all other customers, the Company recognizes reserves for bad debts based on past write-off history and the length of time the receivables are past due. To the extent historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, loss experience could differ significantly, resulting in either higher or lower future provision for losses.

	(h)	Inventory — Inventory, consisting of component parts, materials, supplies and finished goods (including direct labor and overhead) used to manufacture laboratory communication devices, is stated at the lower of cost (first-in, first-out method) or market. Reserves for inventory shrinkage are maintained and are periodically reviewed by management based on our judgment of future realization.

	(i)	Property and Equipment — Property and equipment is stated at cost and includes revenue earning equipment. Depreciation of property and equipment is calculated on the straight-line method over the estimated useful lives generally over 2 to 7 years. Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or the estimated useful lives of the assets.

F-10

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		Upon sale or retirement of property and equipment, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gains or losses are reflected in operating expenses for the period. Maintenance and repair of property and equipment are charged to expense as incurred. Renewals and betterments are capitalized and depreciated. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for Impairment or Disposition of Long-lived Assets,” management periodically reviews the Company’s fixed assets for obsolescence, damage and impairment. This review indicates whether the assets will be recoverable based on estimated future cash flows on an undiscounted basis and determines if any impairment has occurred.

	(j)	Intangible Assets

		Goodwill — Goodwill is reviewed at least annually for impairment. In addition, SFAS No. 142 requires that goodwill be tested for impairment at least annually utilizing “fair value” methodology. We completed our most recent annual test at December 31, 2004 utilizing cash flow-based market comparables in assessing fair value for our goodwill impairment testing and we concluded that there was no impairment of our goodwill. To the extent that future cash flows differ from those projected in our analysis, fair value of the Company’s goodwill may be affected and may result in an impairment charge.

		Other Intangibles — Other acquired intangible assets, consisting of customer relationships and provider networks, are being amortized on a straight-line or accelerated basis over their estimated useful lives of 4.6 to 12 years.

		The Company reviews the carrying values of acquired technology and intangible assets if the facts and circumstances suggest that they may be impaired. This evaluation indicates whether assets will be recoverable based on estimated future undiscounted cash flows. If the assets are not recoverable, an impairment charge is recognized if the carrying value exceeds the estimated fair value.

		Purchased Technology and Capitalized Software — The Company has recorded amounts related to various software and technology that it has purchased or developed for its own internal systems use.

		Internal and external costs incurred to develop internal-use computer software during the application development stage are capitalized. Application development stage costs generally include software configuration, coding, installation to hardware and testing. Costs of upgrades and major enhancements that result in additional functionality are also capitalized. Costs incurred for maintenance and minor upgrades are expensed as incurred. All other costs are expensed as incurred as research and development expenses (which are included in selling, general and administrative expenses). Capitalized internal-use software development costs are periodically evaluated by ProxyMed for indications that the carrying value may be impaired or that the useful lives assigned may be excessive. This evaluation indicates whether assets will be recoverable based on estimated future cash flows on an undiscounted basis, and if they are not recoverable, an impairment charge is recognized if the carrying value exceeds the estimated fair value.

F-11

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		Purchased technology and capitalized software are being amortized on a straight-line basis over their estimated useful lives of 1 to 12 years. Purchased technology and capitalized software and related accumulated amortization are removed from the accounts when fully amortized and are no longer being utilized.

		Research and Development — Software development costs incurred prior to the application development stage are charged to research and development expense when incurred. Research and development expense of approximately $2.3 million in 2004, $4.4 million in 2003, and $3.2 million in 2002 was recorded in selling, general and administrative expenses.

	(k)	Income Taxes — Deferred income taxes are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are also established for the future tax benefits of loss and credit carryovers. Valuation allowances are established for deferred tax assets when, based on the weight of available evidence, it is deemed more likely than not that such amounts will not be realized.

	(l)	Net Income (Loss) Per Share — Basic net income (loss) per share is computed by dividing net income (loss) applicable to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per share reflects the potential dilution from the exercise or conversion of securities into common stock. The following schedule sets forth the computation of basic and diluted net income (loss) per share for the years ended December 31, 2004, 2003 and 2002:


In thousands except for share and per share data	2004			2003			2002

Net income (loss) applicable to common shareholders	$	(3,800	)	$	(5,000	)	$	1,338


Common shares outstanding:
Weighted average common shares used in computing basic net income (loss) per share		11,617,601			6,783,742			6,322,086
Plus incremental shares from assumed conversions:
Convertible preferred stock		—			—			13,833
Stock options		—			—			11,464
Warrants		—			—			49,510

		—			—			74,807


Weighted average common shares used in computing diluted net income (loss) per share		11,617,601			6,783,742			6,396,893


Net income (loss) per common share:
Basic	$	(0.33	)	$	(0.74	)	$	0.21


Diluted	$	(0.33	)	$	(0.74	)	$	0.21

F-12

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

However, the following shares were excluded from the calculation of net loss per share in the periods noted because their effects would have been anti-dilutive:


	2004		2003		2002
Convertible preferred stock		13,333		13,333		—
Stock options		1,812,909		1,426,670		811,799
Warrants		900,049		1,460,994		318,797

		2,726,291		2,900,997		1,130,596

		For the year ended December 31, 2002, the shares noted above were excluded from the calculation of diluted per share results because the exercise price of these options and warrants was greater than the average market price of the Company’s common stock during the period.

		Additionally, 238,989 shares issuable upon conversion of $4.4 million in convertible notes (as a result of meeting the first revenue threshold in the fourth quarter of 2003) issued in connection with the Company’s acquisition of MedUnite in December 2002 are excluded from the calculation for years ended December 31, 2004 and 2003 because their effect would also be anti-dilutive.

	(m)	Stock-based Compensation — ProxyMed applies Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and related interpretations in accounting for its stock-based compensation plans. The Company measures compensation expense related to the grant of stock options and stock-based awards to employees (including independent directors) in accordance with the provisions of APB No. 25. In accordance with APB No. 25, compensation expense, if any, is generally based on the difference between the exercise price of an option, or the amount paid for an award, and the market price or fair value of the underlying common stock at the date of the award or at the measurement date for variable awards. Stock-based compensation arrangements involving non-employees are accounted for under SFAS No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS No. 148”), under which such arrangements are accounted for based on the fair value of the option or award.

		Under SFAS No. 123, as amended by SFAS No. 148, compensation cost for the Company’s stock-based compensation plans would be determined based on the fair value at the grant dates for awards under those plans. The assumptions underlying the fair value calculations of the stock option grants are presented in Note 15 Management has completed an analysis of the weighted average duration (or actual life) of their stock options and concluded that as of 2004, the appropriate estimated life is 6 years. Had the Company adopted SFAS No. 123 in accounting for its stock option plans, the Company’s consolidated net income (loss) and net income (loss) per share for the years ended December 31, 2004, 2003 and 2002 would have been adjusted to the pro forma amounts indicated as follows:

F-13

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued


In thousands except for per share data	2004			2003			2002

Net income (loss) applicable to common shareholders, as reported	$	(3,800	)	$	(5,000	)	$	1,338
Deduct: Total stock-based employee pro forma compensation expense determined under fair value based method for all awards, net of related tax effects (1)		(2,717	)		(4,378	)		(6,814	)
Addback charges already taken for intrinsic value of options		115			—			—

Pro forma net loss	$	(6,402	)	$	(9,378	)	$	(5,476	)

Basic net income (loss) per common share:
As reported	$	(0.33	)	$	(0.74	)	$	0.21
Pro forma	$	(0.55	)	$	(1.38	)	$	(0.87	)
Diluted net income (loss) per common share:
As reported	$	(0.33	)	$	(0.74	)	$	0.21
Pro forma	$	(0.55	)	$	(1.38	)	$	(0.87	)

(1) The following ranges of assumptions were used in the calculation of pro forma compensation expense for the periods presented:
Risk-free interest rate		3.8%-4.8%			3.4%-4.4%			3.9%-5.2%
Expected life	6 years			10 years			10 years
Expected volatility		75%-77%			81%			81%
Dividend yield		0%			0%			0%

(n)

New Accounting Pronouncements — In September 2004, the Financial Accounting Standards Board (“FASB”) issued EITF No. 04-8, “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share” (“EITF No. 04-8”). EITF No. 04-8 addresses when the dilutive effect of contingently convertible debt instruments should be included in diluted earnings per share and requires that contingently convertible debt instruments are to be included in the computation of diluted earnings per share regardless of whether the market price or other trigger has been met. EITF No. 04-8 also requires that prior period diluted earnings per share amounts presented for comparative purposes be restated. EITF No. 04-8 is effective for reporting periods ending after December 15, 2004. As a result of the issuance of EITF No. 04-8, shares convertible from the Company’s $13.1 million convertible notes may be required to be included in the calculation of earnings per share in periods of net income; however, the FASB has yet to reach a conclusion as to the effect of non market price triggers on earnings per share calculations in situations where the instrument contains only non-market price trigger, such as the Company’s convertible notes, and therefore the impact to the Financial Statements is not determinable at this time.

F-14

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

In December 2004, the FASB issued SFAS No. 123R, “Shared-Based Payments (Revised 2004)”. SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supercedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” and its related guidance. SFAS No. 123R requires public entities to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be estimated using option-pricing models adjusted for the unique characteristics of those instruments and will be recognized and expensed over the period which an employee is required to provide service in exchange for the award (usually the vesting period). Fair value is based on market prices (if those prices are publicly available). If not available, SFAS 123R does not specifically require the use of a particular model; however, the most common models are the Black-Scholes model and lattice (binomial) models. Additionally, modifications to an equity award after the grant date will require a compensation cost to be recognized in an amount equal to the excess of the fair value of the modified award over the fair value of the award immediately before the modification. The effective date of SFAS No. 123R is for interim and annual reporting periods beginning after June 15, 2005. The Company has not completed the process of evaluating the impact that will result from adopting FASB Statement No. 123R and is therefore unable to disclose the impact that adoption will have on its financial position and results of operations.

(2) Acquisition of Businesses

(a)

PlanVista – On March 2, 2004, the Company acquired all of the capital stock of PlanVista Corporation, a publicly-held company located in Tampa, Florida and Middletown, New York that provides medical cost containment and business process outsourcing solutions, including claims repricing services, for the medical insurance and managed care industries, as well as services for healthcare providers, including individual providers, preferred provider organizations and other provider groups, for 3,600,000 shares of ProxyMed common stock issued to PlanVista’s shareholders. In addition, ProxyMed assumed debt and other liabilities of PlanVista totaling $46.4 million, and incurred $1.3 million in acquisition related expenses. The value of these shares was $59.8 million based on the average closing price of ProxyMed’s common stock for the day of and the two days before and after the announcement of the definitive agreement on December 8, 2003 in accordance with EITF No. 99-12, “Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in Purchase Business Combination”. Additionally, ProxyMed raised $24.1 million in a private placement sale of 1,691,227 shares of its common stock to various entities affiliated with General Atlantic Partners and Commonwealth Associates to partially fund repayment of PlanVista’s debts and other obligations outstanding at the time of the acquisition. The acquisition enables the Company to offer a new suite of products and services, provide new end-to-end services, increase sales opportunities with payers, strengthen business ties with certain customers, expand technological capabilities, reduce operating costs and enhance its public profile.

