PROSPECTUS
2,000,000 SHARES
[Logo]
COMMON STOCK
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ProxyMed, Inc., a Florida corporation (the 'Company'), and the Selling
Shareholder (as defined herein) hereby offer (the 'Offering') an aggregate of
2,000,000 shares (the 'Shares') of the Company's common stock, par value $.001
per share (the 'Common Stock'). Of the 2,000,000 Shares offered hereby,
1,945,000 are being offered by the Company and 55,000 are being offered by the
Selling Shareholder. The Company will not receive any proceeds from the sale of
Shares by the Selling Shareholder. The Company's Common Stock is quoted on the
Nasdaq SmallCap Market ('Nasdaq') under the symbol 'PILL.' On May 7, 1996, the
last reported sale price for the Common Stock was $7.25. See 'Principal
Shareholders and Selling Shareholder.'
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THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE 'RISK FACTORS'
BEGINNING ON PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................................. $6.625 $.53 $6.095
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Total(3).................................. $13,250,000 $1,060,000 $11,854,775
</TABLE>
(1) Does not include additional compensation to be received by Commonwealth
Associates, the representative (the 'Representative') of the several
underwriters (the 'Underwriters') in this Offering, in the form of (i) a
nonaccountable expense allowance payable to the Representative in an amount
equal to 2% of the gross proceeds of the Offering and (ii) five-year
warrants to purchase up to 200,000 shares of Common Stock at a price per
share equal to 120% of the public offering price (the 'Representative's
Warrants'). The Company has also agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See 'Underwriting.'
(2) Before deducting those expenses of the Offering which are payable by the
Company (including the Representative's nonaccountable expense allowance),
estimated at $531,776 ($571,526 if the Underwriters' over-allotment option
is exercised in full), assuming an Offering price of $6.625 per share.
Excludes proceeds to the Selling Shareholder of $335,225 from the sale of
55,000 Shares.
(3) The Company has granted to the Underwriters an option, exercisable within 45
days after the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock on the same terms and conditions as set forth above,
solely for the purpose of covering over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $15,237,500, $1,219,000, and
$13,683,275, respectively. See 'Underwriting.'
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The Shares offered hereby are being offered, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters, and subject to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify the Offering and to reject any order in whole or in part. It is expected
that delivery of the Shares offered hereby will be made at the offices of
Commonwealth Associates, 733 Third Avenue, New York, New York 10017, on or about
May 13, 1996.
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COMMONWEALTH ASSOCIATES
THE DATE OF THIS PROSPECTUS IS MAY 7, 1996
<PAGE>
[PHOTOGRAPHS]
(INSIDE FRONT COVER)
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON NASDAQ IN ACCORDANCE
WITH RULE 10B-6A UNDER THE SECURITIES ACT OF 1934, AS AMENDED. SEE
'UNDERWRITING.'
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FOR CALIFORNIA RESIDENTS ONLY
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA HAS IMPOSED INVESTOR
SUITABILITY STANDARDS OF (I) A MINIMUM LIQUID NET WORTH (NET WORTH EXCLUDES
PRINCIPAL RESIDENCE, HOME FURNISHINGS AND AUTOMOBILES) OF $60,000, PLUS GROSS
ANNUAL INCOME OF AT LEAST $60,000 OR (II) A MINIMUM LIQUID NET WORTH OF
$225,000.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Summary and under the captions 'Risk
Factors,' 'Use of Proceeds,' 'Management's Discussion and Analysis of Financial
Condition and Results of Operations,' 'Business' and elsewhere in this
Prospectus constitute 'forward-looking statements' within the meaning of the
Securities Act of 1933. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, among others, those discussed under the
caption 'Risk Factors.'
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Except as otherwise noted, all information in this
Prospectus assumes that the Underwriters' over-allotment option has not been
exercised.
THE COMPANY
ProxyMed, Inc. (together with its subsidiaries, the 'Company') is a
healthcare information technology company. The Company's products and services
electronically link physicians, managed care organizations ('MCOs') and
pharmacies through its innovative pharmacy management systems and on-line
computer network. The products and services designed by the Company facilitate
the free flow of clinical pharmacy information among these parties in order to
assist them in providing safe, efficient and cost-effective healthcare. The
Company's products and services fit into three basic categories: network
services, software products and clinical information services.
Network Services. PROXYNET trademark, the Company's healthcare information
network, is the centerpiece of the Company's products and services. Through the
Company's centralized computer system, ProxyNet enables physicians, MCOs and
pharmacies to transmit clinical pharmacy information and to access the Company's
clinical information databases. Customers will be able to access ProxyNet and
utilize the Company's network services through either the Company's or third
parties' software products.
Software Products. The Company's software products provide its customers
with proprietary, on-line pharmacy management and drug utilization review
capabilities and access to ProxyNet. The Company has three software products:
PROXYSCRIPT trademark provides pharmacy management at the point of care, the
prescribing physician's office, and automates the generation, processing and
management of prescriptions; PROXYVIEW trademark enables MCOs, including health
maintenance organizations ('HMOs') and physician practice management groups
('PPMs'), to review prescriptions on-line as they are transmitted by affiliated
physicians; and RXRECEIVE trademark permits pharmacies to receive prescriptions
electronically.
Clinical Information Services. The Company offers subscriptions to various
pharmacy-related databases, including a proprietary drug database utilized as a
drug reference and for information on generic drug equivalents, a directory of
all physicians and pharmacies participating in ProxyNet, clinical interaction
databases and MCO 'formularies' (lists of approved drugs) published by the
Company.
The Company's products and services provide users with a number of
benefits. Physicians can electronically (i) perform allergy, disease and drug
interaction screening, (ii) search for alternative generic or less-expensive
drug choices, (iii) review prescriptions against applicable MCO formularies and
(iv) transmit prescriptions electronically to pharmacies, all before the patient
leaves the office. MCOs can review prescriptions written by affiliated
physicians on-line before the prescriptions reach the pharmacy and can generate
prescription data reports. This enables MCOs to ensure timely compliance with
their quality of care and cost containment guidelines. Pharmacies can receive
legible prescriptions electronically either by a facsimile or computer, thereby
lowering costs and increasing efficiency.
As part of its marketing strategy, the Company recently entered into a
strategic marketing agreement (the 'Bergen Agreement') with Bergen Brunswig Drug
Company and IntePlex, Inc., both of which are wholly-owned subsidiaries of
Bergen Brunswig Corporation (collectively, 'Bergen'), a national pharmaceutical
and medical supplies distributor with reported consolidated 1995 revenues of
$8.4 billion. Under this agreement, Bergen paid a one-time, nonrefundable fee of
$1,000,000 for a non-exclusive license
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to market the Company's current products and services throughout the United
States utilizing Bergen's national sales force.
The Company anticipates generating revenues through (i) fees for use and
support of the Company's software products and services, (ii) fees paid by
pharmacies and MCOs for prescription transactions, (iii) subscription fees for
access to the Company's databases and (iv) sales of information generated by the
Company's operations. The Company also expects to generate revenues from the
sale of third-party computer hardware products for use with the Company's
software products.
Current trends in the healthcare industry present significant opportunities
for the Company. According to the Group Health Association of America ('GHAA'),
HMO enrollment in the United States increased 13.1% from 1993 to 1994 to
approximately 51 million enrollees in 1994, or 19% of the total population. This
increased enrollment in HMOs and other MCOs results from substantial increases
in healthcare costs in recent years. MCOs continue to search for ways to lower
healthcare costs while also improving the quality of care. The Company believes
that its products and services will assist MCOs in achieving these goals.
The Company is seeking to capitalize on these and other trends to become a
leader in the emerging healthcare information technology segment of the
healthcare industry as follows:
Increasing the number of end-users. The Company's goal is to become the
first prescription origination and review system in a physician's office by (i)
targeting customers that are responsible ('at-risk') for payment of their
pharmacy costs, (ii) allowing access to ProxyNet through medical practice
management software products developed by third parties and (iii) marketing its
products and services as a value-added product to other pharmacy-related
companies.
Establishing and enhancing strategic relationships. Because a significant
portion of Bergen's customers are at risk, the Company plans to leverage the
marketing strength and industry position of Bergen to sell its products and
services to these customers as a key component in its marketing efforts. At the
same time, the Company is developing strategic relationships with companies in
other segments of the healthcare industry, such as MCOs, pharmacy benefit
managers, electronic claims processors, and medical practice and pharmacy
management software companies.
Positioning ProxyNet as an independent network. The Company plans to allow
access to ProxyNet both by its own software users and by users of third-party
software products. By positioning ProxyNet as an independent network, the
Company will enable users to send prescriptions electronically over ProxyNet
between physicians, MCOs and pharmacies even if they are all using different
software systems. This will allow the Company to seek a larger portion of
electronic prescription transaction revenues.
Increasing product and service range. The Company intends to continue to
expand the range of products and services that it provides. The Company has
recently introduced ProxyView and RxReceive and is currently developing software
products for the nursing home industry and products that enable physicians to
inventory and distribute drug samples and to manage laboratory testing. The
Company is continually monitoring customers and the healthcare industry
generally in search of areas where it can provide valuable additional products
or services.
The Company was incorporated in Florida in 1989, and its executive offices
are located at 2501 Davie Road, Suite 230, Fort Lauderdale, Florida 33317-7424.
The Company's telephone number is (954) 473-1001.
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THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company................... 1,945,000 shares
Common Stock offered by the Selling Shareholder....... 55,000 shares
Common Stock outstanding after the Offering........... 5,280,225 shares(1)
Use of proceeds....................................... (i) sales and marketing of the Company's healthcare
information technology products and services, (ii) product
development, (iii) payment of capital lease obligations,
and (iv) working capital and other general corporate
purposes. See 'Use of Proceeds.'
Nasdaq SmallCap Market symbol......................... PILL
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1995 1994
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<S> <C> <C>
Consolidated Statement of Operations Data(2):
Net sales...................................................................... $ 7,623 $ 16,533
Operating loss................................................................. (2,627) (4,126)
Net loss....................................................................... (2,849) (4,266)
Net loss applicable to common shareholders..................................... (2,962) (4,266)
Net loss per share of Common Stock............................................. (.92) (1.52)
Weighted average number of shares of Common Stock outstanding.................. 3,211 2,807
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
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ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents...................................................... $ 464 $ 11,337
Total assets................................................................... 4,993 15,866
Capital lease obligations, less current portion................................ 199 --
Accumulated deficit............................................................ (8,184) (8,184)
Shareholders' equity........................................................... 2,594 13,917
</TABLE>
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(1) Excludes (i) 1,250,476 shares of Common Stock reserved for issuance upon the
exercise of outstanding options and warrants as of the date of this
Prospectus; (ii) 481,250 shares of Common Stock reserved for issuance upon
the conversion of the Company's outstanding Series A 9% Convertible
Preferred Stock (the 'Series A Preferred Stock'); (iii) 120,000 shares of
Common Stock reserved for issuance in connection with an acquisition for
issuance upon the occurrence of a defined change in control of the Company;
and (iv) 200,000 shares of Common Stock reserved for issuance upon the
exercise of the Representative's Warrants. See 'Executive Compensation--
Stock Option Plans,' 'Description of Capital Stock,' 'Shares Eligible for
Future Sale,' 'Underwriting' and Notes 2, 4 and 9 of the Notes to
Consolidated Financial Statements.
(2) This data includes results of certain operations which were sold in 1995 and
is, therefore, not indicative of future results. See 'Risk
Factors--Substantial and Continuing Losses; Sale of Significant Assets to
Eckerd and NHCA; Minimal Revenues;' 'Management's Discussion and Analysis of
Financial Condition and Results of Operations;' and Note 3 of Notes to
Consolidated Financial Statements.
(3) Adjusted to give effect to the sale of the 1,945,000 shares of Common Stock
offered by the Company hereby at a public offering price of $6.625 per share
and the application of the net proceeds therefrom. See 'Use of Proceeds.'
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<PAGE>
RISK FACTORS
An investment in the shares offered hereby is highly speculative, involves
a high degree of risk and should be made only by investors who can afford the
loss of their entire investment. Each prospective investor, prior to making an
investment decision, should carefully consider the following risk factors, in
addition to all of the other information provided in this Prospectus.
SUBSTANTIAL AND CONTINUING LOSSES; SALE OF SIGNIFICANT ASSETS TO ECKERD AND
NHCA; MINIMAL REVENUES. The Company has incurred substantial losses, including
losses of $4,266,000 and $2,849,000, respectively, for the fiscal years ended
December 31, 1994 and 1995. In March 1995, the Company sold certain assets
relating to its prescription drug dispensing operations to Eckerd Corporation
('Eckerd'). These assets accounted for approximately $13,513,000 (or 82%) and
$3,404,000 (or 45%), respectively, of the Company's revenues in 1994 and 1995.