F-15

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		The Company had previously entered into a joint marketing agreement with PlanVista for the sale of PlanVista’s services in June 2003. As part of that agreement, PlanVista granted the Company a warrant to purchase 15% of the number of outstanding shares of PlanVista common stock on a fully-diluted basis as of the time of exercise for $1.95 per share. The warrant was exercisable immediately and expired in December 2003. The warrant was accounted for at its cost under Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” since it did not meet the conditions necessary to be accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. Upon expiration of the warrant in December 2003, the Company recorded an impairment loss in the amount $0.5 million (representing the initial value of the warrant, calculated using a Black Scholes model) which was reflected in other expense in the Company’s consolidated statement of operations for the year ended December 31, 2003.

		Following consummation of the acquisition, PlanVista’s common stock was delisted from the Over the Counter Bulletin Board, and each share of PlanVista’s outstanding common stock was cancelled and converted into the right to receive 0.08271 of a share of the Company’s common stock and each holder of PlanVista series C preferred stock received 51.5292 shares of the Company’s common stock in exchange for each share of PlanVista series C preferred stock, all of which represented approximately 23% of the Company’s common stock on a fully converted basis. The holders of the Company’s outstanding stock, options and warrants at the date of the acquisition of PlanVista retained approximately 77% of the Company after the acquisition.

F-16

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

An allocation of the purchase price is as follows. All items are considered final except for the disputed New York State tax liability as discussed below:


In thousands
Common stock issued	$	59,760
Acquisition-related costs		1,328
Other adjustments		(642	)

Total purchase price		60,446


Allocation of purchase price:
Cash and cash equivalents		(782	)
Accounts receivable, net		(9,470	)
Other current assets		(381	)
Property and equipment, net		(658	)
Customer relationships		(24,600	)
Provider network		(16,200	)
Technology platforms		(1,180	)
Other long-term assets		(360	)
Accounts payable and accrued expenses		9,612
Income taxes payable		633
Notes payable, debt and other obligations		44,889
Other long-term liabilities		880

Goodwill	$	62,829

		As reported in the Company’s Form 10-Q/A for the period ended March 31, 2004, the excess of the consideration paid over the estimated fair value of net assets acquired in the amount of $61.0 million was initially recorded as goodwill. Due to adjustments for settled pre-acquisition contingencies of $0.7 million, potential exposure of other pre-acquisition contingencies of $0.6 million, adjustments to accrued network fees of $0.4 million and other net adjustments of $0.1 million recorded after the initial recording of the transaction, the excess of the consideration paid over the estimated fair value of net assets acquired has increased by $1.8 million to $62.8 million. Of this amount, the Company has determined that $20.7 million is tax deductible goodwill.

		The weighted average useful life of the customer relationships is approximately 12.0 years, the weighted average useful life of the provider network is 10.0 years, and the weighted average useful life of the technology platforms is 4.5 years. The valuation of PlanVista’s provider network and technology platforms was based on management’s estimates which included consideration of a replacement cost methodology. The value of the customer relationships was calculated on a discounted cash flow model.

		Additionally, the Company reduced the purchase price by $0.6 million related to the marketing agreement with PlanVista from June 2003 (shown as “other adjustments” in the preceding purchase price allocation table). The results of PlanVista’s operations have been included in the Company’s consolidated financial statements since March 2004 in its Transaction Services segment.

		At the time of its acquisition by the Company, PlanVista was involved in various lawsuits and threatened litigation. To date, a significant number of these cases have been settled or dismissed and resulted in $0.7 million charged to goodwill and $0.2 million charged to expense in 2004. As of December 31, 2004, the unresolved pre-acquisition contingencies include: (i) a lawsuit filed against a former subsidiary of PlanVista for which the Company intends to vigorously defend itself but for which the Company has determined exposure to be in a range of $0.6 million to $1.6 million and has accrued $0.6 million at December 31, 2004; (ii) a disputed $2.8 million New York State tax liability; and (iii) a class action suit in which PlanVista is named defendant for which the Company is still evaluating the merits of the case and cannot yet draw a conclusion as to the outcome. In the case of the New York State tax dispute, any settlement paid would be charged to goodwill in accordance with EITF No. 93-7, “Uncertainties Related to Income Taxes in a Purchase Business Combination”.

F-17

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		The issuance of the 3,600,000 shares of Company common stock to the PlanVista stockholders was registered under the Securities Act of 1933 pursuant to the Company’s registration statement on Form S-4 (File No. 333-111024) (the “Registration Statement”) filed with the SEC and declared effective on February 2, 2004.

		In connection with this transaction, on March 1, 2004, the Company’s shareholders approved (1) an amendment to the Company’s articles of incorporation to increase the total number of authorized shares of the Company’s common stock from 13,333,333 shares to 30,000,000 shares; (2) the issuance of 1,691,227 shares of the Company’s common stock at $14.25 per share in a private equity offering valued at $24.1 million (to retire debt of PlanVista and pay certain expenses associated with the merger); (3) the issuance of 3,600,000 shares of the Company’s common stock in connection with the PlanVista merger; and (4) an amendment to the Company’s 2002 Stock Option Plan to increase the total number of shares available for issuance from 600,000 to 1,350,000. Additionally, one director of PlanVista was appointed to the Company’s board of directors to fill a vacancy left by a former ProxyMed director who resigned in February 2003.

		All officers and employees of PlanVista, with the exception of PlanVista’s Chief Financial Officer, continued employment with the Company. In May 2004, PlanVista’s Chief Executive Officer announced his resignation and effective September 1, 2004, he became a consultant to the Company. Under the terms of this agreement, he is allowed to continue to vest in the stock options he received at the time of the acquisition of PlanVista (see Note 15).

F-18

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		Additionally, certain officers, directors and employees of PlanVista were granted options to purchase an aggregate of 200,000 shares of ProxyMed common stock at an exercise price of $17.74 per share. Of these original options granted, 173,120 were to vest two-thirds on the first anniversary date of the grant and one-third on the third anniversary date of the grant. Since the exercise price was less than the market price as of the date of issuance, the Company is recording periodic non-cash compensation charges over the vesting period of the options based on the intrinsic value method. For the year ended December 31, 2004, the Company recorded a non-cash compensation charge of $0.1 million for these options. Subsequent to the original issuance of these options, 10,608 stock options have been cancelled due to separation of employment with the Company. In addition, 68,543 granted to the PlanVista’s former Chief Executive Officer as a result of his resignation effective September 1, 2004 have been modified due to his change in employment status (see Note 15). The balance of 26,880 options was granted to PlanVista’s former Chief Financial Officer in connection with a consulting arrangement with him. Fifty percent of these options vested immediately upon the change of control and 25% vest on each of the three month and six month anniversaries of the change in control. The Company recorded a charge of approximately $0.1 million in compensation expense associated with this grant in the three months ended March 31, 2004 utilizing a Black-Scholes model using the following assumptions: risk-free interest rate of 1.2%, expected life of 9 months, expected volatility of 42% and no dividend yield.

		The following unaudited pro forma summary presents the consolidated results of operations of ProxyMed and PlanVista as if the acquisitions of these businesses had occurred on January 1, 2004 and on January 1, 2003. These pro forma results do not necessarily represent results that would have occurred if the acquisition had taken place on that date, or of results that may occur in the future.


In thousands except for per share data	2004			2003
Revenues	$	95,914		$	104,644
Cost of sales	$	35,655		$	40,867
Selling, general and administrative expenses	$	50,373		$	49,282
Operating income (loss)	$	(881	)	$	1,429
Interest expense, net	$	(2,227	)	$	(2,064	)
Net loss	$	(3,114	)	$	(1,516	)
Basic and diluted net loss per share of common stock	$	(0.25	)	$	(0.13	)

F-19

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(b)

MedUnite — On December 31, 2002, the Company acquired all of the capital stock of MedUnite, Inc., a privately-held company founded by seven of the nation’s largest health insurers to provide healthcare claims processing services, for $10.0 million in cash, $13.4 million in 4% convertible promissory notes, and acquisition-related and exit costs of $6.7 million (originally estimated at $8.3 million at December 31, 2002). The purchase price was allocated as follows:


	As
	Originally			As
In thousands	Reported			Adjusted

Cash paid	$	10,000		$	10,000
Convertible debt issued		13,400			13,137
Acquisition-related and exit costs		8,321			6,700

Total purchase price		31,721			29,837


Allocation of purchase price:
Cash		(879	)		(879	)
Other current assets		(3,805	)		(3,770	)
Property and equipment		(1,793	)		(1,913	)
Customer relationships		(6,600	)		(6,600	)
Purchased technology		(6,000	)		(6,000	)
Other long-term assets, including restricted cash		(1,033	)		(1,033	)
Current liabilities		9,515			9,638
Other long-term liabilities		1,233			1,057

Goodwill	$	22,359		$	20,337

The excess of the consideration paid over the estimated fair value of net assets acquired in the amount of $20.3 million was recorded as goodwill (originally recorded at $22.4 million at December 31, 2002), none of which is deductible for income tax purposes (see Note 14). The weighted average useful life of the customer relationships at acquisition was approximately 10 years and the weighted average useful life of the purchased technology is 4.2 years. The valuation of MedUnite’s real-time processing platform was based on management’s estimates which included consideration of utilizing a replacement cost methodology while the value of the customer relationships was calculated on a discounted cash flow model. The results of MedUnite’s operations have been included in the Company’s consolidated financial statements since January 1, 2003 in its Transaction Services segment.

F-20

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

	The 4% convertible promissory notes are uncollateralized and mature on December 31, 2008. Interest is payable quarterly in cash in arrears. The notes were convertible into an aggregate of 731,322 shares of the Company’s common stock (based on a conversion price of $18.323 per share which was above the traded fair market value of the Company’s common stock at December 31, 2002) if the former shareholders of MedUnite achieve certain aggregate incremental revenue based targets over a baseline revenue of $16.1 million with the Company over the next three and one-half year period as follows: (i) one-third of the principal if incremental revenues during the measurement period from January 1, 2003 through June 30, 2004 are in excess of $5.0 million; (ii) one-third of the principal if incremental revenues during the measurement period from July 1, 2004 through June 30, 2005 are in excess of $12.5 million; and (iii) one-third of the principal if incremental revenues during the measurement period from July 1, 2005 through June 30, 2006 are in excess of $21.0 million. Amounts in excess of any measurement period will be credited towards the next measurement period; however, if the revenue trigger is not met for any period, the ability to convert that portion of the principal is lost. In the fourth quarter of 2003, the first revenue target was met.

	Of the original $13.4 million in principal amount, $4.0 million was held in escrow until December 31, 2003 as a source for limited indemnification conditions of the acquisition. In the fourth quarter of 2003, the escrow agent accepted a claim of $0.4 million from ProxyMed. This claim was settled with the Company via a cash payment of $0.1 million (paid out of undistributed interest received) and an offset against the escrow of $0.3 million. As such, the Company recorded an adjustment to goodwill. The escrow was released on December 31, 2003 and convertible notes totaling $3.7 million were distributed to the former shareholders of MedUnite. The total amount of convertible notes as of December 31, 2004 is $13.1 million. Additionally, as a result of the reduction in principal, the notes are now convertible into 716,968 shares of the Company’s common stock subject to achieving the revenue triggers.

	MedUnite had incurred significant losses since its inception and was utilizing cash significantly in excess of amounts it was generating. As a result, at the time it was acquired by ProxyMed, there were substantial liabilities and obligations (both known and unknown at December 31, 2002) associated with the business. Subsequent to the acquisition by ProxyMed, MedUnite’s senior management team was terminated along with approximately 20% of the general workforce in an effort to eliminate duplicative positions and control these costs. As a result of the workforce reduction, the company paid $2.2 million in severance which was recorded as an adjustment to goodwill.

	As a result of the acquisition, all notes payable, convertible notes and related accrued interest to MedUnite’s shareholders with a carrying value of $23.4 million (except for a $2.3 million note payable issued to NDCHealth Corporation (“NDCHealth”) in August 2001, plus $0.2 million of accrued interest on this note, and a $2.6 million note payable issued to NDC on December 31, 2002, together known as the “NDCHealth Debt”) were cancelled. Additionally, as part of the acquisition, NDCHealth released MedUnite from $4.0 million of the NDCHealth Debt and agreed to amend certain existing MedUnite agreements in favor of future relationships with ProxyMed to be entered into in good faith. The remaining $1.1 million was included in accrued expenses at December 31, 2002 and ultimately refinanced under the note payable described below in April 2003.

F-21

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

	Additionally, during 2003, the Company was successful entering into financing agreements with certain major vendors of MedUnite as a means to settle $5.4 million in liabilities that existed at December 31, 2002. In March 2003, the Company restructured $3.4 million in accounts payable and accrued expenses acquired from MedUnite and outstanding at December 31, 2002 to one vendor by paying $0.8 million in cash and financing the balance of $2.6 million with an unsecured note payable over 36 months at 8% commencing March 2003. Additionally, in April 2003, the Company financed a net total of $2.0 million ($2.8 million in accounts payable and accrued expenses offset by $0.8 million in accounts receivable) existing at December 31, 2002 from MedUnite to NDCHealth by issuing an unsecured note payable over 24 months at 6%.

	Prior to its acquisition by ProxyMed, in April 2002, MedUnite had entered into a three-year information technology services agreement to outsource certain hosting, system maintenance and operation services. Actual service fees are based on the number of transactions processed by the software being supported; however, MedUnite was committed to pay a minimum annual service fee of $1.2 million. The Company cancelled this agreement in May 2003 and paid a total of $1.1 million in July 2003.

	At the time MedUnite was acquired by ProxyMed, the Company decided to migrate off of a software license used to operate MedUnite’s web portal. At that time, the Company was liable to purchase software maintenance services from the supplier of that license in the total amount of $1.8 million through mid-2005. Such amount was included in the acquisition-related accrual for the MedUnite acquisition at December 31, 2002. However, the Company reached agreement with the software vendor and settled this obligation for $0.9 million. Payments of $0.7 million were made in 2003 and the balance of $0.2 million was paid in January 2004.

F-22

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(3)	Sale of Assets

	On June 30, 2004, the Company sold certain assets and liabilities of its Laboratory Communication Solutions segment that were used in its non-core contract manufacturing business to an entity formed by a former executive of the Company for $4.5 million in cash. Under terms of the sale agreement, the Company received $3.5 million in cash at closing and received the balance of $1.0 million in cash in July and August 2004 upon presentation of final accounting.

	The Company believes the divested manufacturing assets were not a component of an entity because the operations and cash flows could not be clearly distinguished, operationally and for financial purposes, from the rest of the entity. Accordingly, pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”, failure to meet such a condition precluded these assets from being presented as discontinued operations.

	As a result of the transaction, the Company recorded a loss on sales of assets of $0.1 million for the year ended December 31, 2004. This loss includes the value of options to purchase 10,000 shares of the Company’s common stock granted to the former executive at an exercise price of $16.00 in July 2004 which was originally accrued at June 30, 2004.

(4)	Equity Transactions

(a)

Common Stock — On April 5, 2002, the Company sold 1,569,366 shares of unregistered common stock at $15.93 per share (the “Primary Shares”) in a private placement to General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., Gapstar, LLC, GAPCO GmbH & Co. KG. (the “General Atlantic Purchasers”), four companies affiliated with General Atlantic Partners, LLC (“GAP”), a private equity investment fund and received net proceeds of $24.9 million. In addition, the Company also issued two-year warrants for the purchase of 549,279 shares of common stock exercisable at $15.93 per share (the “GAP Warrants”). No placement agent was used in this transaction. The Company granted the General Atlantic Purchasers and certain of their transferees and affiliates certain demand and “piggy back” registration rights starting one year from closing. Additionally, in connection with the transaction, a managing member of GAP was appointed as a director to fill a vacancy on the Company’s Board of Directors.

F-23

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		As a result of the purchase of the Primary Shares, the General Atlantic Purchasers owned approximately 23.4% of the then outstanding shares of the Company’s common stock. At the Company’s Annual Meeting of Shareholders held on May 22, 2002, the shareholders of the Company approved that the GAP Warrants may be exercised at any time after April 5, 2003, and prior to April 5, 2004, pursuant to the original terms of the warrant. On March 25, 2004, GAP exercised these warrants for $8.75 million in cash.

		In May 2002, the Company issued 30,034 shares of unregistered ProxyMed common stock (valued at $0.6 million) in its acquisition of KenCom Communications & Services, Inc. (“KenCom”), a privately-owned provider of laboratory communication solutions, and paid acquisition related costs of $52,000. The number of shares of common stock issued was based on the average of the closing prices of the Company’s common stock for the five days immediately preceding the closing.

		As more fully discussed in Note 2 (a), on March 2, 2004, the Company issued 3,600,000 shares of its common stock in its acquisition of PlanVista. Additionally, ProxyMed raised $24.1 million in a private placement sale of 1,691,227 shares its common stock to various entities affiliated with General Atlantic Partners and Commonwealth Associates to partially fund repayment of PlanVista’s debts and other obligations outstanding at the time of the acquisition.

	(b)	Series B Warrants — In December 2002, 34,500 of Series B Preferred warrants were converted into an equivalent number of common shares for $0.5 million in cash. Since December 31, 2002, no Series B Warrants are outstanding.

	(c)	Series C Preferred Stock — On December 13, 2001, the Company offered to convert its then outstanding Series C 7% Convertible Preferred Stock (the “Series C Preferred”) into shares of common stock at a reduced conversion price (the “Conversion Offer”). For a period of sixty days ending February 11, 2002, the holders of the Series C Preferred shares were able to convert such shares at a reduced conversion price of $13.05 per share instead of the original conversion price of $15.00. A deemed dividend charge of $0.6 million was recorded in the first quarter of 2002 for conversions of 31,650 shares of Series C Preferred into 242,508 shares of common stock consummated after the 2001 year-end. Subsequent to the Conversion Offer, 1,000 shares of Series C Preferred were converted into 6,666 shares of common stock. As of both December 31, 2004 and 2003, there were 2,000 unconverted shares of Series C Preferred, which are convertible into 13,333 shares of common stock.

	(d)	Series C Warrants. — In 2002, 8,333 Series C Warrants were converted into 1,190 shares of common stock. As of both December 31, 2004 and 2003, Series C Warrants remain outstanding to purchase 42,833 of shares of common stock. These remaining Series C Warrants expire in June 2005.

F-24

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

	(e)	Other Warrants — In conjunction with a joint marketing agreement entered into between the Company and a subsidiary of First Data Corporation (“FDC”), an electronic commerce and payment services company, in July 2003, the Company issued to FDC a warrant agreement under which FDC may be entitled to purchase up to 600,000 of the Company’s common stock at $16.50 per share. The ability of FDC to exercise under the warrant agreement is dependent upon the Company achieving certain revenue-based thresholds under such joint marketing agreement over a three and one-half year period. Additionally, in connection with this agreement, four entities affiliated with GAP, current investors in the Company, received an aggregate of 243,882 warrants, as a result of pre-emptive rights relating to their investment in the Company in April 2002. The GAP warrant agreements are subject to the same terms and conditions as those issued to FDC and are exercisable only if FDC’s right to exercise under its warrant agreement is perfected. At the time any of the revenue thresholds is met, the Company may have to record a charge in its statement of operations for the value of the FDC warrants. Both the FDC and GAP warrants expire in December 2006.

		Additionally, at December 31, 2004, there are 13,333 warrants exercisable at $149.40 through June 2007 issued in connection with a 1997 business transaction consummated by ProxyMed.

	(f)	Other — ProxyMed has remaining 1,555,000 authorized but unissued shares of preferred stock, par value $0.01 per share, which is entitled to rights and preferences to be determined at the discretion of the Board of Directors.

F-25

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(5)	Segment Information

	ProxyMed operates in two reportable segments that are separately managed: Transaction Services (formerly known as Electronic healthcare transaction processing) and Laboratory Communication Solutions. Transaction Services includes transaction, cost containment and value-added services principally between healthcare providers and insurance companies (Payer Services and Medical Cost Containment Services) and physicians and pharmacies (Prescription Services); and Laboratory Communication Solutions includes the sale, lease and service of communication devices principally to laboratories and through June 30, 2004, the contract manufacturing of printed circuit boards (Laboratory Services). As a result of a re-alignment of its Corporate overhead functions (i.e., executives, finance, legal, human resources, facilities, insurance, etc.) in the second quarter of 2004, the Company is now reporting these expenses and assets as part of its Transaction Services segment. International sales were attributable to the manufacturing assets of the Laboratory Communication Solutions segment that were sold on June 30, 2004. Due to the bundling of our products and services, it is impractical to break revenue by product within each segment.


In thousands	Year Ended December 31,
	2004			2003			2002
Net revenues by operating segment:
Transaction Services	$	71,304		$	46,673		$	22,439
Laboratory Communication Solutions		18,942			24,883			27,743

	$	90,246		$	71,556		$	50,182

Net revenues by geographic location:
Domestic	$	90,140		$	70,340		$	49,500
International (only in Laboratory Communication Solutions) (1)		106			1,216			682

	$	90,246		$	71,556		$	50,182

Operating income (loss) by operating segment:
Transaction Services	$	(3,115	)	$	(920	)	$	597
Laboratory Communication Solutions		1,938			1,119			3,535
Corporate		(797	)		(3,841	)		(2,792	)

	$	(1,974	)	$	(3,642	)	$	1,340

Depreciation and amortization by operating segment:
Transaction Services	$	8,718		$	4,754		$	1,581
Laboratory Communication Solutions		823			1,369			857
Corporate		222			193			198

	$	9,763		$	6,316		$	2,636

Capital expenditures and capitalized software by operating segment:
Transaction Services	$	3,957		$	3,345		$	1,291
Laboratory Communication Solutions		392			602			693
Corporate		—			80			22

	$	4,349		$	4,027		$	2,006


	December 31,
Total assets by operating segment:	2004		2003		2002
Transaction Services	$	173,061	$	54,052	$	58,957
Laboratory Communication Solutions		11,342		12,053		12,904
Corporate		—		7,025		16,843

	$	184,403	$	73,130	$	88,704

(1)

All amounts are transacted in US Dollars

F-26

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(6) Investment in Warrant

In June 2003, the Company entered into a joint marketing and distribution agreement with PlanVista to provide the Company’s electronic healthcare transaction processing services and PlanVista’s network access and repricing service product as an integrated package to existing and prospective payer customers. As part of the agreement, PlanVista granted the Company a warrant to purchase 15% of the number of outstanding shares of PlanVista common stock on a fully-diluted basis as of the time of exercise for $1.95 per share. The warrant was exercisable immediately and expired in December 2003. The warrant was being accounted for at its cost under Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock” since it did not meet the conditions necessary to be accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”. Upon expiration of the warrant in December 2003, the Company recorded an impairment loss in the amount $0.5 million (representing the initial value of the warrant and calculated using a Black Scholes model) which is reflected in other expense in the Company’s consolidated statement of operations for the year ended December 31, 2003.