In September 1995, the Company sold its home infusion subsidiary to National
Health Care Affiliates, Inc., and an affiliate thereof (collectively, 'NHCA').
Such subsidiary accounted for approximately $1,983,000 (or 12%) and $1,936,000
(or 25%), respectively, of the Company's revenues in 1994 and 1995. Further, the
Company is considering whether its institutional drug dispensing operations,
which currently represent its principal source of revenues, fit within its
long-term business plan; however, there are no understandings, commitments or
agreements for the sale of these operations as of the date of this Prospectus.
As a result of the foregoing, the Company's revenues from operations are
expected to remain much lower than expenses until such time, if ever, as it is
able to successfully commercialize and generate significant revenues from its
healthcare information technology operations. Accordingly, the Company expects
to continue to incur substantial losses in the foreseeable future. There can be
no assurance that the Company will ever generate significant revenues from its
healthcare information technology products and services or that the Company will
ever achieve profitable operations. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations.'
NO RELEVANT OPERATING HISTORY; SHIFT IN BUSINESS EMPHASIS; UNCERTAINTY OF
PRODUCT COMMERCIALIZATION. During the past year, the Company has emphasized the
commercialization of its healthcare information technology products and
services. To date, this activity has generated limited revenues. These products
and services are currently being utilized primarily on a limited basis at no
charge in connection with the drug dispensing operations sold to Eckerd and
pursuant to pilot programs with certain MCOs. See 'Business--Strategic
Relationships.' Accordingly, the Company has only a limited operating history
upon which an evaluation of its performance and prospects can be made. The
Company is and will be subject to numerous risks, uncertainties, expenses,
delays, problems and difficulties in its attempt to establish a new business in
a highly competitive industry, and in its shift from dispensing pharmaceuticals
to the development and commercialization of technology-based products and
services. The Company's business plans and prospects will be dependent upon,
among other things, the Company's ability to (i) achieve significant market
acceptance for its products and services, (ii) develop and implement effective
new products and services, (iii) establish an effective sales and marketing
organization and (iv) establish an effective customer support and maintenance
organization. There can be no assurance that the Company will be able to
successfully implement its business plans or that its efforts will result in
successful product/service commercialization.
SIGNIFICANT CAPITAL REQUIREMENTS; NEED FOR SUBSTANTIAL ADDITIONAL
FINANCING. The Company's capital requirements in connection with the marketing
and sale of its products and services are significant. The Company currently has
limited financial resources and is dependent on the proceeds of this Offering or
other financing to undertake marketing activities with respect to its products
and services and satisfy its working capital requirements. The Company believes,
based upon its currently proposed plans and assumptions relating to its
operations, that the net proceeds of this Offering will provide the funds
necessary to satisfy its cash requirements for approximately 20 months following
consummation of this Offering, during which time the Company believes that it
can commercialize its products and services; however, there
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<PAGE>
can be no assurance that such proceeds will in fact be sufficient.
Implementation of the Company's proposed business plans and the
commercialization of its products and services may require financial resources
substantially greater than the proceeds of this Offering or those otherwise
currently available to the Company. The Company has no other arrangements with
respect to, or sources of, additional financing. There can be no assurance that
additional funds will be available when needed or, if available, will be
available on terms acceptable to the Company. Any such additional financing may
result in significant dilution to existing shareholders. If needed financing is
not obtained, the Company may be forced to curtail or even cease operations. See
'Use of Proceeds.'
CONTINGENT RECEIVABLE DUE FROM ECKERD. The agreement between the Company
and Eckerd relating to the sale of certain assets of the Company's prescription
drug dispensing operations contemplates that Eckerd will pay up to $950,000 to
the Company on October 5, 1996. The amount of payment is contingent and subject
to downward adjustment based upon the number of prescriptions filled by Eckerd
from prescription files purchased by Eckerd from the Company and, under certain
circumstances, no payment is required to be made. There can be no assurance that
the Company will receive any further payment from Eckerd. To the extent that
Eckerd pays less than the maximum scheduled payment, the Company will have less
funds available to it for other purposes, including the commercialization of its
technology products and services. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and Note 3 of Notes to
Consolidated Financial Statements.
STRATEGIC RELATIONSHIPS. Under the Bergen Agreement, Bergen received a
non-exclusive license to market the Company's current healthcare information
technology products and services throughout the United States utilizing the
Bergen sales force. This agreement requires the Company to, among other things,
provide training to the relevant members of the Bergen sales force and requires
the Company to pay to Bergen 10% to 30% of all net revenues received by the
Company from the sale of the designated products and services, depending on the
Company's overall annual sales volume, and to share equally certain other
revenues. Bergen is entitled to these payments based on the Company's sales
regardless of whether or not Bergen generates those sales. Bergen will receive
its largest percentage compensation when the Company's sales are the lowest and
the Company's needs are therefore the greatest. Moreover, the percentages
payable to Bergen on lower levels of sales represent a major commitment of the
Company's revenues at a time when the Company has no assurance that it will even
be able to sell its products and services at prices or in volumes sufficient to
cover its corporate overhead and Bergen's compensation. There can be no
assurance that Bergen will be able to generate sufficient sales volume so as to
make the Bergen Agreement profitable to the Company. If Bergen is unable to
generate sufficient sales, the Company may be forced to spend significant
amounts of its own funds on marketing efforts and/or to enter into additional
strategic marketing arrangements, thereby materially adversely affecting its
potential profitability. While Bergen's license is nonexclusive, the Company is
prohibited from entering into similar arrangements with certain of Bergen's
principal competitors, including other major national pharmaceutical and medical
supplies distributors. Thus, the Company's ability to enter into additional
strategic marketing arrangements is significantly restricted by the Bergen
Agreement. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and 'Business--Strategic Relationships.'
On March 1, 1996, the Company entered into a license agreement with Blue
Cross and Blue Shield of Massachusetts, Inc. ('BCBSM'), a large health insurance
provider based in Boston, Massachusetts, with over 2,000,000 members throughout
New England. Under this agreement (the 'BCBSM Agreement'), BCBSM received the
right to license ProxyScript to all physicians, including its 12,000 affiliated
physicians, in Massachusetts, Vermont, New Hampshire, Maine, Rhode Island and
Connecticut (the 'States'). This right is exclusive for two years in all of the
States, except for Connecticut. Under the BCBSM Agreement, the Company is barred
for two years from competing in the States (except Connecticut) with BCBSM's
electronic prescription business and BCBSM is barred from competing with the
Company's electronic prescription business outside the States for the same
two-year period. By the time the two-year period expires, many physicians in the
States may have already obtained the software products
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and network services they need from BCBSM or other providers. Accordingly, the
BCBSM Agreement may materially adversely affect the Company's ability to market
its products and services in the States, not only for the two-year exclusive
period, but also thereafter. See 'Business--Strategic Relationships.'
EMERGING BUSINESS; NEW CONCEPT; UNCERTAINTY OF MARKET ACCEPTANCE. The
healthcare information technology segment of the healthcare industry is an
emerging business. As is typical in an emerging business, demand and market
acceptance for newly introduced products and services are subject to a high
level of uncertainty. The Company commenced marketing activities with respect to
its new products and services approximately one year ago and has limited
marketing experience and limited financial, personnel and other resources to
undertake extensive marketing activities. The Company has not conducted and does
not intend to conduct any independent marketing or other concept feasibility
studies to determine the potential commercial viability of its products and
services in any markets. Achieving market acceptance for the Company's products
and services will require substantial marketing efforts and expenditure of
significant funds to create awareness and demand by pharmacies, physician
groups, MCOs and other healthcare payors. There can be no assurance that
substantial markets will develop for electronic prescription products and
services or that the Company will be able to succeed in positioning its products
and services as a preferred method for managing pharmacy benefits or to achieve
significant market acceptance for its products and services.
GOVERNMENT REGULATION. The Company's products and services are subject to
extensive and frequently changing state and federal laws and regulations. A
primary feature of the Company's products and services is the ability to
electronically transmit (either by computer-to-facsimile or computer-to-
computer) prescriptions from a physician's office to a pharmacy. Less than 25%
of the states of the United States have pharmacy laws and regulations that
expressly permit the electronic transmission of computer-generated
prescriptions. Accordingly, the Company may only be able to market its products
and services in a limited number of states. Further, applicable federal laws and
regulations which govern certain drugs classified as 'controlled substances' do
not specifically address the electronic transmission of computer-generated
prescriptions. While the Company believes that the current trend is toward
greater acceptance by regulators and state and federal legislatures of
electronic transmission of computer-generated prescriptions, there can be no
assurance that this trend will continue. In addition, each state has various
laws protecting the confidentiality of patient medical information, including
prescription information. Although it is not uncommon for a third party to have
access to such information, such third party has an obligation to maintain the
confidentiality of such information and could be subject to liability if that
obligation is breached. The Company has procedures in place to maintain the
confidentiality of the information it receives as part of its ProxyNet services;
however, there can be no assurance that inadvertent disclosure of information
will not expose the Company to liability. The Company believes that it is in
substantial compliance with all material federal and state laws and regulations
governing its operations and has obtained all licenses necessary for the
operation of its business. There can be no assurance, however, that the Company
will not be materially adversely affected by existing or new regulatory
requirements or interpretations, including, but not limited to, those
restricting the electronic transmission of computer-generated prescriptions. See
'Business--Government Regulation.'
COMPETITION. The Company faces competition from many companies in the
healthcare information technology business. Certain companies are developing
products or services which are or may become directly competitive with the
Company's products and services. Such companies, which include subsidiaries of
International Business Machines Corporation, Eli Lilly & Co. and Glaxo Wellcome
plc and certain major on-line transaction processing companies, are
well-established, have substantially greater financial and other resources than
the Company, and have established reputations for success in implementing
healthcare information technology. There can be no assurance that the Company
will be able to compete successfully or that competitors will not commercialize
products or services that render the Company's products and services obsolete or
less marketable.
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UNCERTAINTY OF PRODUCT DEVELOPMENT; POSSIBLE DEFECTS. The quality of the
Company's software products and network systems is of critical importance to the
Company's business plans and prospects. Although the Company has completed the
development of its software products and network systems, which the Company
believes efficiently perform the principal functions for which they have been
designed, such products and systems are currently being utilized for limited
applications. There can be no assurance that, upon widespread commercial use of
the Company's software products and network systems, such products and systems
will satisfactorily perform all of the functions for which they have been
designed or that unanticipated technical or other errors will not occur which
would result in increased costs or material delays. Appearance of such errors
could delay the Company's plans, result in harmful publicity and cause the
Company to incur substantial remedial costs, all of which could have a material
adverse effect on the Company.
RELATIONSHIPS WITH SOFTWARE DEVELOPERS. ProxyNet, the Company's healthcare
information network, is currently being accessed only by users of the Company's
software. A key element of the Company's business strategy is to develop
relationships with leading software companies which develop and/or market
compatible medical practice or pharmacy management software products. In order
to develop and maintain these relationships, the Company may be required to
commit considerable additional efforts and resources. The Company currently has
only one such relationship. There can be no assurance that the Company will be
able to develop or maintain these desired relationships or that, in the event
that they are developed, these companies, many of which have significantly
greater financial and marketing resources than the Company, will not develop and
market products in competition with the Company in the future or will not
otherwise discontinue their relationships with the Company. See 'Business--Sales
and Marketing' and 'Competition.'
NEW PRODUCTS AND TECHNOLOGICAL CHANGE. The market for the Company's
products and services is characterized by ongoing technological development and
evolving industry standards. The Company's success will depend upon its ability
to enhance its current products and services and to introduce new products and
services which address technological and market developments and satisfy the
increasingly sophisticated needs of customers. There can be no assurance that
the Company will be successful in developing and marketing, on a timely basis,
fully functional product and service enhancements or new products and services
that respond to the technological advances by others, or that its new products
and services will be accepted by customers. From time to time, the Company may
announce new products, services or technologies that have the potential to
replace the Company's existing product and service offerings. There can be no
assurance that the announcement of new product and service offerings will not
cause customers to defer purchases of existing Company products and services,
which could materially and adversely affect the Company's revenues and results
of operations. See 'Business--Product Development.'