Additionally, the initial value of the warrant of approximately $0.5 million along with additional amounts of $0.4 million received by the Company under the agreement was being amortized as a reduction of cost of sales over 36 months. Amortization related to these items was $0.1 million and $0.2 million for the years ended December 31, 2004 and 2003, respectively. Upon the consummation of its acquisition of PlanVista on March 2, 2004, the Company wrote off the $0.6 million of remaining unamortized amount as part of the purchase price of the acquisition (see Note 2(a)).

(7)

Inventory

Inventory at December 31 consists of the following:


In thousands	2004			2003
Materials, supplies and component parts	$	651		$	2,021
Work in process		32			590
Finished goods		1,098			744

		1,781			3,355
Less: Obsolescence reserve		(6	)		(8	)

	$	1,775		$	3,347

F-27

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(8)	Property and Equipment

Property and equipment at December 31 consists of the following:


							Estimated
In thousands	2004			2003			useful lives
Furniture, fixtures and equipment	$	1,763		$	2,394			4 to 7 years
Computer hardware and software		10,132			6,022			2 to 5 years
Service vehicles		139			211		5 years
Leasehold improvements		1,087			986		Life of lease
Revenue earning equipment		1,302			1,243			3 to 5 years

		14,423			10,856
Less: accumulated depreciation		(9,622	)		(6,084	)

Property and equipment, net	$	4,801		$	4,772

Depreciation expense was $3.3 million in 2004, $3.1 million in 2003, and $1.8 million in 2002. Accumulated depreciation for revenue earning equipment at December 31, 2004 and 2003 was $0.3 million and $0.6 million, respectively.

(9) Goodwill and Other Intangible Assets

(a)

Goodwill – The Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” effective January 1, 2002. Under SFAS No. 142, goodwill is reviewed at least annually for impairment. SFAS No. 142 requires that goodwill be tested for impairment at the reporting unit level at adoption and at least annually thereafter, utilizing a “fair value” methodology versus an undiscounted cash flow method required under previous accounting rules. In accordance with the adoption of SFAS No. 142, we completed our annual tests at December 31, 2004 and 2003 utilizing techniques including a market value analysis. No impairment charges were recorded as a result of these tests.

F-28

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

The changes in the carrying amounts of goodwill, net, for 2004 by operating segment are as follows:


			Laboratory
			Communication
In thousands	Transaction Services		Solutions		Total
Balance as of December 31, 2003	$	28,673	$	2,102	$	30,775
Goodwill acquired during 2004		62,829		—		62,829

Balance as of December 31, 2004	$	91,502	$	2,102	$	93,604

(b)	Other Intangible Assets — The carrying amounts of other intangible assets as of December 31, 2004 and 2003 by category, are as follows:


In thousands	December 31, 2004							December 31, 2003
	Carrying		Accumulated					Carrying		Accumulated
	Amount		Amortization			Net		Amount		Amortization			Net
Capitalized software	$	2,661	$	(769	)	$	1,892	$	1,193	$	(156	)	$	1,037
Purchased technology		10,342		(4,738	)		5,604		9,721		(3,221	)		6,500
Customer relationships		34,283		(4,324	)		29,959		9,793		(1,446	)		8,347
Provider network		16,200		(1,350	)		14,850		—		—			—

	$	63,486	$	(11,181	)	$	52,305	$	20,707	$	(4,823	)	$	15,884

As part of its acquisition of MedUnite (see Note 2(b)), the Company recorded $6.6 million in customer relationships in the laboratory communication solutions segment, and approximately $1.2 million and $4.8 million for the legacy and real-time technology platforms, respectively. As part of its acquisition of PlanVista (see Note 2(a)), the Company recorded $24.6 million in customer relationships, $16.2 million for a provider network, and $1.2 million in technology platforms, respectively. The valuations of the provider network and technology platforms were based on management’s estimates which included consideration of a replacement cost methodology. The values of the customer relationships were calculated on a discounted cash flow model.

As a result of management’s periodic review for impairment in accordance with SFAS No. 144, the Company wrote off approximately $0.5 million in customer relationships in the laboratory communication solutions segment and approximately $0.1 million in capitalized software in the transaction services segment during the year ended December 31, 2003. The impairment charges were included in write-off of impaired and obsolete assets in the accompanying consolidated statements of operations.

F-29

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

Estimates of useful lives of other intangible assets are based on historical experience, the historical experience of the entity from which the intangible assets were acquired, the industry in which the Company operates, or on contractual terms. If indications arise that would materially affect these lives, an impairment charge may be required and useful lives may be reduced. Intangible assets are being amortized over their estimated useful lives on either a straight-line or other basis as follows:


		Estimated
		useful lives
Capitalized software		3 - 5 years
Purchased technology		1 - 12 years
Customer relationships		4.6 - 12 years
Provider network		10 years

Amortization expense of other intangible assets was $6.5 million, $3.2 million, and $0.8 million for the years ended December 31, 2004, 2003 and 2002, respectively.

As of December 31, 2004, estimated future amortization expense of other intangible assets in each of the years 2005 through 2009 is as follows:


In thousands
2005	$	7,306
2006		7,165
2007		6,802
2008		6,188
2009		5,094

	$	32,555

(10)	Restricted Cash

	At December 31, 2003, restricted cash includes $0.2 million to support a letter of credit used as collateral for a financed liability insurance policy. Since the letter of credit expires in February 2005, this collateral (which has been reduced to $50,000 at December 31, 2004) is included in other current assets at December 31, 2004.

F-30

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(11)	Accounts Payable and Accrued Expenses

	Accounts payable and accrued expenses at December 31 consist of the following::


In thousands	2004		2003
Accounts payable	$	2,072	$	2,956
Accrued payroll and related costs		3,196		1,860
Accrued vendor rebates and network fees payable		2,825		1,198
Accrued professional fees		1,645		418
Acquisition related costs		—		459
Other accrued expenses		3,899		1,373

Total accounts payable and accrued expenses	$	13,637	$	8,264

Other accrued expenses include the current portion of capital leases payable, customer deposits, estimated property and other non-income based taxes.

(12)	Debt Obligations

(a)

Senior Debt — As a result of the acquisition of PlanVista, the Company assumed and guaranteed a $20.4 million secured obligation to PVC Funding Partners, LLC, an owner of approximately 20% of the outstanding common stock of the Company. This obligation is payable in monthly installments of $0.2 million and matures with a balloon payment of $17.6 million on May 31, 2005. It originally bore an interest rate of 6%, payable monthly in cash, which increased to 10% on December 1, 2004. Under the covenants of the senior debt obligation, PlanVista (as a wholly-owned subsidiary) is limited in its ability to transfer cash to ProxyMed (as the parent company). Additionally, the assets of PlanVista were not eligible collateral for the Company’s asset-based line of credit due to covenants of the senior debt. At December 31, 2004, the balance of this senior debt is $18.4 million. As of March 8, 2005, the Company has executed a term sheet with our current bank to expand and extend its current line of credit. Wachovia will receive first lien security on all ProxyMed assets including all subsidiaries. The Company expects to satisfy the obligation of the note it assumed as part of the PlanVista acquisition through the proceeds of this expanded line of credit and its current cash balances prior to the due date of the assumed note.

F-31

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

	(b)	Convertible Notes — On December 31, 2002, the Company issued $13.4 million in uncollateralized convertible promissory notes at 4% to the former shareholders of MedUnite as part of the consideration paid in its acquisition of MedUnite. Interest is payable quarterly in cash in arrears. The convertible promissory notes are payable in full on December 31, 2008 unless converted earlier upon the meeting of certain aggregate revenue triggers by the former shareholders. After an offsetting claim by the Company in October 2003 in the amount of $0.3 million, the outstanding balance of these notes is $13.1 million. Additionally, as a result of the reduction in principal, the notes are now convertible into 716,968 shares of the Company’s common stock subject to achieving the revenue triggers. The first revenue trigger was met in the fourth quarter of 2003.

	(c)	Notes Payable — In February 2003, the Company financed $0.3 million for a certain liability insurance policy required for the MedUnite acquisition over 24 months at 5.25% to a third-party. As of December 31, 2004, this note had been paid in full, however, due to timing provisions in the note, it is collateralized by a letter of credit in the amount of $50,000 which is supported with restricted cash through February 2005 (see Note 10).

		In March 2003, the Company restructured $3.4 million in accounts payable and accrued expenses acquired from MedUnite and outstanding at December 31, 2002 to one vendor by paying $0.8 million in cash and financing the balance of $2.6 million with an unsecured note payable over 36 months at 8% commencing in March 2003. At December 31, 2004, the balance of this note payable is $1.1 million.

		In April 2003, the Company financed a net total of $2.0 million ($2.8 million in accounts payable and accrued expenses offset by $0.8 million in accounts receivable) existing at December 31, 2002 from MedUnite to NDCHealth by issuing an unsecured note payable over 24 months at 6%. At December 31, 2004, the balance of this note payable is $0.8 million.

		As a result of the acquisition of PlanVista, the Company also assumed notes payable to two former board members of PlanVista. The combined balance of these notes is $0.5 million at December 31, 2004. One of these board members has been appointed as director of ProxyMed as a result of the acquisition. These notes bear interest at prime plus 4% and a total of $0.2 million in interest is accrued at December 31, 2004. Both principal and interest were due on December 1, 2004; however, repayment of principal and accrued interest are expressly subordinated to prior payment of the Senior Debt which has not yet been paid and is due on May 31, 2005.

F-32

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		The Company also assumed an unsecured note payable that financed a certain liability policy of PlanVista that was required as part of the acquisition. This note bears interest at 8.5% and is payable to a third-party. As of December 31, 2004, the balance of this note had been paid in full.

	(d)	Revolving Credit Facility — In December 2003, the Company entered into a $12.5 million asset-based line of credit with its commercial bank maturing the earlier of (1) December 2004 or (2) six months prior to the maturity date of the senior debt assumed in the acquisition of PlanVista (which currently matures in May 2005) unless such debt can be repaid or refinanced. In December 2004, the bank agreed to extend the maturity date of this line of credit through February 28, 2005. With extensions granted from the commercial bank, this line of credit has now been extended through April 30, 2005. Borrowings under such facility are subject to eligible cash, accounts receivable, and inventory and other conditions and excluded the assets and borrowing capacity of PlanVista. Borrowings will bear interest at the prime rate plus 0.5% or at LIBOR plus 2.25% (or LIBOR plus 0.75% in the case of borrowings against eligible cash only.) Interest was payable monthly. Costs related to this facility totaling $0.1 million were being amortized as interest expense over a one-year period through November 2004.