DEPENDENCE ON PROPRIETARY INFORMATION. The Company's success is, in large
part, dependent upon its proprietary information and technology. The Company
relies on a combination of trademark, copyright, trade secret and contract
protection to establish and protect its proprietary rights in its products,
services, trade names and technology. The Company has filed with the United
States Patent and Trademark Office applications to register its trademarks
ProxyNet, ProxyScript and RxReceive, and the Company intends to file such an
application for ProxyView. Also, the Company intends to register its software
products with the United States Copyright Office. There can be no assurance that
the steps taken by the Company in this regard will be adequate to deter
misappropriation of its proprietary rights or independent third party
development of substantially similar products, services and technology. Although
the Company believes its products, services and technology do not infringe on
any proprietary rights of others, as the number of software products available
in the market increases and the functions of those products further overlap,
software developers may become increasingly subject to infringement claims. Any
such claims, with or without merit, could result in costly litigation or might
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms
9
<PAGE>
acceptable to the Company or at all. Any successful infringement claim could
have a material adverse effect on the Company. See 'Business--Intellectual
Property, Proprietary Rights and Licenses.'
PRODUCT LIABILITY AND AVAILABILITY OF INSURANCE. The Company's business
exposes it to potential liability risks that are inherent in the sale of
healthcare information technology products and services. Because the Company's
products and services relate to the prescribing of drugs and the filling of
prescriptions, an error by any party in the process could result in substantial
injury to a patient. As a result, the Company's liability risks are significant.
The Company maintains a $2,000,000 general liability insurance policy, which
includes coverage of $1,000,000 per occurrence, plus a $10,000,000 umbrella
policy and a $1,000,000 errors and omissions policy. The Company believes that
its present insurance coverage is adequate for the products and services
currently marketed. There can be no assurance, however, that such insurance will
be sufficient to cover potential claims arising out of its current or
contemplated operations or that the present level of coverage will be available
in the future at a reasonable cost. A partially or completely uninsured claim
against the Company, if successful and of sufficient magnitude, could have a
material adverse effect on the Company. In addition, the inability to obtain
insurance of the type and in the amounts required could generally impair the
Company's ability to market its products and services.
MANAGEMENT OF GROWTH. The Company's business plan anticipates, among other
things, significant growth in the Company's customer base and continued
development of its product and service lines. This growth and continued
development, if it materializes, could place a significant strain on the
Company's management, employees and operations. In the event of this expansion,
the Company would have to continue to implement and improve its operating
systems and to expand, train and manage its employee base. If the Company is
unable to implement and improve these operating systems and manage its employee
base effectively, the Company's results of operations could be materially
adversely affected.
HEALTH CARE REFORM. Political, economic and regulatory influences are
subjecting the healthcare industry in the United States to fundamental changes.
Potential reforms may include mandated basic healthcare benefits, controls on
healthcare spending through limitations on the growth of private health
insurance premiums and Medicare and Medicaid reimbursement, the creation of
large insurance purchasing groups and fundamental changes to the healthcare
delivery system. The Company anticipates Congress and certain state legislatures
will continue to review and assess alternative healthcare delivery systems and
payment methods and public debate of these issues will likely continue in the
future. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have on the Company.
DEPENDENCE ON KEY PERSONNEL. The success of the Company is largely
dependent on the personal efforts of Harold S. Blue, its Chief Executive
Officer, and John Paul Guinan, its President. Although the Company has entered
into employment agreements with Messrs. Blue and Guinan, the loss of either's
services could have a material adverse effect on the Company's business or
prospects. The Company has obtained 'key man' insurance on the lives of Messrs.
Blue and Guinan in the amount of $1,000,000 each. The success of the Company is
also dependent upon its ability to hire and retain qualified marketing and other
personnel. Competition for qualified personnel in the healthcare information
technology industry is intense, and there can be no assurance that the Company
will be able to hire or retain the personnel necessary for its planned
operations. See 'Management--Employment Contracts.'
SIGNIFICANT INFLUENCE BY MANAGEMENT. As of the date of this Prospectus,
the Company's officers and directors own beneficially and of record
approximately 30.9% of the Company's outstanding Common Stock. Management will
own approximately 20.5% of the outstanding Common Stock upon sale of all of the
Shares offered hereby (19.5% if the Underwriters' over-allotment option is
exercised in full).
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<PAGE>
Accordingly, management of the Company may be able to exercise significant
influence with respect to the election of the directors of the Company and all
matters submitted to a vote by shareholders.
BROAD DISCRETION AS TO USE OF PROCEEDS; POSSIBLE UNSPECIFIED
ACQUISITIONS. A substantial portion of the estimated net proceeds of this
Offering ($5,273,000, or 46.6%) has been allocated to working capital and
general corporate purposes and will be used for such specific purposes as
management may determine. Such purposes may include unspecified acquisitions of
businesses involved in activities or which have product lines compatible with
those of the Company. The Company has no specific arrangements with respect to
any acquisition at the present time, and there can be no assurance that suitable
acquisition candidates will be located or, if located, that any acquisition will
be made on terms favorable to the Company. In the event that the Company
identifies suitable acquisition candidates, shareholders may not be permitted to
vote on the proposed acquisitions or to review the financial statements of the
acquisition candidates. Accordingly, management will have broad discretion with
respect to the expenditure of the net proceeds of this Offering. In addition,
the Company's estimate of its allocation of the use of proceeds of this Offering
is subject to a reapportionment of proceeds among the categories set forth
herein or to new categories. The amount and timing of expenditures will vary
depending upon a number of factors, including the progress of the Company's
business plans, changing competitive conditions and general economic conditions.
Purchasers of the Common Stock will necessarily depend upon the judgment of the
Company's management with only limited information concerning management's
specific intentions. See 'Use of Proceeds.'
NO DIVIDENDS. The Company currently anticipates that it will retain all of
its future earnings, if any, for use in the expansion and operation of its
business, and does not anticipate paying any cash dividends on its Common Stock
in the foreseeable future. See 'Dividend Policy.'
POSSIBLE ANTI-TAKEOVER EFFECTS; AUTHORIZATION OF PREFERRED STOCK. Certain
provisions of the Florida Business Corporation Act contain anti-takeover
provisions which may inhibit tender offers, non-negotiated mergers or other
business combinations involving the Company. Certain of these provisions may
discourage a future acquisition of the Company, including an acquisition in
which the shareholders might otherwise receive a premium for their shares. As a
result, shareholders who might desire to participate in such a transaction may
not have the opportunity to do so. In addition, the Company's Articles of
Incorporation authorize the issuance of 2,000,000 shares of 'blank check'
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Only 77,000 of such
shares are outstanding as of the date of this Prospectus. Accordingly, the Board
of Directors is empowered, without shareholder approval, to issue additional
shares of preferred stock with dividend, liquidation, conversion, voting or
other rights that could adversely affect the value, voting power or other rights
of the holders of the Common Stock. In addition, issuance of the preferred stock
could be utilized, under certain circumstances, as a method of discouraging,
delaying or preventing a change in control of the Company which could be
beneficial to the Company's shareholders. Although the Company has no present
intention to issue any further shares of its preferred stock, there can be no
assurance that the Company will not do so in the future. See 'Description of
Capital Stock.'
VOLATILITY OF STOCK PRICE. The market price of the Common Stock has
fluctuated substantially since the Company's initial public offering in August
1993. There can be no assurance that the market price of the Common Stock will
not significantly fluctuate from its current level. Future announcements
concerning the Company or its competitors, quarterly variations in operating
results, the introduction of new products and services or changes in product
pricing policies by the Company or its competitors, changes in earnings
estimates by analysts or changes in accounting policies, among other factors,
could cause the market price of the Common Stock to fluctuate substantially. In
addition, stock markets have experienced extreme price and volume volatility in
recent years. This volatility has had a substantial effect on the market prices
of securities of many smaller public companies for reasons frequently unrelated
to the operating performance
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<PAGE>
of the specific companies. These broad market fluctuations may adversely affect
the market price of the Company's Common Stock. See 'Price Range of Common
Stock.'
NASDAQ SMALLCAP MARKET DELISTING; LOW STOCK PRICE. The trading of the
Common Stock on the Nasdaq SmallCap Market is conditioned upon the Company's
meeting certain asset, capital and surplus, and stock price tests set forth by
the Nasdaq SmallCap Market. To maintain eligibility for trading on the Nasdaq
SmallCap Market, the Company will be required to maintain total assets in excess
of $2,000,000, capital and surplus in excess of $1,000,000 and (subject to
certain exceptions) a bid price of $1 per share. These eligibility requirements
are subject to change from time to time. The Company currently meets the
respective asset, capital and surplus and stock price tests set forth by the
Nasdaq SmallCap Market. If the Company at some future time were to fail any of
the applicable listing eligibility tests, the Common Stock could be delisted
from trading in the Nasdaq SmallCap Market. The effects of delisting would
include the limited release of the market price of the Common Stock and limited
news coverage of the Company. Delisting may restrict investors' interest in the
Common Stock and materially adversely affect the trading market and prices for
such Common Stock and the Company's ability to issue additional securities or to
secure additional financing. In addition to the risk of volatility of stock
prices and possible delisting, low price stocks are subject to the additional
risks of additional federal and state regulatory requirements and the potential
loss of effective trading markets. In particular, if the Common Stock were
delisted from trading on the Nasdaq SmallCap Market and the trading price of the
Common Stock were less than $5 per share, the Common Stock could be subject to
Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the 'Exchange
Act'), which, among other things, requires that broker/dealers satisfy special
sales practice requirements, including making individualized written suitability
determinations and receiving any purchaser's written consent prior to any
transaction. If the Common Stock could also be deemed a penny stock under the
Securities Enforcement and Penny Stock Reform Act of 1990, this would require
additional disclosure in connection with trades in the Common Stock, including
the delivery of a disclosure schedule explaining the nature and risks of the
penny stock market. Such requirements could severely limit the liquidity of the
Company's Common Stock and the ability of purchasers in this Offering to sell
their Common Stock in the secondary market.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of this Offering, the
Company will have 5,280,225 shares of Common Stock outstanding (5,580,225 if the
Underwriters' over-allotment option is exercised in full) and 77,000 shares of
Series A Preferred Stock outstanding which are currently convertible in the
aggregate into 481,250 shares of Common Stock. In addition, 1,250,476 shares of
Common Stock are reserved for issuance upon the exercise of outstanding options
and warrants (excluding the shares underlying the Representative's Warrants) and
120,000 shares of Common Stock are issuable upon the occurrence of a defined
change in control of the Company. Substantially all of the shares of Common
Stock outstanding following this Offering, as well as the shares underlying the
Series A Preferred Stock and other outstanding warrants, will be freely
tradeable. The possibility that substantial amounts of Common Stock may be sold
in the public market could have a material adverse effect on prevailing market
prices of the Common Stock and could impair the Company's ability to raise
capital or make acquisitions through the sale of its equity securities. The
officers and directors of the Company, who beneficially own an aggregate of
1,176,200 shares of Common Stock, have agreed not to sell or otherwise dispose
of any securities of the Company for a period of six months from the date of
this Prospectus without the Representative's prior written consent. See 'Shares
Eligible for Future Sale' and 'Underwriting.'
IMMEDIATE AND SUBSTANTIAL DILUTION. An investor in this Offering will
experience immediate and substantial dilution from the price paid for the Common
Stock offered hereby. As of December 31, 1995, the Company had a net tangible
book value of $1,974,664, or $.52 per share (assuming conversion of the Series A
Preferred Stock). After giving effect to the Offering at an Offering price of
$6.625 per share of Common Stock, and after deducting discounts and commissions
and estimated Offering expenses, pro forma net tangible book value would have
been $13,297,663, or $2.31 per share (assuming conversion of the Series A
Preferred Stock). The result would be an immediate increase in net tangible book
value per
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<PAGE>
share of $1.79 (344%) to existing shareholders and an immediate dilution to new
investors of $4.32 per share (65%).
REPRESENTATIVE'S WARRANTS. The Company will sell to the Representative
and/or its designees, for nominal consideration, the Representative's Warrants
to purchase an aggregate of up to 200,000 shares of Common Stock. The
Representative's Warrants are exercisable for a four-year period commencing one
year from the effective date of the Registration Statement of which this
Prospectus forms a part, at an exercise price per share equal to 120% of the
public offering price of the Common Stock. For the life of the Representative's
Warrants, the holders are given, at nominal cost, the opportunity to profit from
a rise in the market price of the Common Stock without assuming the risk of
ownership, with a resulting dilution in the interest of other security holders.
As long as the Representative's Warrants remain unexercised, the terms under
which the Company could obtain additional capital may be adversely affected.
Moreover, the holders of the Representative's Warrants may be expected to
exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital through a new offering of its securities on terms more
favorable than those provided by the Representative's Warrants. Additionally, if
the holders of the Representative's Warrants were to effect a distribution of
the Representative's Warrants or underlying securities, the Representative,
prior to and during such distribution, would be unable to make a market in the
Company's securities and would be required to comply with other limitations on
trading set forth in Rules 10b-2, 10b-6 and 10b-7 promulgated under the Exchange
Act. Such rules restrict the solicitation of purchasers of a security when a
person is interested in the distribution of such security and also limit market
making activities by an interested person until the completion of the
distribution. If the Representative were required to cease making a market, the
market and market price for such securities may be adversely affected and
holders of such securities may be unable to sell such securities. See
'Underwriting.'
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USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,945,000 shares of Common Stock offered by the Company hereby, after giving
effect to estimated underwriting discounts and commissions and expenses payable
by the Company, are estimated to be approximately $11,323,000 (approximately
$13,112,000 if the Underwriters' over-allotment option is exercised in full),
assuming an offering price of $6.625 per share. Assuming no exercise of the
Underwriters' over-allotment option, the Company intends to use the net proceeds
of this Offering as follows:
Sales and Marketing........................... $ 2,900,000
Product Development........................... 2,700,000
Payment of Capital Lease Obligations.......... 450,000
Working Capital............................... 5,273,000
-----------
Total......................................... $11,323,000
-----------
-----------
The net proceeds of this Offering which are allocated to sales and
marketing will be utilized for, among other things, marketing personnel,
preparing and disseminating advertising and promotional materials, training
Bergen sales force personnel, participation in trade shows, and travel,
communications and miscellaneous marketing expenses.
The net proceeds allocated to product development will be utilized for,
among other things, integration of the Company's products and services with
those of third-party software developers, development of enhancements and
improvements to existing products and services and development of new products
and services.
The capital lease obligations to be paid from the net proceeds of this
Offering were entered into between January 1992 and October 1994, terminate
between September 1996 and September 1999, and bear interest charges at annual
rates ranging from 7.9% to 22.2%. These leases were used by the Company to
finance the acquisition of network, computer and telephone equipment.
The Company believes, based upon its current plans and assumptions relating
to its operations, that the net proceeds of this Offering will provide the funds
necessary to satisfy its cash requirements for approximately 20 months following
consummation of this Offering. There can be no assurance, however, that such
proceeds will in fact be sufficient for such period. See 'Risk
Factors--Significant Capital Requirements; Need for Substantial Additional
Financing.'
The foregoing represents the Company's best estimate of the use of the net
proceeds to be received in this Offering based on current planning and business
conditions. The Company reserves the right to change such uses when and if
market conditions or unexpected changes in operating conditions or results
occur. The Company may, if the opportunity arises, acquire other businesses
involved in activities or having product lines that are compatible with those of
the Company with an unspecified portion of the net proceeds of this Offering.
The Company has no specific arrangements with respect to any acquisition at the
present time, and there can be no assurance that any acquisition will be made.
Net proceeds not immediately required for the purposes described above will
be invested principally in U.S. government securities, short-term certificates
of deposit, money market funds or other short-term, interest-bearing securities.
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PRICE RANGE OF COMMON STOCK
The Company's Common Stock trades on the Nasdaq SmallCap tier of the Nasdaq
Stock Market under the symbol 'PILL.' The following table sets forth the high
and low bid quotations for the Common Stock for the periods indicated in 1994
and the high and low sale prices of the Common Stock for the periods indicated
in 1995 and 1996. The 1994 quotations reflect interdealer prices, without retail
mark-up or commissions and may not necessarily reflect actual transactions.
HIGH LOW
------ -----
1994:
First Quarter......................... $ 9.38 $8.00
Second Quarter........................ 8.38 6.50
Third Quarter......................... 10.00 6.50
Fourth Quarter........................ 9.50 4.50
1995:
First Quarter......................... $ 7.50 $4.75
Second Quarter........................ 7.75 5.50
Third Quarter......................... 8.00 4.06
Fourth Quarter........................ 7.25 5.25
1996:
First Quarter......................... $ 8.00 $5.13
Second Quarter (through May 7, 1996).. 7.50 5.00
On May 7, 1996, the last reported sale price of the Common Stock was $7.25
per share. As of May 7, 1996, there were 137 holders of record of the Common
Stock.
DIVIDEND POLICY
The Company has not paid any dividends on its Common Stock. The Company
intends to retain all earnings for use in its operations and the expansion of
its business, and does not anticipate paying any dividends on the Common Stock
in the foreseeable future. The payment of dividends is within the discretion of
the Company's Board of Directors. Any future decision with respect to dividends
will depend on future earnings, future capital needs and the Company's operating
and financial condition, among other factors. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources.'
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CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995, and as adjusted to reflect the sale by the Company of the
1,945,000 shares of Common Stock offered by the Company hereby and the
application of the net proceeds therefrom. See 'Use of Proceeds.' The
information set forth below should be read in conjunction with 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
the Company's Consolidated Financial Statements and Notes thereto and other
financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current installments of capital lease obligations...................................... $ 218 $ --
Capital lease obligations, less current installments................................... 199 --
Shareholders' equity:
Preferred Stock, par value $.01 per share:
2,000,000 shares authorized, 83,000 shares issued
and outstanding, actual and 77,000 shares as adjusted............................. 1 1
Common Stock, par value $.001 per share:
20,000,000 shares authorized, 3,297,063 shares issued
and outstanding, actual; and 5,280,225 shares issued
and outstanding, as adjusted(1)(2)................................................ 3 5
Additional paid-in capital........................................................... 10,774 22,095
Accumulated deficit.................................................................. (8,184) (8,184)
------- --------------
Total shareholders' equity........................................................... 2,594 13,917
------- --------------
Total capitalization............................................................ $ 3,011 $ 13,917
------- --------------
------- --------------
</TABLE>
- ------------------------
(1) Adjusted to give effect to the sale of the 1,945,000 shares of Common Stock
offered by the Company at a public offering price of $6.625 per share and
the application of the net proceeds therefrom. See 'Use of Proceeds.'
(2) Excludes (i) 1,250,476 shares of Common Stock reserved for issuance upon the
exercise of outstanding options and warrants as of the date of this
Prospectus; (ii) 481,250 shares of Common Stock reserved for issuance upon
the conversion of the Company's outstanding Series A Preferred Stock; (iii)
120,000 shares of Common Stock reserved for issuance in connection with an
acquisition for issuance upon the occurrence of a defined change in control
of the Company; and (iv) 200,000 shares of Common Stock reserved for
issuance upon the exercise of the Representative's Warrants. See 'Executive
Compensation--Stock Option Plans,' 'Description of Capital Stock,' 'Shares
Eligible for Future Sale,' 'Underwriting' and Notes 2, 4 and 9 of the Notes
to Consolidated Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
From inception until 1995, the Company's business was principally related
to the dispensing of prescription drugs through a variety of methods of
delivery, including retail and institutional pharmacies and its home infusion
therapy subsidiary. In the first quarter of 1995, management determined that the
Company's retail pharmacy business was undesirable, primarily due to the need
for substantial additional capital required to achieve the economies of scale
required for profitable operations, and decided to shift the emphasis of the
Company's business. As part of the retail pharmacy operations, the Company
provided at no charge to its customers certain of its healthcare information
technology products and services, which were favorably received. Management also
recognized a need for these products and services in the marketplace.
Consequently, the Company elected to pursue the commercialization of its
healthcare information technology products and services. In March 1995, the
Company sold its retail pharmacy operations to Eckerd, and in September 1995 the
Company sold its home infusion subsidiary to NHCA. These sales enabled the
Company to pay off substantial debt to a major drug supplier and to raise cash
needed for the further development and commercialization of its new products and
services.
Through December 31, 1995, revenues from the Company's healthcare
information technology products and services were not material. On February 1,
1996, the Company consummated the Bergen Agreement, pursuant to which the
Company received a one-time, non-refundable fee of $1,000,000. On March 1, 1996,
the Company entered into the BCBSM Agreement, pursuant to which the Company is
entitled to receive a one-time license fee of $204,000 payable by September 1,
1996, of which $94,500 has been received. See 'Results of Operations,' 'Risk
Factors--Strategic Relationships,' 'Business-- Strategic Relationships,' and
Notes 3 and 11 of Notes to Consolidated Financial Statements.
The Company still owns and operates ProxyCare, Inc. ('ProxyCare'), its
institutional pharmacy subsidiary which dispenses prescription drugs to patients
in long-term care facilities; however, the Company is considering whether
ProxyCare fits within its long-term business plan. There are no understandings,
commitments or agreements at the date of this Prospectus for the sale of
ProxyCare. See 'Business--Institutional Pharmacy Business.'
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales for 1995 decreased by $8,910,203, or 54%, to
$7,622,803 from net sales of $16,533,006 in 1994. This decrease was attributable
to the Eckerd and NHCA dispositions. The combined net sales of these operations
comprised 70% and 94% of the Company's net sales in 1995 and 1994, respectively.
See 'Risk Factors--Substantial and Continuing Losses; Sale of Significant Assets
to Eckerd and NHCA; Minimal Revenues' and Note 3 of Notes to Consolidated
Financial Statements. Net sales for 1995 which were not attributable to the
operations sold increased $1,243,000, or 120%, to $2,280,000 over net sales of
$1,037,000 in 1994. This increase was primarily due to an increase of
$1,159,000, or 112%, in sales by the Company's remaining drug dispensing
operation, ProxyCare, which was acquired in April 1994. ProxyCare sales averaged
$183,000 per month in 1995 compared to $112,000 per month in 1994 for the period
subsequent to its acquisition. This increase was due primarily to increased
marketing efforts by the Company. The Company believes that price fluctuations
are not a significant factor affecting ProxyCare's sales because of contractual
fixed pricing arrangements with many customers. In addition, the Company
received revenues of $49,000 in the third and fourth quarters of 1995 from the
sale of its
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healthcare information technology products and services. Marketing of these
products and services commenced in the second quarter of 1995. The Company
received no revenues from these products and services in 1994.
Gross Profit Margin. Gross profit margin for 1995 was 32% compared to a
gross profit margin of 27% for 1994. Gross profit margin, after deducting sales
and cost of sales related to the operations sold to Eckerd and NHCA, was 33% for
1995 compared to 28% for 1994. These increases were due to improvements in the
gross margins at ProxyCare which resulted from the termination of low profit
customers and product lines after ProxyCare's acquisition in April 1994 and from
the higher gross margin contribution from sales of the Company's new products
and services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1995 decreased $3,564,139, or 41%, to $5,052,940
from $8,617,079 for 1994. After deducting selling, general and administrative
expenses related to the operations sold to Eckerd and NHCA, selling, general and
administrative expenses 'as adjusted' in 1995 increased by $1,689,000, or 121%,
to $3,088,000 from $1,399,000 in 1994. 'As adjusted' selling, general and
administrative expenses consist of expenses relating to ProxyCare and other
costs. Selling, general and administrative expenses, as adjusted, were 135% of
adjusted net sales in both 1995 and 1994. Selling, general and administrative
expenses for ProxyCare increased by $259,000, or 67%, to $645,000 in 1995
compared to $386,000 in 1994, primarily due to increased payroll costs to
service the increased sales. As a percentage of sales, however, ProxyCare's
selling, general and administrative expenses were 29% in 1995 compared to 37% in
1994. This percentage decrease was due to cost control measures which were
instituted by the Company. Other selling, general and administrative expenses,
as adjusted, increased by $1,430,000, or 141%, to $2,443,000 in 1995 compared to
$1,013,000 in 1994, primarily due to the Company's efforts to develop and market
its new products and services. This increase resulted from the following: (i)
payroll and related costs for sales, customer service, clinical pharmacy service
and management personnel related to the Company's new products and services
($845,000); (ii) marketing expenses related to these products and services,
including marketing materials, attendance at several national and local trade
shows, expenses for pilot programs for potential customers and travel costs
($255,000); (iii) additional depreciation and amortization related to new
network equipment and capitalized software costs ($100,000); (iv) insurance
costs related to the addition of officer and director insurance and product
liability insurance for the Company's new products and services ($98,000); and
(v) miscellaneous costs related to these new products and services ($132,000).
Interest Expense. Interest expense was $151,625 in 1995 and $139,492 in
1994. Interest expense in 1995 was only slightly greater than in 1994, despite a
substantial increase in the Company's indebtedness in late 1994 and early 1995,
because the Company used the proceeds from the Eckerd sale and from the private
placement of the Series A Preferred Stock in 1995 to repay all outstanding notes
payable and long-term debt. As of December 31, 1995, interest-bearing
indebtedness consists solely of capital lease obligations. See 'Liquidity and
Capital Resources.'