		As of March 8, 2005, the Company has executed a term sheet with its commercial bank to expand and extend its current line of credit. However, this is not a commitment by the bank to lend. The bank will receive first lien security on all ProxyMed assets including all subsidiaries. The Company expects to satisfy the obligations of the note it assumed as part of the PlanVista acquisition through the proceeds of this expanded line of credit and its current cash balances prior to the due date of the assumed note (see Note 12(a)). However, the Company cannot be assured that this will occur.

F-33

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

Debt as of December 31 consists of the following:


In thousands	2004			2003
Related party debt	$	18,394		$	—
Convertible debt		13,137			13,137
Notes payable		2,384			3,769

		33,915			16,906
Less: current maturities		(20,572	)		(1,712	)

	$	13,343		$	15,194

As of December 31, 2004, debt payments over the next several years are as follows. The amounts assume no conversion of the convertible notes:


In thousands
2005	$	20,572
2006		206
2007		—
2008		13,137

	$	33,915

F-34

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(13)	Income Taxes

	The income tax provision for the years ended December 31 is as follows:


In thousands	2004		2003		2002
Current:
Federal	$	—	$	—	$	—
State		40		—		—

		40		—		—

Deferred:
Federal	$	—	$	—	$	—
State		—		—		—

Income tax provision	$	40	$	—	$	—

This income tax provision differs from the amount computed by applying the statutory federal income tax rate to the net loss reflected on the Consolidated Statements of Operations in the three years ended December 31 due to the following:


In thousands	2004						2003						2002
	Amount			%			Amount			%			Amount			%
Federal income tax benefit at statutory rate	$	(1,278	)		(34.0	)%	$	(1,700	)		(34.0	)%	$	663			34.0	%
State income tax benefit		(133	)		(3.5	)		(174	)		(3.5	)		80			4.1
Non-deductible items		(90	)		(2.4	)		205			4.1			21			1.1
Increase (decrease) in valuation allowance		1,541			41.1			1,669			33.4			(764	)		(39.2	)

Total provision	$	40			1.2	%	$	—			—	%	$	—			—	%

The significant components of the deferred tax asset account are as follows at December 31, 2004 and 2003:


In thousands	2004			2003
Net operating losses — Federal	$	69,110		$	35,674
Net operating losses — State		8,048			4,155
Depreciation and amortization		—			5,070
Capitalized start up costs		3,951			6,447
Other — net		3,889			681

Total deferred tax assets		84,998			52,027
Less valuation allowance		(71,054	)		(52,027	)

Net deferred tax assets		13,944			—
Deferred tax liability
Depreciation and amortization		(13,944	)		—

Net deferred tax assets	$	—		$	—

Based on the weight of available evidence, a valuation allowance has been provided to offset the entire net deferred tax asset amount.

F-35

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

Total net operating loss carryforwards at December 31, 2004 are $225.2 million, of which $84.4 million and $54.5 million are attributed to the acquisitions of PlanVista and MedUnite, respectively. These net operating losses will expire between 2013 and 2024. Due to the changes in ownership control of the Company at various dates, as defined under Internal Revenue Code Section 382, net operating losses are limited in their availability to offset current and future taxable income. The annual limitations range from $1.9 million to $11.5 million.

The net deferred tax assets increased during 2004 by $17.0 million due to the PlanVista acquisition.

As a result of the change in ownership of MedUnite, the deferred tax asset attributable to MedUnite’s acquired net operating loss carryforward was adjusted by approximately $22 million, which represents the amount of net operating loss that will expire unutilized.

Total income tax payments during the year ended December 31, 2004 were $78,000 which includes $53,600 related to PlanVista pre-acquisition periods.

F-36

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(14) Stock Options

ProxyMed has various stock option plans for employees, directors and outside consultants, under which both incentive stock options and non-qualified options may be issued. Under such plans, options to purchase up to 2,031,017 shares of common stock may be granted. Options may be granted at prices equal to the fair market value at the date of grant, except that incentive stock options granted to persons owning more than 10% of the outstanding voting power must be granted at 110% of the fair market value at the date of grant. In addition, as of December 31, 2004, options for the purchase of 400,407 shares to newly-hired employees remained outstanding. Stock options issued by ProxyMed generally vest within three or four years or upon a change in control of the Company, and expire up to ten years from the date granted. Stock option activity was as follows for the three years ended December 31, 2004:


	Options						Weighted average
	available			Options			exercise price
	for grant			outstanding			of options
Balance, December 31, 2001		232,467			829,771		$	31.22
Options authorized		608,000			—			—
Options granted		(330,847	)		330,847		$	16.89
Options expired/forfeited		65,422			(76,063	)	$	82.29

Balance, December 31, 2002		575,042			1,084,555		$	23.27
Options authorized		—			—			—
Options granted		(443,750	)		443,750		$	13.25
Options exercised		—			(556	)	$	12.00
Options expired/forfeited		90,521			(101,080	)	$	36.09

Balance, December 31, 2003		221,813			1,426,669		$	19.26
Options authorized		750,000			—			—
Options granted		(537,253	)		537,253		$	14.96
Options exercised		—			(1,558	)	$	10.14
Options expired/forfeited		142,835			(149,455	)	$	30.80

Balance, December 31, 2004		577,395			1,812,909		$	17.04

The following table summarizes information regarding outstanding and exercisable options as of December 31, 2004:


	Options outstanding						Options exercisable
			Weighted average
			remaining
Range of exercise	Number		contractual		Weighted average		Number		Weighted average
prices	outstanding		life (years)		exercise price		exercisable		exercise price
$7.10 - $15.00		422,810		8.5	$	9.87		143,504	$	11.68
$15.01 - $18.00		777,908		8.5	$	16.65		264,144	$	16.43
$18.01 - $23.00		607,191		6.2	$	21.55		584,025	$	21.63
$23.01 - $198.75		5,000		2.6	$	136.65		5,000	$	136.65

		1,812,909						996,673

F-37

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

The following table summarizes information regarding options exercisable as of December 31:


	2004		2003		2002
Number exercisable		996,673		825,448		624,075
Weighted average exercise price	$	19.40	$	22.73	$	26.64

The weighted average grant date fair value of options granted ($10.51 in 2004, $10.63 in 2003, and $13.37 in 2002) was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:


	2004			2003			2002
Risk-free interest rate		4.18	%		4.08	%		4.46	%
Expected life	6.0 years			10.0 years			9.9 years
Expected volatility		76.2	%		80.8	%		81.0	%
Expected dividend yield		0.0	%		0.0	%		0.0	%

In January 2002, 40,000 vested stock options for three resigning directors were amended to allow for an extension of the exercise period through December 31, 2003. These options were never exercised and expired as of December 31, 2003.

Additionally, in January 2002, the Company’s Board of Directors agreed to cancel up to 37,767 stock options with exercise prices ranging from $57.45 to $202.50 issued to current officers and employees of the Company with the intent of reissuing the same number of options in the future at the then current market price. In September 2002, the Company issued 36,867 stock options, including 25,366 to the Company’s then chief financial officer and three senior executives, at an exercise price of $15.55 per share pursuant to this reissuance program.

At the Company’s Annual Meeting of Shareholders held on May 22, 2002, the shareholders approved a new 2002 Stock Option Plan pursuant to which options to purchase 600,000 shares of common stock may be issued to employees, officers and directors. Subsequent to December 31, 2003, the Company’s shareholders agreed to amend the 2002 Stock Option Plan to allow for the issuance of up to 1,350,000 shares of common stock (see Note 2(a)).

Additionally, in May 2002, the Company’s non-employee directors were granted a total of 55,000 options at an exercise price of $20.20 to compensate the directors upon initial appointment to the board, re-election to the board, and participation in sub-committees. Option grants for initial appointment and subsequent re-election to the board vest equally over a three-year period. Options for participation in sub-committees vest in full after three years but may be accelerated to vest after each sub-committee meeting attended. In October 2002, 15,000 and 1,875 options with an exercise price of $12.54 were granted to a newly appointed non-employee director for initial appointment and sub-committee membership, respectively. Of the total sub-committee grants, 8,125 options were accelerated to vest on December 31, 2002, 2,500 options were forfeited by a resigning director, and the remaining 6,250 sub-committee grants vested in 2003.

F-38

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

In June 2002, the Company’s Board of Directors authorized the issuance of stock options to employees and officers of the Company as part of a structured retention and reward plan. Initially in June 2002, 47,267 options were granted at an exercise price of $17.36 per share. Included in these grants were a total of 25,000 options granted to the Company’s chairman/chief executive officer and president/chief operating officer. In September 2002, an additional 38,050 options were granted to other employees and officers at an exercise price of $15.55 per share, including 14,100 stock options to the Company’s former chief financial officer and one other senior executive. These options are for a ten-year term and vest equally over a three-year period.

Also in June 2002, the Company’s Board of Directors authorized the issuance of stock options to ProxyMed’s executive and senior management as part of their compensation plan for the 2002 year. As a result, 56,440 options were granted to the Company’s chairman/chief executive officer and president/chief operating officer at an exercise price of $17.36. In September 2002, 63,106 options were granted to the remaining executive and senior management at an exercise price of $15.55 per share. All of these options are for a ten-year term, vest in full after five years and contain a clause that enables the accelerated vesting of a portion or all of the options if specific, pre-determined individual and company goals are met during the 2002 year. Of the 119,546 total options granted under the 2002 compensation plan discussed above, 80,194 options were accelerated to vest on December 31, 2002 and the remaining 39,352 options will vest in 2007.

In March 2003, the Company granted 36,000 stock options at exercise prices of $7.60 to $9.24 per share to certain employees of MedUnite and 10,000 stock options at an exercise price of $7.60 to an executive officer of ProxyMed.

In April 2003, the six non-employee directors of ProxyMed were each granted 10,000 stock options at an exercise price of $7.28 per share. Such options were granted pursuant to the Company’s approved stock option plans and are for a ten-year term and vest equally over three years from the date of grant. Additionally, in May 2003, the Company’s non-employee directors were granted a total of 30,000 and 15,000 options at an exercise price of $10.63 to compensate the directors upon re-election to the board and participation in sub-committees, respectively, pursuant to guidelines adopted by the Company’s Board of Directors in May 2002. The option grants for the re-election to the board are for a ten-year term and vest equally over a three-year period. Options for participation in sub-committees are for a ten year term and vest in full after five years but a portion may be accelerated to vest after each sub-committee meeting attended. Of the total sub-committee grants, 11,250 options were accelerated to vest on December 31, 2004 and the remaining 3,750 sub-committee grants vested in 2004.

In October 2003, the Compensation Committee approved grants of 125,000 and 50,000 stock options at an exercise price of $15.90 per share to the Company’s then current chairman/chief executive officer and president/chief operating officer, respectively. Such options are for a ten-year term and vest equally over three years from the date of grant.

In connection with the commencement of employment of the Company’s new chief financial officer in December 2003, the Company granted this executive a total of 100,000 stock options at an exercise price of $16.01 per share. Such options are for a ten-year term and vest equally over three years from the date of grant.