Other. In 1995, the Company recorded a loss on the Eckerd sale of
$740,044. Pursuant to the agreement with Eckerd, the Company can earn up to an
additional $1,078,981 of deferred revenue from future prescription sales by
Eckerd. If all of the deferred revenue is earned, the Company will ultimately
record a nominal gain on the sale. In 1995, the Company also recorded an
extraordinary gain on the NHCA sale of $669,664. See Note 3 of Notes to
Consolidated Financial Statements.
Net Loss. As a result of the foregoing, the Company recorded a net loss of
$2,848,887 in 1995 compared to a net loss of $4,265,657 in 1994. The $1,000,000
fee from the Bergen Agreement and $189,000 (of the total $204,000 fee) from the
BCBSM Agreement will be recognized as revenue in the first quarter of 1996.
Notwithstanding this revenue, the Company anticipates that it will continue to
incur significant operating losses until it generates a substantial flow of
recurring revenues from the sale of its new products and services. There can be
no assurance that the Company will realize a significant level of
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<PAGE>
recurring revenues from the sale of these new products and services, or that
revenues from these operations or those of ProxyCare will ultimately result in
significant reductions in losses or achievement of profitability. See 'Risk
Factors,' 'Business--Strategic Relationships' and Note 11 of Notes to
Consolidated Financial Statements.
The Financial Accounting Standards Board has recently issued new accounting
pronouncements which will be effective in 1996. With respect to Statement of
Financial Accounting Standards ('SFAS') No. 121, 'Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,' the Company
is already in compliance with the standards requiring an evaluation of the
carrying values of its intangible and other long-lived assets. With respect to
the accounting for its stock-based employee compensation plans, the Company will
elect to account for such plans in accordance with Accounting Principles Board
Opinion No. 25, 'Accounting for Stock Issued to Employees' (which is consistent
with its present method of accounting for such plans) rather than the fair
value-based method prescribed by SFAS 123, 'Accounting for Stock-Based
Compensation.' Accordingly, neither of these new standards will have an effect
on the Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
In 1995, the Company experienced negative cash flow from operations of
$4,894,674. This cash shortfall was funded primarily by cash received from the
Eckerd sale ($3,551,481), the NHCA sale ($892,363), and the sale of Series A
Preferred Stock ($2,056,219). See Notes 3 and 4 of Notes to Consolidated
Financial Statements. The Company also used the proceeds from these transactions
to pay off significant amounts of trade payables and to retire all of its notes
payable and long-term debt.
A comparison of the Company's financial condition from December 31, 1995,
to December 31, 1994, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Current ratio.............................................. 1.5 to 1 .9 to 1
Quick ratio................................................ 1.2 to 1 .6 to 1
Working capital (deficiency)............................... $ 990,734 $ (469,097)
Notes payable and long term debt........................... $ -- $ 658,049
Capital leases payable..................................... $ 417,884 $ 633,858
Net tangible assets........................................ $ 1,974,664 $ 1,732,131
Net assets................................................. $ 2,593,620 $ 3,336,035
</TABLE>
As of December 31, 1995, the Company had cash and cash equivalents of
$463,980. This available cash, together with the $1,000,000 received from
Bergen, the $94,500 received from BCBSM (less $28,350 payable under the Bergen
Agreement) and the $350,000 received from Eckerd in April 1996 continues to be
used for operations, for the further development and marketing of the Company's
new products and services, for the acquisition of equipment and for other
general corporate purposes. The Company is also obligated to pay cash dividends
on its Series A Preferred Stock of $86,625 in June and December of each year. In
addition to its present cash balances, the Company expects to receive additional
non-operating cash as follows: (i) $950,000 in October 1996 from the Eckerd sale
(subject to downward adjustment as described in 'Risk Factors--Contingent
Receivable Due From Eckerd' and Note 3 of Notes to Consolidated Financial
Statements), (ii) six quarterly payments of $93,000 from the NHCA sale beginning
in June 1996, and (iii) $109,500 due from BCBSM on or before September 1, 1996
(less $32,850 payable under the Bergen Agreement).
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Accounts receivable turnover for ProxyCare was 5.8 times in 1995 compared
to 4.0 times in 1994, resulting from improved collection efforts. Inventory
turnover for ProxyCare was 6.9 times in 1995 compared to 5.5 times in 1994, due
to servicing more sales with approximately the same amount of inventory.
In 1996, the Company expects to continue to incur significant negative net
cash flow until it begins receiving substantial recurring revenues from the sale
of its new products and services. Furthermore, while the Company presently has
no material commitments for capital expenditures, management is committed to the
strategy of investing funds in further marketing and development of its products
and services to the extent it can afford to do so, including pursuing pilot
programs at no cost to the customer. There can be no assurance that sufficient
cash from operations will be realized before available cash resources and the
net proceeds of this Offering are exhausted. If significant cash from operations
does not materialize, the Company may have to seek additional debt or equity
financing to fund its continuing operations. There can be no assurance that such
additional funds will be available when needed or, if available, will be
available on terms acceptable to the Company. See 'Risk Factors--Significant
Capital Requirements; Need for Substantial Additional Financing' and 'Risk
Factors--Strategic Relationships.'
20
<PAGE>
BUSINESS
OVERVIEW
ProxyMed, Inc., is a healthcare information technology company that
electronically links physicians, MCOs and pharmacies through its innovative
pharmacy management systems and on-line computer network. The products and
services designed by the Company facilitate the free flow of clinical pharmacy
information among these parties in order to assist them in providing safe,
efficient and cost-effective health care. The Company's products and services
fit into three basic categories: network services; software products; and
clinical information services.
The Company's products and services provide users with a number of
benefits. Physicians can electronically (i) perform allergy, disease and drug
interaction screening, (ii) search for alternative generic or less-expensive
drug choices, (iii) review prescriptions against applicable MCO formularies and
(iv) transmit prescriptions electronically to pharmacies, all before the patient
leaves the office. MCOs can review prescriptions written by affiliated
physicians on-line before the prescriptions reach the pharmacy and can generate
prescription data reports. This enables MCOs to ensure timely compliance with
their quality of care and cost containment guidelines. Pharmacies can receive
legible prescriptions electronically either by facsimile or computer, thereby
lowering costs and increasing efficiency.
The Company was incorporated under the laws of the State of Florida in
August 1989 under the name Cruz Care, Inc., and commenced operations in
September 1991 when it acquired the operating assets of an affiliated company.
The Company changed its name to HMO Pharmacy, Inc., in February 1993. In June
1993, the Company's name was changed to ProxyMed Pharmacy, Inc., and, in June
1994, the Company's name was changed to ProxyMed, Inc. The Company consummated
the initial public offering of its Common Stock in August 1993.
INDUSTRY
Current trends in the healthcare industry present significant opportunities
for the Company. According to GHAA, HMO enrollment in the United States
increased 13.1% from 1993 to 1994 to approximately 51 million enrollees in 1994,
or 19% of the total population. This increased enrollment in HMOs and other MCOs
results from substantial increases in healthcare costs in recent years. MCOs
continue to search for ways to lower healthcare costs while also improving the
quality of care. The Company believes that its products and services will assist
MCOs in achieving these goals.
MCOs are also empowering the primary care physician to be the 'gatekeeper'
to oversee cost containment and to foster quality assurance measures in
providing medical services. Physicians increasingly are inclined to replace
patients' paper charts with electronic medical record systems, and MCOs
increasingly are demanding on-line, real time, shared information among
healthcare providers and payors. The Company's products and services provide
physicians and MCOs with an electronic method for cost containment and quality
assurance controls.
Furthermore, approximately 2.1 billion prescriptions were written in 1995
and the number of prescriptions written annually should continue to rise as the
United States population ages. The Company believes that the continued growth of
MCOs, the trend toward electronic data transfer in the healthcare industry and
the aging of the population will increase the demand for its products and
services.
GROWTH STRATEGY
The Company is seeking to capitalize on the trends described above to
become a leader in the emerging healthcare information technology segment of the
healthcare industry as follows:
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Increasing the number of end-users. The Company's goal is to become the
first prescription origination and review system in a physician's office by (i)
targeting customers that are at risk for payment of their pharmacy costs, (ii)
allowing access to ProxyNet through medical practice management software
products developed by third parties, and (iii) marketing its products and
services as a value-added product to other pharmacy-related companies.
Establishing and enhancing strategic relationships. Because a significant
portion of Bergen's customers are at risk, the Company plans to leverage the
marketing strength and industry position of Bergen to sell its products and
services to these customers as a key component in its marketing efforts. At the
same time, the Company is developing strategic relationships with companies in
other segments of the healthcare industry, such as MCOs, pharmacy benefit
managers, electronic claims processors, and medical practice and pharmacy
management software companies.
Positioning ProxyNet as an independent network. The Company plans to allow
access to ProxyNet both by its own software users and by users of third-party
software products. By positioning ProxyNet as an independent network, the
Company will enable users to send a prescription electronically over ProxyNet
between physicians, MCOs and pharmacies even if they are all using different
software systems. This will allow the Company to seek a larger portion of
electronic prescription transaction revenues.
Increasing product and service range. The Company intends to continue to
expand the range of products and services that it provides. The Company has
recently introduced ProxyView and RxReceive and is currently developing software
products for the nursing home industry and products that enable physicians to
inventory and distribute drug samples and to manage laboratory testing. The
Company is continually monitoring customers and the healthcare industry
generally in search of areas where it can provide valuable additional products
or services.
PRODUCTS AND SERVICES
The Company's products and services form a unified computerized system,
which includes the following: (i) network services (ProxyNet); (ii) software
products (ProxyScript for physicians, ProxyView for MCOs and RxReceive for
pharmacies); and (iii) clinical information services (access to drug, formulary,
clinical and directory databases). The Company has completed the initial
development of these products and services. For the past two years, the
Company's products and services have been used primarily by the Company's former
pharmacy customers free of charge. In addition, these products and services have
been used by Eckerd in connection with the dispensing operations sold by the
Company and by participants in the Company's ongoing pilot programs, also free
of charge. All free use of the Company's products and services is scheduled to
end by various dates through September 1996. Accordingly, the Company has not
yet generated material recurring revenues from its healthcare information
technology operations. See 'Strategic Relationships' and 'Risk Factors--No
Relevant Operating History; Shift in Business Emphasis; Uncertainty of Product
Commercialization.'
NETWORK SERVICES
ProxyNet is the centerpiece of the Company's products and services. Through
a host computer system located at the Company's headquarters, the ProxyNet
network instantly connects physicians, MCOs and pharmacies. ProxyNet also
enables physicians, MCOs and pharmacies to access the Company's databases. The
Company believes that a substantial portion of its long-term revenues will be
generated by transaction fees on ProxyNet paid by subscribing pharmacies and
MCOs and subscription fees paid by various parties for access to the Company's
databases.
ProxyScript, ProxyView and RxReceive are designed so that users may
electronically transmit and receive prescription-related information only
through ProxyNet and may access only the Company's
22
<PAGE>
databases. On the other hand, ProxyNet is designed so that users of third-party
software may transmit and receive information and access the Company's databases
via ProxyNet in exchange for payment of applicable transaction fees and database
subscription fees.
SOFTWARE PRODUCTS
ProxyScript
ProxyScript is an MS-DOS based software system designed for use in
physicians' offices which automates the generation and management of
prescriptions. A Windows version of ProxyScript is under development.
ProxyScript provides an electronic patient chart for entering prescriptions and
storing prescription data, replacing the traditional handwritten method. The
Company believes that physicians will find ProxyScript to be superior to the
traditional prescription method because of ProxyScript's numerous valuable
features, which include:
- computer-generated prescriptions, which eliminate problems caused by
illegible handwritten prescriptions;
- access to ProxyNet for electronic transmission of prescriptions, refill
authorizations and stop/discontinue orders to participating pharmacies;
- electronic patient drug profiles for patients whose medical histories are
entered into the system;
- access to the Company's drug database of over 5,000 drugs, which is
updated quarterly and which provides automatic generic equivalent
substitution notifications;
- access to clinical databases relating to allergies, drug interactions and
duplicate therapies;
- access to the Company's directory database of all participating
physicians and pharmacies; and
- creation of prescription management and drug utilization reports.
For physicians working with MCOs, such as HMOs and PPMs, ProxyScript offers
additional features:
- access to certain MCO 'formularies' (lists of approved drugs), published
by the Company; and
- access to certain MCOs' customizable preferred drug lists designed to
minimize drug expenses, also published by the Company.
ProxyScript is designed to provide significant advantages over the
traditional 'point of dispensing' prescription method. Under the traditional
method, a patient receives a handwritten prescription from the physician and
then must personally deliver it to the pharmacy, where the patient may receive
the prescribed drugs sometime later, after the pharmacist may or may not have
reviewed the prescription for possible interaction problems, formulary
compliance and similar issues, all of which may require telephone contact
between the physician and pharmacist. The Company believes that the use of the
ProxyScript 'point of care' prescription processing system is superior to the
point of dispensing system because it enables the physician to automatically
perform the functions described above before the patient leaves the physician's
office. The Company believes that use of its point of care system will greatly
enhance the quality, convenience and efficiency of the pharmacy component of
health care.
The Company believes that, because ProxyScript is used at the point of care
by physicians (rather than at the point of dispensing), the frequency of harmful
prescriptions caused by physicians' and/or
23
<PAGE>
pharmacists' failure to recognize patient allergy and drug interaction problems
or by pharmacists' misreading of handwritten prescriptions will be significantly
reduced. The Company believes that use of ProxyScript will enhance the
efficiency and therefore the profitability of a physician's medical practice by,
among other things, (i) providing for the instant electronic transmission of
legible prescriptions, (ii) eliminating the need for physicians and pharmacists
to manually review patient files and confer by telephone, (iii) reducing the
need to maintain paper files, (iv) enabling physicians to promptly determine the
most economical drug available to achieve the desired result, (v) enabling
physicians to instantly comply with formularies and other applicable MCO
regulations, and (vi) providing detailed management and utilization reporting
which allows physicians and PPMs to closely monitor the drug costs for which
they are at risk.
The Company has developed various ProxyScript pricing options depending on
the features and services selected by the end user. In addition to various
product features, the end user may purchase additional services such as training
and installation, data conversion, software updates and access to databases. The
Company plans to charge ProxyScript users up-front and/or recurring fees for the
products, services and database subscriptions chosen.
ProxyView
ProxyView operates through Windows to provide an electronic link via
ProxyNet for communications between MCOs and affiliated physicians to better
ensure that prescribing decisions are made in accordance with applicable MCO
regulations, including formularies and preferred drug lists. ProxyView's key
features are that it
- allows MCOs to review nonconforming prescriptions on-line and, if
appropriate, immediately contact the prescribing physician to request
changes to proposed prescriptions before they are transmitted to the
pharmacy;
- provides MCOs with immediate access to affiliated providers and medical
center information; and
- generates monthly/daily utilization reports by drug, patient, medical
center and physician.
The Company believes that ProxyView will be attractive to MCOs because it
provides them with an efficient means to monitor and control drug and usage
costs in an increasingly competitive market while at the same time ensuring the
quality of care in accordance with the MCOs' policies.
The Company anticipates charging MCOs license fees for ProxyView, plus
additional amounts for transaction fees, formulary publication, training and
installation services and software updates.
RxReceive
RxReceive, the Company's software program for pharmacies, operates through
Windows to deliver to pharmacies via ProxyNet legible and accurate prescriptions
generated by physicians using ProxyScript. RxReceive also stores prescription
information, provides a means for on-line communications by pharmacies back to
physicians and MCOs, and receives refill authorizations. Pharmacies which do not
use RxReceive or a similar program may receive prescriptions through ProxyNet by
facsimile transmission. The Company believes that RxReceive will be attractive
to pharmacies because it provides them with the increased efficiency and
convenience of instant electronic transmission of legible prescriptions, avoids
the need for maintenance of paper files of handwritten and faxed prescriptions
and streamlines the refill authorization process.
24
<PAGE>
The Company plans to charge pharmacies transaction fees for the receipt of
prescriptions through ProxyNet, whether by RxReceive, by a similar program or by
facsimile. In addition, the Company anticipates charging license fees for
RxReceive, plus additional fees for software updates.
CLINICAL INFORMATION SERVICES
The Company offers clinical information services through subscriptions to
the following proprietary or licensed databases: (i) a drug database developed
by the Company containing over 5,000 drugs, which is updated quarterly and
provides automatic generic equivalent substitution notifications; (ii) a
ProxyNet directory database, developed and updated quarterly by the Company,
containing a list of all participating physicians and pharmacies, which
facilitates communications among ProxyNet users; (iii) a set of clinical drug
databases which provide valuable information relating to allergies, drug
interactions and duplicate therapies, developed and updated quarterly by
MediSpan, Inc. ('MediSpan'), an unaffiliated party, and offered by the Company
pursuant to a license from MediSpan; and (iv) databases containing certain MCOs'
formularies and preferred drug lists published by the Company. All of these
databases are accessible through MS-DOS and Windows-based systems.
The Company intends to charge a monthly or quarterly subscription fee for
access to each database. The Company will pay to MediSpan a license fee for each
Company customer that subscribes to the MediSpan databases. The Company intends
to develop and/or offer additional databases in the future.
MARKETING AND SALES
The Company is seeking to generate revenues from (i) fees for use and
support of its software products and services, including upfront and recurring
license fees, and software installation and training and data conversion fees,
(ii) transaction fees paid by pharmacies for the receipt of prescriptions over
ProxyNet and by MCOs for the review of prescriptions with ProxyView, (iii)
subscription fees for access to the Company's databases, and (iv) sales of
information generated by the Company's operations.
The Company also expects to generate revenues from the sale of third-party
computer hardware products for use with the Company's software products. The
Company intends to offer the hardware products primarily as a convenience to its
potential software customers, who would be able to acquire, in one transaction
with the Company, a complete operating system with the software already
installed. The Company expects these hardware sales to represent a substantial
percentage of its total revenues for at least the next 12 months as customers
make one-time capital investments in the hardware required for use of the
Company's healthcare information technology products and services; however, the
Company does not expect to generate substantial, if any, profits from the sale
of the hardware products, as such sales are expected to yield low gross margins.
The Company is considering contracting with third parties to provide the
software installation, shipment, financing and maintenance services required
with respect to the hardware products sold by the Company. The Company has no
experience in the sale and installation of computer hardware products, and there
can be no assurance that the Company will be able to sell and install such
hardware products on a profitable basis.
The Company began marketing its healthcare information technology products
and services in April 1995. The Company markets these products and services to
(i) healthcare providers, including PPMs and individual physician practices,
(ii) healthcare payors, including MCOs (primarily HMOs and their affiliated
physicians) and traditional insurance companies, (iii) chain and independent
pharmacies, (iv) medical practice and pharmacy management software companies
that would like to offer electronic prescription transmittal as part of their
software packages, (v) on-line transaction processing companies that would like
to offer a prescription software product in connection with their transaction
processing services and (vi) pharmacy benefit management companies that do not
have the capability to provide physicians with
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<PAGE>
electronic prescription transmittal. The Company intends to use a significant
portion of the proceeds of this Offering to expand its marketing efforts. See
'Use of Proceeds.'
In addition to marketing through the Bergen sales force and other strategic
relationships, the Company markets or intends to market its healthcare
information technology products and services primarily through (i) direct sales
by the Company's regional account executives, currently based in South Florida,
Detroit, Michigan, and Orange County, California, and (ii) indirect sales by
medical practice and pharmacy management software vendors, who will act as
distributors by buying the Company's products and services and reselling them
with their own comprehensive software packages. The Company also exhibits at
national and regional trade shows and advertises in several key trade
publications. The Company's relatively limited sales of these products and
services to date are attributable to direct sales; however, the Company believes
that a substantial portion of its long term sales will be derived from software
vendors and through strategic relationships.
While physicians will pay various fixed license and access fees, the
Company plans to offer physicians access to ProxyNet without transaction fees in
order to accelerate market penetration. The Company also hopes to accelerate
market penetration by aggressively marketing its products to MCOs, who can
suggest or mandate use of the ProxyScript system or some connection to ProxyNet
to all of the physicians with whom they contract.
STRATEGIC RELATIONSHIPS
In order to reduce the Company's up-front capital requirements associated
with product/service commercialization and to strengthen the Company's marketing
efforts, in February 1996, the Company entered into a strategic marketing
agreement (the 'Bergen Agreement') with Bergen Brunswig Drug Company and
IntePlex, Inc., both of which are wholly-owned subsidiaries of Bergen Brunswig
Corporation (collectively, 'Bergen'), a national pharmaceutical and medical
supplies distributor with reported consolidated 1995 revenues of $8.4 billion.
Under the Bergen Agreement, Bergen paid a one-time non-refundable fee of
$1,000,000 for a non-exclusive license to market the Company's current
healthcare information technology products and services throughout the United
States utilizing the Bergen national sales force. While the Bergen license is
nonexclusive, the Company is prohibited from entering into similar arrangements
with certain of Bergen's principal competitors, including other major national
pharmaceutical and medical supplies distributors. The Company has commenced an
intensive program designed to train the Bergen sales force in all aspects of
marketing the Company's products and services. Under the Bergen Agreement, the
Company will pay Bergen 10% to 30% of all net revenues derived by the Company
from the sale of the designated products and services, depending on the
Company's overall annual sales volume, and will share equally certain other
revenues derived from this arrangement. Bergen is entitled to these payments
based on the Company's sales regardless of whether or not it generates those
sales. While the Company believes that the Bergen Agreement will result in
significantly increased sales of the designated products and services, there can
be no assurance that sufficient volume will be generated in order to make the
arrangement profitable. At the Company's request, the Underwriters have agreed
to offer to sell to Bergen 100,000 shares of Common Stock offered hereby at the
public offering price. See 'Risk Factors-- Strategic Relationships' and
'Underwriting.'
In order to test and improve its products and services and demonstrate
their quality and potential to the healthcare industry, in late 1995 and early
1996 the Company initiated three pilot programs with three large MCOs. Two of
the pilot programs were arranged through PCS Health Systems, Inc., a pharmacy
benefit management subsidiary of Eli Lilly & Co. Each pilot program involves use
of the Company's system free of charge by a select group of physicians and
pharmacies. In the event that these programs prove successful, the Company will
attempt to expand the use of its products and services by each MCO and to charge
each MCO and its affiliated physicians and pharmacies for use of the system. In
addition, the Company plans to use successful results from these pilot programs
in its general marketing efforts directed at other potential
26
<PAGE>
customers. There can be no assurance, however, that these pilot programs, which
are scheduled to continue until mid-1996, will prove successful.
On March 1, 1996, the Company entered into a license agreement with Blue
Cross and Blue Shield of Massachusetts, Inc. ('BCBSM'), a large health insurance
provider based in Boston, Massachusetts, with over 2,000,000 members throughout
New England. Under this agreement (the 'BCBSM Agreement'), BCBSM agreed to a
one-time license fee of $204,000 in exchange for which it received a right to
license ProxyScript to all physicians, including its 12,000 affiliated
physicians, in Massachusetts, Vermont, New Hampshire, Maine, Rhode Island and
Connecticut (the 'States'). BCBSM has announced its intention to link
ProxyScript licensees in the States through its Healthwire network.
Under the BCBSM Agreement, the Company is barred for two years from
competing in the States (except Connecticut) with BCBSM's electronic
prescription business, and BCBSM is barred from competing with the Company's
electronic prescription business outside the States for the same two-year
period. By the time the two-year period expires, many physicians in the States
will have already obtained the software products and network services they need
from BCBSM or other providers. Accordingly, the BCBSM Agreement may materially
adversely affect the Company's ability to market its products and services in
the States, not only for the two-year exclusive period, but also thereafter.
Nonetheless, the Company believes that, if ProxyScript is favorably received by
large numbers of physicians in the States, the Company will benefit greatly by
using the positive results of the BCBSM program in its marketing efforts in the
rest of the United States. See 'Risk Factors--Strategic Relationships.'
CUSTOMER AND PRODUCT SUPPORT
The Company provides toll-free telephone support for all of its products
through a staff of support personnel based at Company headquarters. Field
support for the Company's customers, including installation and training, is
currently outsourced to regional providers. The Company intends to outsource all
telephone and field support and service functions to a national provider.
SUPPLIERS
The Company's only material supplier is MediSpan, which supplies the
Company with its clinical information databases. The Company believes that
substantially equivalent databases are available from other sources and that, if
they become unavailable, the Company can develop and maintain such databases
itself.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend in large part on
its ability to enhance its current product line, develop new products and
services, maintain technological competitiveness and satisfy an evolving range
of customers' requirements. The Company's product development group is
responsible for improving and upgrading existing products and services,
exploring applications of core technologies and incorporating new technologies
into the Company's products and services.