F-39

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

During the year ended December 31, 2004, the Company granted 360,373 stock options to officers and employees at exercise prices between $7.18 and $20.05 per share. Such options are for a ten-year term and generally vest equally over the three or four years following the date of the grant. However, of these options, 173,120 options granted to employees of PlanVista upon its acquisition by ProxyMed will vest two-thirds on the first anniversary date of the grant and one-third on the third anniversary date of the grant. As described in Note 2(b), since these options were granted at an exercise price of $17.74, which was below the $19.00 market price at the time of issuance, the Company records periodic non-cash compensation charges over the vesting period of the options based on the intrinsic value method. For the year ended December 31, 2004, the Company recorded charges of $0.1 million for these options.

In March 2004, 26,880 options at an exercise price of $17.74 per share were granted to PlanVista’s former chief financial officer in connection with a consulting arrangement with him. Fifty percent of these options vested immediately upon the change of control and 25% will vest on each of the three month and six month anniversaries of the change in control. The Company recorded $0.1 million in compensation expense associated with this grant in the three months ended March 31, 2004 based on the Black-Scholes model using the following assumptions: risk-free interest rate of 1.2%, expected life of 9 months, expected volatility of 42% and no dividend yield.

Additionally, in March 2004, 15,000 stock options at an exercise price of $17.50 per share were granted to a new director upon appointment to the Company’s board of directors as result of the acquisition of PlanVista. Such options are for a ten-year term and vest equally over the three years following the date of the grant.

In June 2004, the Company’s outside directors were granted a total of 35,000 and 15,000 options at an exercise price of $20.00 to compensate the directors upon re-election to the board and for participation on a committee, respectively, pursuant to guidelines adopted by the Company’s Board of Directors in May 2002. Option grants for the re-election to the board are for a ten-year term and vest immediately. Options for participation in committees are for a ten-year term and vest in full after three years but a portion may be accelerated to vest after each committee meeting attended. As of December 31, 2004, the 15,000 committee options granted for the 2004-2005 term were vested.

As noted in Note 3, stock options to purchase 10,000 shares of the Company’s common stock at an exercise price of $16.00 were granted to a former executive of the Company who purchased the Company’s contract manufacturing assets on June 30, 2004. Such options were valued at $68,000 and included in the loss on disposal of assets for the year ended December 31, 2004. These options are for a three-year term and 5,000 options vest the end of each of next two years.

F-40

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

As a result of PlanVista’s former chief executive officer’s change in status and modification to the original stock option award as described in Note 2(a), the Company is amortizing the $0.1 million value of these options as a non-cash compensation charge in its consolidated statement of operations over the 30-month period of the agreement in proportion to the vesting schedule of the stock options. The value of these options was computed utilizing a Black-Scholes model using the following assumptions: risk-free interest rate of 2.8%, expected life of 2.5 years, expected volatility of 65% and no dividend yield. Additionally, each reporting period the Company must measure the value of these options and record any increase in value as a period charge. As of December 31, 2004, the value of these options had decreased below their original value and no charge is required to be recorded for the year ended December 31, 2004.

In December 2004, the Company’s new chairman and interim chief executive officer was granted stock options to purchase 75,000 shares of the Company’s common stock at an exercise price of $7.10 per share in connection with his consulting agreement with the Company. Such options are for ten years and vest equally over the next 12 months at the rate of 6,250 per month. The options will cease to vest if the consulting agreement is terminated. A compensation charge of $14,400 for these stock options will be recorded after each monthly vesting amount based on a Black-Scholes model using the following assumptions: risk-free interest rate of 2.9%, expected life of 2 years, expected volatility of 55% and no dividend yield. Subsequently in January 2005, he was granted stock options to purchase another 25,000 shares of the Company’s common stock at $9.87 per share in his capacity as chairman of the board. Such options are for ten years and vest equally over the next twelve months at the rate of 2,083 per month. There is no compensation charge associated with these options.

F-41

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(15)	Supplemental Disclosure of Cash Flow Information


	Year Ending December 31,
In thousands	2004			2003		2002
Cash paid for interest	$	1,875		$	932	$	63

Acquisition of businesses:
Common stock issued for businesses acquired	$	59,760		$	—	$	600
Debt issued for businesses acquired		—			—		13,400
Other acquisition costs accrued		1,328			—		8,382
Other non-cash adjustments		(642	)		—		—
Details of acquisitions:
Working capital components, including cash acquired		(388	)		—		4,609
Property and equipment		(658	)		—		(2,165	)
Goodwill		(62,829	)		—		(24,837	)
Intangible assets acquired:
Customer Relationships		(24,600	)		—		(9,440	)
Purchased Technology		(1,180	)		—		(6,395	)
Provider Network		(16,200	)		—		—
Long-term debt		44,889			—		—
Other long-term liabilities, net		520			—		209

		—			—		(15,637	)
Cash acquired in acquisitions		782			—		1,184

Net cash acquired from (used in) acquisitions	$	782		$	—	$	(14,453	)

Disposition of assets:
Detail of disposition:
Working capital components, other than cash	$	3,742		$	—	$	—
Property and equipment, net		757			—		—

Net cash provided from disposition	$	4,499		$	—	$	—

F-42

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(16) Concentration of Credit Risk

Substantially all of ProxyMed’s accounts receivable are due from healthcare providers, such as physicians and various healthcare institutional suppliers (payers, laboratories and pharmacies). Collateral is not required.

For the years ended December 31, 2004 and 2003, approximately 8% and 15% of consolidated revenues, respectively and for both periods 10% of revenues in the Transaction Services segment, were from NDCHealth, a former shareholder of MedUnite.

Additionally, for the years ended December 31, 2004 and 2003 and 2002, approximately 9%, 12% and 10% of consolidated revenues, and 45%, 34% and 18% of Laboratory Communication segment revenues, respectively was from a single customer for the sale, lease and service of communication devices. The potential loss of this customer would materially affect the Company’s Laboratory Communication Solutions segment operating results.

(17) Employee Benefit Plans

(a)

401(k) Savings Plan — ProxyMed has a 401(k) retirement plan for substantially all employees who meet certain minimum lengths of employment and minimum age requirements. Contributions may be made by employees up to the lessor of 60% of their annual compensation, or the maximum IRS limit. Discretionary matching contributions are approved or declined by the Company’s board of directors each year. There were no matching contributions during 2004, 2003 or 2002. Funding of matching contributions each year may be offset by forfeitures from terminated employees. As of December 31, 2004, there was approximately $0.3 million in available forfeitures that the Company intends to use to offset future matching contributions.

F-43

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

		At the time the Company acquired PlanVista in March 2004 (see Note 2(a)), eligible PlanVista employees were immediately able to participate in the ProxyMed 401(k) Plan. The Company has filed a plan of termination for the PlanVista 401(k) Plan with the Internal Revenue Service. As of the filing of this report, that termination request is still pending approval.

	(b)	Self-Insurance — In July 2004, the Company commenced a program of self-insuring its medical and dental insurance plans. Prior to this time, the Company participated in several premium only plans with various insurance carriers. Under this self-insurance arrangement, the Company pays a third-party administrator to handle claims processing and other administrative functions. For medical and dental insurance claims, the Company has purchased “stop-gap” coverage which limits its claims exposure on a per employee basis. For disability insurance, there is no such limitation. For the year ended December 31, 2004, the Company has accrued $1.3 million towards its self-insurance exposure. Through December 31, 2004, $0.9 million in claims have been paid, representing approximately 69% of the amounts set aside for claims.

	(c)	Deferred Compensation Plan — As part of our acquisition of PlanVista, the Company has a deferred compensation plan with two former officers of PlanVista and its predecessor companies. The deferred compensation, which together with accumulated interest is accrued but unfunded, is distributable in cash after retirement or termination of employment, and amounted to approximately $0.8 million at December 31, 2004. Both participants began receiving such deferred amounts, together with interest at 12% annually, at age 65.

F-44

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(18) Contingencies

	(a)	Litigation — In December of 2001, Insurdata Marketing Services, Inc. (“IMS”) filed a lawsuit against HealthPlan Services, Inc. (“HPS”), a former subsidiary of the Company’s PlanVista subsidiary, for unspecified damages in excess of $75,000. The complaint alleges that HPS failed to pay commissions to IMS pursuant to an arbitration award rendered in 1996. On January 10, 2005, the court denied the Company’s opposing motion. The Company has filed an appeal on the issue of liability, and continues to contest vigorously the amount of damages claimed by IMS. The Company has determined exposure to be in the range of $0.6 million to $1.6 million and has accrued $0.6 million at December 31, 2004.

		In early 2000, four named plaintiffs filed a class action against Fidelity Group, Inc. (“Fidelity”), HPS a former subsidiary of the Company’s PlanVista subsidiary, for unspecified damages. The complaint stems from the failure of a Fidelity insurance plan, and alleges unfair and deceptive trade practices; negligent undertaking; fraud; negligent misrepresentation; breach of contract; civil conspiracy; and RICO violations against Fidelity, and its contracted administrator, HPS. Two principals of the Fidelity plan have been convicted of insurance fraud and sentenced to prison in a separate proceeding. The class has been certified and the case is proceeding in discovery. The Company is contesting the plaintiffs’ claims vigorously, but is unable to predict the outcome of the case or any potential liability.

		In 2004, the Company filed a tax appeal in the State of New York contesting a Notice of Deficiency sent by the State of New York to PlanVista. The notice involved taxes claimed to be due on a deconsolidated basis for the tax years ending December 31, 1999 through December 31, 2001 in an amount of $2.8 million. The Company’s contends that taxation on a consolidated basis is appropriate, and is vigorously pursuing its appeal. However, the Company is unable to determine whether it will be successful or whether it will be obligated to pay some or all of the alleged deficiencies.

		From time to time, the Company is a party to other legal proceedings in the course of its business. The Company, however, does not expect such other legal proceedings to have a material adverse effect on its business or financial condition.

	(b)	Disputes — The Company accrued $0.4 million as a settlement of disputed enrollment fees and rebate amounts to NDCHealth relating to periods before December 31, 2004. The Company has accrued this amount as an increase of cost of services in the Transactions Services Segment for the year ended December 31, 2004

	(c)	Other — In connection with the Company’s June 1997 acquisition of its PreScribe technology used in its Prescription Services business, the Company would be obligated to pay up to $10 million to the former owner of PreScribe in the event of a divestiture of a majority interest in ProxyMed, or all or part of the PreScribe technology.

F-45

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(19) Commitments and Other

(a)

Leases — ProxyMed leases certain computer and office equipment used in its transaction services business that have been classified as capital leases. The Company also leases premises and office equipment under operating leases which expire on various dates through 2010. The leases for the premises contain renewal options, and require ProxyMed to pay such costs as property taxes, maintenance and insurance. At December 31, 2004, the present value of the capital leases and the future minimum lease payments under non-cancelable operating leases with initial or remaining lease terms in excess of one year (net of payments to be received under subleases) are as follows:


	Capital			Operating
In Thousands	Leases			Leases
2005	$	5		$	1,624
2006		6			1,415
2007		1			1,419
2008		—			1,014
2009		—			781

Total minimum lease payments		12		$	6,253

Less amount representing interest		(1	)

Present value of minimum lease payments	$	11

		The Company recognizes rent expense on a straight-line basis over the related lease term. Total rent expense for all operating leases amounted to $2.5 million in 2004, $2.1 million in 2003, and $1.5 million in 2002. The current portion of capital leases is included in accounts payable and other accrued expenses and the long-term portion of capital leases is included in other long-term liabilities in the balance sheet at December 31, 2004 and 2003.