The basic development of ProxyNet, ProxyScript and RxReceive occurred as
part of the Company's former drug dispensing operations, which were sold to
Eckerd in March 1995. The bulk of the development costs for those products and
services was accounted for as direct expenses of those operations, as those
products were provided to customers at no charge. Beginning in March 1995, the
cost of modifying these products for sale to end users has been capitalized. The
amount capitalized as of December 31, 1995, is $187,282. None of these costs
have been borne by the Company's customers.
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<PAGE>
The Company plans to engage in significant product development activity to
ensure that it remains competitive in the healthcare information technology
market. The Company currently has three products in various stages of
development, including a nursing home prescription management system, a version
of ProxyScript that enables physicians to inventory and distribute drug samples
and a software product for use by physicians to manage laboratory testing. The
nursing home software is being designed to provide features similar to
ProxyScript and additional features for patient admissions, pharmacy
communications and specialized reporting for nursing homes. The version of
ProxyScript with the drug sample feature is being designed to allow a physician
to inventory and manage the distribution of drug samples to patients in the
physician's office. The software product for laboratory testing is being
designed to enable a physician's office to manage the ordering of laboratory
testing and the receipt of laboratory test results, as well as to analyze the
results against patient prescription histories. The Company intends to use a
significant portion of the proceeds of this Offering to fund its ongoing product
development efforts. See 'Use of Proceeds.'
COMPETITION
The Company faces competition from many companies in the healthcare
information technology business. Many of the Company's competitors are
significantly larger and have greater financial resources than the Company. The
area of prescription processing networks has been targeted by many companies,
including, but not limited to, subsidiaries of International Business Machines
Corporation, Eli Lilly & Co. and Glaxo Wellcome plc. The Company is also aware
that certain major on-line transaction processing companies have targeted
healthcare information networks as a growth market, which could in the future
utilize their networks to process pharmacy transactions. Certain of these
companies have announced pilot programs. The Company believes that the
competition it faces and will face in the foreseeable future will be based
primarily on product/service quality and marketing. The Company believes that
its products and services are more advanced than the competing products and
services currently available because the Company's products and services have
been developed and enhanced through actual utilization by physicians and
pharmacies over the past two years. The Company believes that its ability to
compete successfully in the healthcare information technology market will depend
upon its ability to promptly implement a national marketing campaign which
brings its products and services to the attention of its potential customer
base. There can be no assurance that the Company will be able to compete
successfully. Specifically, there can be no assurance that the Company's planned
marketing campaign will be successful or that the net proceeds of this Offering
will provide sufficient funding to meet the Company's marketing needs. See 'Risk
Factors--Competition.'
INSTITUTIONAL PHARMACY BUSINESS
The Company's wholly-owned subsidiary, ProxyCare, the assets of which were
purchased in April 1994 from Scripts, Inc., is a pharmacy business operating in
South Florida that dispenses and delivers unit dose oral prescription drugs to
patients residing in long-term care facilities, primarily in assisted care
living facilities in Dade, Broward and Palm Beach counties. The Company is
considering whether ProxyCare fits within its long-term business plan; however,
there are no understandings, commitments or agreements at the date of this
Prospectus for the sale of ProxyCare.
GOVERNMENT REGULATION
The Company's products and services are subject to extensive and frequently
changing federal and state laws and regulations. A primary feature of the
Company's products and services is the ability to electronically transmit
(either by computer-to-facsimile or computer-to-computer) prescriptions from a
physician's office to a pharmacy. The ability of a pharmacist to fill an
electronically-transmitted prescription is governed by federal and state law.
The United States Drug Enforcement Agency ('DEA') oversees the handling of
certain classes of drugs called 'controlled substances.' The United States
Congress has approved the transmission via facsimile of original, signed
prescriptions for controlled
28
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substances other than for Schedule II drugs (narcotics). Neither Congress nor
the DEA has specifically addressed electronic transmission of computer-generated
prescriptions for controlled substances. No assurance can be given that Congress
or the DEA will accept this method of transmitting prescriptions for controlled
substances in the future.
State boards of pharmacy oversee the handling of all classes of drugs
within their states. Less than 25% of the states have pharmacy laws and
regulations that expressly permit the electronic transmission of
computer-generated prescriptions, although a majority of the states have
approved the transmission via facsimile of original, signed prescriptions.
Nonetheless, in a limited number of states where electronic transmission of
computer-generated prescriptions is not specifically addressed, the state boards
have taken the position that these prescriptions are permissible. The Company
may be able to market its products and services only in a limited number of
states.
Other state laws which may affect the Company's ability to market in
certain states include certain state requirements that require licensure as
either a doctor or a pharmacy in order for a third party to send or receive a
prescription. A common carrier, such as a telephone company, is often excluded
from such requirements. The Company's ability to market in such states would
depend upon each state's willingness to deem the Company to be a common carrier
of such prescriptions, the assurance of which cannot be given.
In addition to certain state licensing requirements, each state has various
laws protecting the confidentiality of patient medical information, including
prescription information. Although it is not uncommon for a third party to have
access to such information, such third party has an obligation to maintain the
confidentiality of such information and could be subject to liability if that
obligation is breached. The Company has procedures in place to maintain the
confidentiality of the information it receives as part of its ProxyNet services;
however, there can be no assurance that inadvertent disclosure of information
will not expose the Company to costly litigation.
The Company's institutional pharmacy business must comply with the Florida
Pharmacy Act, rules of the Florida Board of Pharmacy, the Florida Drug and
Cosmetic Act and the Florida Comprehensive Drug Abuse Prevention and Control
Act. In addition, the Florida Department of Professional Regulation inspects the
Company's facilities to ensure compliance with all applicable laws and
regulations. Under federal laws and regulations, the Company's institutional
pharmacy business must comply with the Federal Food, Drug and Cosmetic Act and
the Federal Drug Abuse Act. These laws and regulations establish standards
concerning the labeling, packaging, advertising and adulteration of prescription
drugs and the dispensing of controlled substances and prescription drugs.
The Company believes that it is in substantial compliance with all material
federal and state laws and regulations governing its operations and has obtained
all licenses necessary for the operation of its business. There can be no
assurance that the Company will not be materially adversely affected by existing
or new regulatory requirements or interpretations, including, but not limited
to, those restricting the electronic transmission of prescriptions. See 'Risk
Factors--Government Regulation.'
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
The Company regards certain features of its products, services and
documentation as proprietary, and relies on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect its
proprietary information. As part of its confidentiality procedures, the Company
generally enters into nondisclosure agreements with its employees, distributors
and customers, and limits access to and distribution of its software,
documentation and other proprietary information. The Company has no patents and,
while the existing copyright laws afford only limited protection, the Company
intends to apply for federal copyright registrations for all of its software
products. The Company has filed federal trademark registration applications for
ProxyNet, ProxyScript and RxReceive, and intends to file such an application
29
<PAGE>
for ProxyView. The Company believes that, because of the rapid pace of
technological change in the computer software industry, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability, experience and integrity of the Company's employees, frequent product
enhancements and the timeliness and quality of support services.
The Company provides its software to end users under nonexclusive license
agreements, which generally are nontransferable and are effective for various
terms. Although the Company does not make source code generally available to end
users, it has entered into source code escrow agreements with Bergen and BCBSM.
The Company has also licensed certain software from third parties for
incorporation into its products.
The Company is not aware that its products, trademarks or other proprietary
rights infringe the proprietary rights of third parties; however, there can be
no assurance that third parties will not assert infringement claims against the
Company in the future with respect to current or future products. As the number
of software products available on the market increases and the functions of
those products further overlap, software developers may become increasingly
subject to infringement claims. Any such claims, with or without merit, could
result in costly litigation or might require the Company to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to the Company or at all. See 'Risk
Factors--Dependence on Proprietary Information.'
LIABILITY INSURANCE
The Company maintains a $2,000,000 general liability insurance policy,
which includes coverage of $1,000,000 per occurrence, plus a $10,000,000
umbrella policy and a $1,000,000 errors and omissions policy. The Company
believes that its present insurance coverage is adequate for the products and
services currently marketed. There can be no assurance, however, that such
insurance will be sufficient to cover potential claims arising out of its
current or contemplated operations or that the present level of coverage will be
available in the future at a reasonable cost. A partially or completely
uninsured claim against the Company, if successful and of sufficient magnitude,
could have a material adverse effect on the Company. In addition, the inability
to obtain insurance of the type and in the amounts required could generally
impair the Company's ability to market its products and services. See 'Risk
Factors--Product Liability and Availability of Insurance.'
EMPLOYEES
As of May 7, 1996, the Company employed 41 full-time employees. The Company
is not and never has been a party to a collective bargaining agreement. The
Company considers its relationship with its employees to be good.
LEGAL PROCEEDINGS
In September 1995, an administrative charge of sex discrimination was filed
against the Company before the Clearwater, Florida, Human Relations Department
by a former employee who had been terminated in connection with the sale of the
Company's retail pharmacy operations to Eckerd. The claimant alleges sexual
harassment by another former employee, in violation of applicable federal, state
and local laws. The claimant seeks unspecified back pay and other damages,
together with costs and attorneys' fees. No discovery has been taken to date in
this case; however, the Company has conducted an internal investigation and
believes that the claim is without merit. The Company intends to vigorously
defend this claim. See Note 10 of Notes to Consolidated Financial Statements.
30
<PAGE>
PROPERTY
The Company leases approximately 12,000 square feet of space in a facility
in Ft. Lauderdale, Florida, for its executive offices, pursuant to a lease
expiring in January 1999, at a monthly rent of $7,140. The Company's
institutional pharmacy subsidiary, ProxyCare, leases 4,700 square feet of space
in a facility in Davie, Florida, pursuant to a lease expiring in August 1997 at
a monthly rent of $2,894. The Company is also subject to leases for two sites
where it previously operated pharmacies. One of these leases, which requires
payments of $1,453 per month, expires in August 1997, and the other lease, which
requires payments of $941 per month, expires in October 1998.
The Company's leases generally contain renewal options and require the
Company to pay costs such as property taxes, maintenance and insurance. The
Company considers its present facilities adequate for its operations and
believes that alternative and additional facilities are readily available in the
event that a particular lease is not renewed.
31
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- --- -----------------------------------
<S> <C> <C>
Harold S. Blue(1).............................. 35 Chairman of the Board, Chief
Executive Officer and Secretary
John Paul Guinan(1)............................ 35 President and Director
Gary N. Mansfield(1)........................... 35 Executive Vice President-Business
Development and Director
Bennett Marks(1)............................... 47 Executive Vice President-Finance,
Chief Financial Officer and
Director
Harry A. Gampel................................ 76 Director
Samuel X. Kaplan(2)(3)......................... 73 Director
Travis J. Leonardi............................. 32 Director
Bertram J. Polan(2)(3)......................... 44 Director
Eugene R. Terry(2)(3).......................... 57 Vice Chairman of the Board
</TABLE>
- ------------------------
(1) Member of the Executive Committee, the Chairman of which is Mr. Blue.
(2) Member of the Audit Committee, the Chairman of which is Mr. Polan.
(3) Member of the Compensation Committee, the Chairman of which is Mr. Terry.
HAROLD S. BLUE has been Chairman of the Board, Chief Executive Officer and
Secretary of the Company since February 1993, and has been a director since
August 1991. He served as interim President and Chief Operating Officer from
March 1995 to June 1995. From August 1991 until February 1993, Mr. Blue served
as Vice President of the Company. From July 1992 until February 1995, Mr. Blue
served as Chairman of the Board and Chief Executive Officer of Health Services
of Miami Lakes, Inc., Health Services of Pembroke Lakes, Inc. and Health
Services of North Miami, Inc., all of which are physician practice management
groups. From June 1979 to February 1992, Mr. Blue was the President and Chief
Executive Officer of Budget Drugs, Inc., a retail discount pharmacy chain
comprised of six stores located in South Florida. From September 1984 to August
1988, Mr. Blue founded and was the Executive Vice President of Best Generics
Incorporated, a generic pharmaceutical distribution company. In August 1988,
Best Generics was sold to Ivax Corporation, a publicly-traded pharmaceutical
manufacturer. Mr. Blue served as a member of the Board of Directors of Ivax for
one year before resigning to return to the retail pharmacy industry, but
continued to serve as a consultant to Ivax pursuant to a consulting agreement
that expired in August 1993.
JOHN PAUL GUINAN has been the President and a director of the Company since
June 1995 and was an Executive Vice President of the Company from July 1993
until June 1995. From March 1993 to June 1993, Mr. Guinan was the Chief
Executive Officer and co-founder of ProxyScript, Inc. (f/k/a Medical Containment
Systems, Inc.), which the Company acquired in June 1993. From 1989 until April
1993, Mr. Guinan founded and developed two companies: The Desktop Professionals,
Inc., a company which supplied automation systems to South Florida professional
offices; and POSitive Thinking, Inc., a software development company which
specialized in point of sale systems.