	(b)	Settlement of Contract Dispute — In September 2002, the Company favorably settled a contract dispute in the amount of $0.3 million. The settlement resulted in the issuance of a promissory note receivable to the Company, which was recorded at its present value of $0.3 million. The present value of the promissory note, less legal expenses of $34,000, was reported as other income in the year ended December 31, 2002. Under the terms of the promissory note, payments of $25,000 were to be made each quarter over the next three years starting October 2002. As of December 31, 2004, the note has been paid in full.

	(c)	Employment Agreements — The Company entered into employment agreements with certain executives and other members of management that provide for cash severance payments if these employees are terminated without cause. The Company’s aggregate commitment under these agreements is $1.4 million at December 31, 2004.

F-46

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

(20) Related Party Transactions

In April 1997, the Company made loans totaling $0.4 million to Mr. Blue, its former chairman of the board and chief executive officer. The funds were advanced pursuant to two demand promissory notes in the principal amounts of $0.3 million and $60,000, respectively, each bearing interest at a rate of 7³/4% per annum. On June 30, 2000, the Company amended the terms of these notes whereby interest on the notes ceased to accrue subsequent to July 1, 2000 and the loan plus accrued interest, totaling $0.4 million at June 30, 2000, would be payable in a balloon payment in December 2001. At that time, the loans were collateralized with options to purchase 36,667 shares of common stock granted to Mr. Blue under the Company’s stock option plans. Prior to 2000, these loans were included in other assets; as of December 31, 2001, all amounts owed under these loans have been reclassified to stockholders’ equity.

In December 2001, a payment of $0.3 million was received from Mr. Blue and applied against the outstanding balance of the loans. The Company agreed to refinance the remaining $0.2 million balance and a new promissory note was executed by Mr. Blue. This new note requires monthly interest payments at prime rate plus 1%, established at the beginning of each calendar quarter, and was payable in a balloon payment on or before December 31, 2003. The note was collateralized with options to purchase 36,667 shares of common stock granted to Mr. Blue under the Company’s stock option plans (of which all but 10,000 expired on December 31, 2003 and the remaining options expire in March 2004) along with additional warrants granted to Mr. Blue from various other public companies. In January 2002, Mr. Blue resigned from the Company’s Board of Directors and the remaining Board members agreed to extend the exercise period of certain of the stock options of the Company held as collateral for the note in an effort to maximize the potential for repayment.

In June 2003, the Company again amended the promissory note executed in December 2001 by Mr. Blue. The amendment extended the maturity date of the promissory for an additional twelve months to December 31, 2004 and also allowed Mr. Blue to offset any principal owed with certain amounts payable to Mr. Blue by the Company as a result of a finder’s fee arrangement with the Company. Also at that time, Mr. Blue all interest was prepaid through the maturity date.

In March 2004, the Company agreed to accept as collateral for this loan 9,250 shares of its common stock that are being issued to Commonwealth Associates (Mr. Blue’s former employer) in conjunction with the Company’s acquisition of PlanVista. As a result, Mr. Blue and the Company amended a previously existing stock pledge agreement to include these shares as additional collateral. In case of default of payment by Mr. Blue, such shares will be liquidated or returned to the Company for liquidation and the cash proceeds will be utilized to partially or fully satisfy the loan depending upon the value of such stock at that time. The Company received cash payments from Mr. Blue in July and December 2004 to pay all amounts due under this loan. As of December 31, 2004, the notes have been collected in full.

F-47

PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued

In March 2001, a senior executive of the Company entered into an uncollateralized promissory note for $45,400 for amounts previously borrowed from the Company. The promissory note calls for minimum bi-weekly payments of $350 deducted directly from the executive’s payroll until the note is paid in full on or before February 2006. The note is non-interest bearing but interest is imputed annually based on the Internal Revenue Service Applicable Federal Rate at the time the note was originated (4.98%). Under terms of the promissory note, if the executive is terminated without cause, the note is due in full after nine months from the date of termination as long as the scheduled bi-weekly payments continue to be made. As of December 31, 2004, the unpaid principal balance of the note is approximately $6,000 and is included in other receivables.

In June 2003, prior to its acquisition of PlanVista (see Notes 2(a) and 6), ProxyMed entered into a joint distribution and marketing agreement with PlanVista. PlanVista was controlled by an affiliate of Commonwealth Associates Group Holdings, LLC, whose principal, Michael Falk, is a director of both ProxyMed and PlanVista. Additionally, one former senior executive of ProxyMed had an immaterial ownership interest in PlanVista.

As described in Note 12 (a), the Company assumed and guaranteed a $20.4 million secured obligation to PVC Funding Partners, LLC, owner of approximately 20% of the outstanding common stock of the Company. This obligation has a balance of approximately $18.4 million at December 31, 2004.

(21) Going Concern

As discussed in Note 12(a), the Company is currently negotiating financing with Wachovia Bank, N.A. to provide funds to be used, with existing cash balances, to make the May 31, 2005, $17.8 million balloon payment to PVC Funding Partners, LLC, a related party. If the Company is unsuccessful in arranging this financing and is unable to make this balloon payment, the Company may be unable to continue as a going concern. These consolidated statements do no include any adjustments that might result from the outcome of this uncertainty.

(22) Quarterly Financial Data (unaudited)

The following table summarizes the quarterly consolidated statement of operations data for each of the eight quarters in the years ended December 31, 2004 and 2003. The data is derived from and is qualified by reference to ProxyMed’s audited financial statements, which appear elsewhere in this document.

The data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and related notes.


	2004 Quarter Ended(1)
in thousands except for share and per share data:	March 31			June 30			September 30			December 31
Net Revenues	$	20,504		$	24,649		$	22,511		$	22,582
Operating loss	$	(43	)	$	(264	)	$	(450	)	$	(1,217	)
Loss from continuing operations	$	(427	)	$	(772	)	$	(1,028	)	$	(1,573	)
Net loss applicable to common shareholders	$	(427	)	$	(772	)	$	(1,028	)	$	(1,573	)
Net loss per share (basic and diluted)	$	(0.05	)	$	(0.06	)	$	(0.08	)	$	(0.12	)
Basic and diluted weighted average common shares outstanding		8,570,731			12,625,260			12,626,066			12,626,182


	2003 Quarter Ended(2)
	March 31			June 30			September 30			December 31
				(as restated)			(as restated)			(as restated)
Net revenues	$	17,430		$	17,701		$	18,062		$	18,363
Operating income (loss)	$	(2,278	)	$	(913	)	$	170		$	(621	)
Loss from continuing operations	$	(2,452	)	$	(1,108	)	$	(33	)	$	(1,407	)
Net loss applicable to common shareholders	$	(2,452	)	$	(1,108	)	$	(33	)	$	(1,407	)
Net loss per share (basic and diluted)	$	(0.36	)	$	(0.16	)	$	—		$	(0.21	)
Basic and diluted weighted average common shares outstanding		6,782,938			6,782,938			6,783,095			6,784,118

(1) Includes operations of PlanVista from March 2, 2004.

(2) Includes operations of MedUnite from January 1, 2003.

F-48

PROXYMED, INC. AND SUBSIDIARIES

SCHEDULE II — Valuation and Qualifying Accounts


In thousands	Allowance for Doubtful Accounts
			Additions
Year ended	Balance at		Charged to		Charged to				Balance at
December 31,	beginning of year		costs and expenses		other accounts (1)(2)		Deductions (3)		end of year
2004	$	882		858		7,138		5,710	$	3,168

2003	$	1,096		152		803		1,169	$	882

2002	$	228		38		1,008		178	$	1,096

(1) Includes amounts charged against revenue in 2002 ($346), 2003 ($803), and 2004 ($1,997)
(2) Includes amounts acquired through acquisitions in 2002 ($662), 2003 ($-0-), and 2004 ($5,141)
(3) Primarily write-off of bad debts and amounts charged against revenues, net of recoveries

F-49

EXHIBIT INDEX


Exhibit No.		Description
	2.1	Agreement and Plan of Merger, dated as of December 5, 2003, by and among the Registrant, Planet Acquisition Corp. and PlanVista Corporation (incorporated by reference to Annex A of the Registration Statement on Form S-4, File No. 333-111024).

	2.2	Agreement and Plan of Merger and Reorganization dated December 31, 2002 between ProxyMed, Inc., Davie Acquisition Corp., and MedUnite Inc. (incorporated by reference to Exhibit 2.1 of Form 8-K File No. 000-22052, reporting an event dated December 31, 2002).

	2.3	Asset Purchase Agreement dated July 30, 2002 between ProxyMed, Inc. and MDIP, Inc. (incorporated by reference to Exhibit 2.1 of Form 8-K File No. 000-22052, reporting an event dated July 31, 2002).

	2.4	Stock Purchase Agreement dated May 6, 2002 between ProxyMed, Inc. and KenCom Communications & Services, Inc. (incorporated by reference to Exhibit 2.1 of Form 8-K File No. 000-22052, reporting an event dated May 6, 2002).

	2.5	Stock and Warrant Purchase Agreement between ProxyMed and General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GAPCO GmbH & Co., KG and GapStar, LLC (incorporated by reference to Exhibit 10.1 of Form 8-K, File No. 000-22052, reporting an event dated March 26, 2002).

	2.6	Asset Purchase Agreement dated June 28, 2004 between ProxyMed, Inc., and Key Communications Services, Inc., and Key Electronics, Inc. (incorporated by reference to Exhibit 2.1 of Form 8-K File No. 000-22052, reporting an event dated July 30, 2004).

	3.1	Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form SB-2, File No. 333-2678).

	3.2	Bylaws, as amended (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form SB-2, File No. 333-2678).

	3.3	Articles of Amendment to Restated Articles of Incorporation of the Registrant dated March 1, 2004 (incorporated by reference to Exhibit 3.1 of Form 8-K File No. 000-22052, reporting an event dated March 2, 2004).

	3.4	Articles of Amendment to Articles of Incorporation of the Registrant dated May 22, 2002 (incorporated by reference to Exhibit 3.4 of Form 10-K for the period ended December 31, 2003).

	3.5	Articles of Amendment to Articles of Incorporation of the Registrant dated December 21, 2001 (incorporated by reference to Exhibit 3.1 of Form 8-K File No. 000-22052, reporting an event dated December 13, 2001).

	3.6	Articles of Amendment to Articles of Incorporation dated August 21, 2001 (incorporated by reference to Exhibit 2.2 of Form 8-K, File No. 000-22052, reporting an event dated August 17, 2001).

	3.7	Articles of Amendment to Articles of Incorporation dated July 25, 2001 (incorporated by reference to Exhibit 2.1 of Form 8-K, File No. 000-22052, reporting an event dated August 17, 2001).


Exhibit No.		Description
	3.8	Articles of Amendment to Articles of Incorporation of the Registrant dated July 7, 2000 (incorporated by reference to Exhibit 3.8 of Form 10-K for the period ended December 31, 2003).

	3.9	Articles of Amendment to Articles of Incorporation of the Registrant dated June 15, 2000 (incorporated by reference to Exhibit 3.4 of Form 10-Q/A for the period ended June 30, 2000).

	4.1	Common Stock Purchase Warrants issued to First Data Corporation (incorporated by reference to Exhibit 10.1 of Form 8-K, File No. 000-22052, reporting an event dated July 8, 2003).

	4.2	Form of 4% Convertible Promissory Notes dated December 31, 2002 issued in connection with the Agreement and Plan of Merger and Reorganization dated December 31, 2002 between ProxyMed, Inc., Davie Acquisition Corp., and MedUnite, Inc. (incorporated by reference to Exhibit 10.1 of Form 8-K File No. 000-22052, reporting an event dated December 31, 2002).

	4.3	Form of Common Stock Purchase Warrants issued to General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GAPCO GmbH & Co., KG and GapStar, LLC (incorporated by reference to Exhibit 10.2 of Form 8-K, File No. 000-22052, reporting an event dated March 26, 2002).

	4.4	Form of Exchanged Warrant to Purchase Common Stock of the Registrant dated May 4, 2000, issued to certain investors (incorporated by reference to Exhibit 4.1 of Form 8-K, File No. 000-22052, reporting an event dated May 4, 2000).

	4.5	Form of New Warrant to Purchase Common Stock of the Registrant dated May 4, 2000, issued to certain investors (incorporated by reference to Exhibit 4.2 of Form 8-K, File No. 000-22052, reporting an event dated May 4, 2000).

	4.6	Form of Warrant to Purchase Common Stock of the Registrant dated December 23, 1999, issued to certain investors (incorporated by reference to Exhibit 4.1 of Form 8-K, File No. 000-22052, reporting an event dated December 23, 1999).

	10.1	Amended and Restated Registration Rights Agreement among the Registrant, General Atlantic Partners 77, L.P., General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GAP Coinvestments III, LLC, GAP Coinvestments IV, LLC, GapStar, LLC, GAPCO GmbH & Co. KG, PVC Funding Partners, LLC, ComVest Venture Partners, L.P., Shea Ventures, LLC, and Robert Priddy, dated March 2, 2004 (incorporated by reference to Exhibit 4.1 of Form 8-K, File No. 000-22052, reporting an event dated March 2, 2004).

	10.2	Stock Purchase Agreement, dated as of December 5, 2003 among the Registrant, General Atlantic Partners 77, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, PVC Funding Partners, LLC, ComVest Venture Partners, L.P., Shea Ventures, LLC, and Robert Priddy (incorporated by reference to Exhibit 2.2 of the Registration Statement on Form S-4, File No. 333-111024).

	10.3	Registration Rights Agreement among the Registrant General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. KG dated April 5, 2002 (incorporated by reference to Exhibit 10.3 of Form 8-K, File No. 000-22052, reporting an event dated March 29, 2003).


Exhibit No.		Description
	10.4	Registration Rights Agreement dated December 31, 2002 among ProxyMed, Inc. and the holders of the 4% Convertible Promissory Notes (incorporated by reference to Exhibit 10.2 of Form 8-K File No. 000-22052, reporting an event dated December 31, 2002).

	10.5	Form of Indemnification Agreement for all Officers and Directors adopted May 22, 2002 (incorporated by reference to Exhibit 10.55 of Form 10-K for the period ended December 31, 2002).

	10.6	Registration Rights Agreement dated May 6, 2002 ProxyMed, Inc. and Deborah M. Kennedy and Colleen Phillips-Norton (incorporated by reference to Exhibit 10.1 of Form 8-K File No. 000-22052, reporting an event dated May 6, 2002).

	10.7	Registration Rights Agreement between ProxyMed and General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC, and GAPCO GmbH & Co. KG (incorporated by reference to Exhibit 10.3 of Form 8-K, File No. 000-22052, reporting an event dated March 26, 2002).

	10.8	Employment Letter between ProxyMed and Jeffrey L. Markle effective March 2, 2004 (incorporated by reference to Exhibit 10.8 of Form 10-K for the period ended December 31, 2003).*

	10.9	Employment Agreement between ProxyMed and Gregory J. Eisenhauer dated December 8, 2003 (incorporated by reference to Exhibit 10.9 of Form 10-K for the period ended December 31, 2003).*

	10.10	Employment Agreement between ProxyMed and Tom Wohlford dated May 13, 2003 (incorporated by reference to Exhibit 10.10 of Form 10-K for the period ended December 31, 2003).*

	10.11	Employment Agreement between ProxyMed and A. Thomas Hardy dated December 31, 2001 (incorporated by reference to Exhibit 10.40 of Form 10-K for the period ended December 31, 2001).*

	10.12	Employment Agreement between ProxyMed and Lonnie W. Hardin dated March 29, 2001 (incorporated by reference to Exhibit 10.1 of Form 10-Q for the period ended March 31, 2001).*

	10.13	Employment Agreement between ProxyMed and Timothy J. Tolan dated January 23, 2001 (incorporated by reference to Exhibit 10.30 of Form 10-K for the period ended December 31, 2000).*

	10.14	Amendment to Employment Agreement between ProxyMed and Timothy J. Tolan effective January 1, 2004 (incorporated by reference to Exhibit 10.15 of Form 10-K for the period ended December 31, 2003).*

	10.15	Employment Agreement between ProxyMed and Michael K. Hoover dated July 28, 2000 (incorporated by reference to Exhibit 99.1 of Form 10-Q for the period ended September 30, 2000).*

	10.16	Amendment to Employment Agreement between ProxyMed and Michael K. Hoover effective January 1, 2004 (incorporated by reference to Exhibit 10.17 of Form 10-K for the period ended December 31, 2003).*

	10.17	Employment Agreement between ProxyMed and Judson E. Schmid dated September 29, 2000 (incorporated by reference to Exhibit 99.2 of Form 10-Q for the period ended September 30, 2000).*


Exhibit No.		Description
	10.18	Employment Agreement between ProxyMed and Nancy J. Ham dated October 2, 2000 (incorporated by reference to Exhibit 99.3 of Form 10-Q for the period ended September 30, 2000).*

	10.19	Amendment to Employment Agreement between ProxyMed and Nancy J. Ham effective January 1, 2004 (incorporated by reference to Exhibit 10.20 of Form 10-K for the period ended December 31, 2003).*

	10.20	Employment Agreement between ProxyMed and John Paul Guinan (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form SB-2, File No. 333-2678).*

	10.21	Form of bonus letter offered to executive and senior management on February 26, 2002 (incorporated by reference to Exhibit 10.54 of Form 10-K for the period ended December 31, 2002).*

	10.22	2002 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.23 of Form 10-K for the period ended December 31, 2003).*

	10.23	2001 Stock Option Plan (incorporated by reference to Exhibit B of the Proxy Statement filed on June 22, 2001).*

	10.24	2000 Stock Option Plan (incorporated by reference to Exhibit B of the Proxy Statement filed on June 12, 2000).*

	10.25	2000-1/2 Stock Option Plan (incorporated by reference to Exhibit C of the Proxy Statement filed on June 12, 2000).*

	10.26	1997 Stock Option Plan (incorporated by reference to Exhibit A of the Proxy Statement filed on May 6, 1997).*

	10.27	Amended 1993 Stock Option Plan (incorporated by reference to Exhibit A of ProxyMed’s Proxy Statement for its 1994 Annual Meeting of Shareholders).*

	10.28	1995 Stock Option Plan (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form SB-2, File No. 333-2678).*

	10.29	Subscription Agreement dated December 21, 2001 for the private placement issuance of up to $8,000,000 of ProxyMed, Inc. common stock (incorporated by reference to Exhibit 10.1 of Form 8-K File No. 000-22052, reporting an event dated December 13, 2001).

	10.30	Placement Agency Agreement dated December 18, 2001 between ProxyMed, Inc. and Commonwealth Associates, L.P. for the private placement issuance of up to $8,000,000 of ProxyMed, Inc. common stock (incorporated by reference to Exhibit 10.2 of Form 8-K File No. 000-22052, reporting an event dated December 13, 2001).

	10.31	Conversion Agreement for Series C 7% Convertible Preferred shareholder pursuant to conversion offer dated December 13, 2001 (incorporated by reference to Exhibit 10.3 of Form 8-K File No. 000-22052, reporting an event dated December 13, 2001).


Exhibit No.		Description
	10.32	Designation and Subscription Amendment Agreement for Series C 7% Convertible Preferred shareholder pursuant to conversion offer dated December 13, 2001 (incorporated by reference to Exhibit 10.4 of Form 8-K File No. 000-22052, reporting an event dated December 13, 2001).

	10.33	Loan and Security Agreement by and between ProxyMed, Key Communications Service, Inc., MedUnite Inc. and Wachovia Bank, National Association dated December 4, 2003 (incorporated by reference to Exhibit 10.34 of Form 10-K for the period ended December 4, 2003).*

	10.34	Revolver Note dated December 4, 2003, issued in connection with the Loan and Security Agreement by and between ProxyMed, Key Communications Service, Inc., MedUnite Inc. and Wachovia Bank, National Association dated December 4, 2003 (incorporated by reference to Exhibit 10.35 of form 10-K for the period ended December 31, 2003).*

	10.35	Patent and Trademark Security Agreement effective as of December 4, 2003 between ProxyMed, Key Communications Service, Inc., MedUnite Inc. and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.36 of Form 10-K for the period ended December 31, 2003).*

	10.36	Independent Contractor Agreement between ProxyMed and Kevin M. McNamara dated December 21, 2004 (incorporated by reference to Exhibit 99.1 of Form 8-K File No. 000-22052, reporting an event dated December 21, 2004.

	10.37	Employment Agreement between ProxyMed and David Edward Oles dated April 14, 2004 (incorporated by reference to Exhibit 10.10 of Form 10-Q for the period ended March 31, 2004).*

	10.38	Amendment to Employment Agreement between ProxyMed and Judson E. Schmid dated June 2, 2004 (incorporated by reference to Exhibit 10.2 of Form 10-Q for the period ended June 30, 2004).*

	10.39	Consulting Agreement between ProxyMed and Philip S. Dingle dated April 13, 2004 (incorporated by reference to Exhibit 10.3 of Form 10-Q for the period ended June 30, 2004).*

	10.40	Letter Agreement dated July 14, 2004 between ProxyMed and Gregory J. Eisenhauer (incorporated by reference to Exhibit 10.2 of Form 10-Q for the period ended September 30, 2004).*

	10.41	Purchase Agreement dated June 27, 1997 by and between ProxyMed, Inc. and Walgreen Co.

	10.42	Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and Nancy J. Ham

	10.43	Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and Lonnie J. Hardin

	10.44	Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and Gregory J. Eisenhauer

	10.45	Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and Jeffrey L. Markle

	10.46	Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and John P. Guinan

	16	Letter Regarding Change in Certifying Accountant dated August 16, 2004 from PricewaterhouseCoopers LLP to the Securities and Exchange Commission (incorporated by reference to Exhibit 16.1 of Form 8-K File No. 000-22052, reporting an event dated August 11, 2004).

	21	Subsidiaries of the Registrant.

	23.1	Consent of PricewaterhouseCoopers LLP.

	23.2	Consent of Deloitte & Touche LLP.

	31.1	Certification by Kevin M. McNamara, Interim Chief Executive Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14.


Exhibit No.		Description
	31.2	Certification Gregory J. Eisenhauer, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14.

	32.1	Certification by Kevin M. McNamara, Interim Chief 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 by Gregory J. Eisenhauer, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Denotes management contract or compensating plan or arrangement.