32
<PAGE>
GARY N. MANSFIELD has been a director of the Company since June 1995 and
has been an Executive Vice President of the Company since July 1993. From March
1993 to June 1993, Mr. Mansfield was the Executive Vice President and co-founder
of ProxyScript, Inc. From January 1991 to March 1993, Mr. Mansfield co-founded
and developed POSitive Thinking, Inc. Mr. Mansfield also served on the Board of
Directors of Best Generics Incorporated prior to that company being sold to Ivax
Corporation.
BENNETT MARKS has been Executive Vice President-Finance, Chief Financial
Officer and a director of the Company since October 1993. From May 1991 to
October 1993, Mr. Marks was Vice President-Finance and a director of FiberCorp
International, Inc., a public company engaged in the manufacturing and marketing
of network management systems for use by telecommunication companies. From 1981
to April 1991, Mr. Marks was an audit partner with KPMG Peat Marwick, an
international accounting and consulting firm. While with KPMG Peat Marwick, Mr.
Marks was the partner on audits of numerous public companies and served as an
Associate SEC Reviewing Partner. He also served as the Administrative Partner in
Charge of KPMG Peat Marwick's West Palm Beach office. Mr. Marks is a certified
public accountant.
HARRY A. GAMPEL has been a director of the Company since February 1996. Mr.
Gampel has over 36 years of experience in commercial and residential real estate
development in the Northeastern United States and Florida as Chairman of Gampel
Organization, Hollywood, Florida, and as President of Gampel Realty Company,
Hartford, Connecticut.
SAMUEL X. KAPLAN has been a director of the Company since August 1995.
Since 1987, Mr. Kaplan has been a healthcare management consultant. He has also
been the President of U.S. Care, Inc., a California-based company which designs
and administers long-term care insurance programs, since 1987, when he founded
that company. In 1962, he founded U.S. Administrators, Inc., a healthcare
management company, which he served as President and Chairman until 1987.
TRAVIS J. LEONARDI has been a director of the Company since June 1995.
Since September 1995, he has been the General Manager of ProxyFusion, Inc., the
Company's former home infusion subsidiary, which does business as Progressive
Infusion Care ('Progressive'), and which was sold by the Company to NHCA in
September 1995. Mr. Leonardi was President of Progressive from its inception in
May 1991 until September 1995. The Company acquired Progressive in June 1994.
From July 1990 to July 1991, Mr. Leonardi was a home infusion pharmacist with
Enteral and Parenteral Support Services, a private home infusion therapy
provider in Sunrise, Florida. From January 1990 to July 1990, Mr. Leonardi was a
consulting pharmacist with Pharmacy Corporation of America, a provider of
long-term care pharmacy services. From March 1988 to January 1990, Mr. Leonardi
was a pharmacist at South Beach Psychiatric Hospital in Staten Island, New York.
BERTRAM J. POLAN has been a director of the Company since August 1995. Mr.
Polan is the founder and President of Gemini Bio-Products, Inc., a
California-based supplier of biological products used in medical schools,
private medicine research institutes and the bio-technology industry, which he
founded in 1985. From 1973 to 1985, Mr. Polan was employed in various executive
capacities, most recently as vice president of sales and marketing, with North
American Biologicals, Inc., one of the world's largest independent providers of
human plasma products.
EUGENE R. TERRY has been a director of the Company since August 1995. Mr.
Terry is a pharmacist and the founder and Chairman of Bloodline, Inc., a New
Jersey-based company engaged in the blood services business, which he founded in
1980. In 1971, Mr. Terry founded Home Nutritional Support, Inc. ('HNSI'), one of
the first companies established in the home infusion industry. In 1984, HNSI was
sold to Healthdyne, Inc. HNSI was later sold to the W.R. Grace Group. From 1975
to 1984, Mr. Terry was also founder and Chief Executive Officer of Paramedical
Specialties, Inc., a respiratory and durable medical equipment company, which
was also sold to Healthdyne, Inc.
33
<PAGE>
EXECUTIVE COMPENSATION
The following tables provide information with respect to compensation of
Harold S. Blue, the Company's Chairman of the Board and Chief Executive Officer,
and Bennett Marks, the Company's Executive Vice President-Finance and Chief
Financial Officer and the only executive officer whose 1995 salary and bonus
exceeded $100,000, for services in all capacities to the Company and its
subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------------------------------
AWARDS PAYOUTS
ANNUAL -------------------------- --------------------------------------
COMPENSATION OTHER
----------------- ANNUAL RESTRICTED
NAME AND SALARY COMPENSATION STOCK NUMBER OF LTIP ALL OTHER
PRINCIPAL POSITION YEAR ($) BONUS ($) AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
- ------------------------ ---- ------- ------ ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Harold S. Blue, 1995 60,000 -- -- -- -- -- --
Chairman and CEO 1994 60,000 -- -- -- -- -- --
1993 23,385(1) -- -- -- 20,000(2) -- --
Bennett Marks, 1995 100,000 -- 15,000(4) -- 10,000(5) -- --
Executive VP 1994 90,000 -- 15,000(4) -- -- -- --
and CFO 1993 16,667(3) -- 3,125(4) -- 40,000 -- --
</TABLE>
- ------------------------
(1) Reflects compensation received by Mr. Blue in his capacity as Chairman of
the Board and Chief Executive Officer since August 1993.
(2) Mr. Blue received an option for the purchase of 30,000 shares of the
Company's Common Stock in 1993, but in 1995 he surrendered a portion of this
option which represented 10,000 of the 30,000 shares. In March 1996, Mr.
Blue was granted a five-year option to purchase 100,000 shares of Common
Stock, which is not reflected in the above table.
(3) Reflects compensation received by Mr. Marks in his capacity as Executive
Vice President-Finance and Chief Financial Officer since October 1993.
(4) Mr. Marks receives a non-accountable expense allowance of $15,000 (net of
taxes) per year.
(5) In April 1996, Mr. Marks was granted a five-year option to purchase 37,500
shares of Common Stock, which is not reflected in the above table.
The following table provides information regarding option grants during
1995 to Harold S. Blue, the Company's Chairman of the Board and Chief Executive
Officer, and Bennett Marks, the Company's Executive Vice President-Finance and
Chief Financial Officer.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------
% OF TOTAL
OPTIONS/SARS
NUMBER OF GRANTED EXERCISE OR
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE
- ----------------------------------- ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Harold S. Blue..................... -- -- -- --
Bennett Marks...................... 10,000 2 5.88 June 6, 2000
</TABLE>
No stock options were exercised by Mr. Blue or Mr. Marks during the fiscal
year ended December 31, 1995. In March 1996 and April 1996, respectively, Mr.
Blue and Mr. Marks were granted five-year options to purchase 100,000 shares and
37,500 shares of Common Stock at an exercise price of $5.25 per share, which are
not reflected in the above table.
34
<PAGE>
The following table sets forth certain information regarding unexercised
options held by Messrs. Blue and Marks.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS/SARS AT OPTIONS/SARS AT
SHARES VALUE 12/31/95(#) 12/31/95($)
ACQUIRED ON REALIZED ------------------------------ ----------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Harold S. Blue..................... -- -- 20,000 -- -- --
Bennett Marks...................... -- -- 45,000 5,000 -- --
</TABLE>
STOCK OPTION PLANS
The Board of Directors has adopted three stock option plans for its
employees, officers and outside directors: the 1993 Stock Option Plan (the '1993
Plan'); the 1995 Stock Option Plan (the '1995 Plan'); and the 1995 Outside
Director Stock Option Plan (the '1995 Outside Plan', and collectively with the
1993 Plan and the 1995 Plan, the 'Plans'). The purpose of the Plans is to
provide certain directors, officers and key employees of the Company with a
greater personal interest in the success of the Company and to enhance the
ability of the Company to attract and maintain the services of qualified
personnel.
The 1993 and 1995 Plans provide for the issuance of up to 400,000 shares
and 237,500 shares of Common Stock, respectively, upon exercise of options
designated as either 'incentive stock options' or 'non-qualified options' within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
'Code'). The 1995 Outside Plan provides for the issuance of up to 200,000 shares
upon exercise of 'non-qualified options.' The Plans are administered by the
Compensation Committee of the Board of Directors, which determines, among other
things, the persons to be granted options under the Plans, the number of shares
subject to each option and the option price.
With respect to the 1993 and 1995 Plans, the exercise price of any
incentive stock option may not be less than the fair market value of the shares
subject to the option on the date of grant; provided, however, that the exercise
price of any incentive stock option granted to an eligible employee who is or
will be the beneficial owner of more than 10% of the outstanding voting power of
the Company may not be less than 110% of the fair market value of the shares
underlying such options on the date of grant. Non-qualified options may not be
granted with exercise prices less than the fair market value of the shares
subject to the option on the date of grant. Incentive stock options may be
granted only to employees and no option granted under the 1993 Plan to an
employee may be exercised unless, at the time of exercise, the grantee is an
employee of the Company or a subsidiary or was an employee within the preceding
three months. In the event of death, options may be exercised during a twelve
month period following such event. The Company may grant an employee options for
any number of shares, except that the value of the shares subject to one or more
incentive stock options first exercisable in any calendar year may not exceed
$100,000 (determined at the date of grant). Options are not transferable, except
upon the death of the optionee. The 1993 Plan has been approved by the Company's
shareholders, and the Company intends to submit its 1995 Plan for shareholder
approval at its 1996 annual meeting of shareholders. If the 1995 Plan is not
approved, the Company will be unable to grant incentive stock options under such
Plan, but will be able to grant nonqualified options thereunder. The Plans may
be amended by the Board of Directors from time to time; however, the number of
shares covered by the 1995 Plan and 1993 Plan may not be changed, nor may
certain other material amendments to those Plans be made, without further
shareholder approval.
The term of each option granted under the Plans and the manner in which it
may be exercised is determined by the Compensation Committee, provided that no
option may be exercisable more than 10
35
<PAGE>
years after the date of grant and, in the case of an incentive stock option
granted to an eligible employee who is or will be the beneficial owner of more
than 10% of the outstanding voting power of the Company, no more than five years
after the date of grant. Incentive stock options under the 1993 and 1995 Plans
may be granted during the 10-year period following the dates of the Plans.
Of the 400,000 shares, 237,500 shares and 200,000 shares of Common Stock
available for issuance under the 1993 Plan, the 1995 Plan and the 1995 Outside
Plan, respectively, at May 7, 1996, options had been granted, which had not
expired, with respect to 368,250, 237,500 and 200,000 shares, respectively. The
exercise prices of all of these options, when granted, were equal to the market
value of the shares on the date of grant. Exercise prices for options granted
under the Plans range from $4.75 to $7.25 per share.
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with Harold S. Blue,
John Paul Guinan, Bennett Marks and Gary N. Mansfield. Under the terms of the
agreements, Messrs. Blue, Guinan, Marks and Mansfield receive annual salaries of
$125,000, $125,000, $100,000 and $100,000, respectively. In addition, the
agreements provide for health insurance benefits and entitle Messrs. Blue,
Guinan, Marks and Mansfield to participate in all Company employee benefit plans
which may be established. The agreements are for three-year terms through March
1999 (Blue and Mansfield), November 1998 (Guinan) and October 1996 (Marks),
subject to certain specified termination provisions. The agreements further
provide that, in the event of a termination or nonrenewal without cause, Messrs.
Blue, Guinan and Mansfield will be entitled to receive their base salaries
thereafter for six months (Blue and Guinan) or three months (Mansfield) and
that, in the event of a termination without cause, Mr. Marks will be entitled to
100% of his base salary for nine months. The agreements also provide for bonuses
established at the discretion of the Board of Directors of the Company to be
paid in cash or stock. In addition, the agreements contain confidentiality and
noncompetition covenants.
BOARD COMPENSATION
Employee directors of the Company are not compensated for their services as
directors. The Company reimburses all directors for reasonable expenses incurred
in attending board meetings. In addition, non-employee directors receive stock
options under the 1995 Outside Plan upon the directors' initial election or
appointment to the Board of Directors. In 1995 and 1996, Messrs. Gampel, Kaplan,
Polan and Terry, upon joining the Board, were each granted options to purchase
50,000 shares of Common Stock at an exercise price equal to the market price on
the date of grant. These options were immediately vested with respect to 15,000
shares, with installments of 15,000 and 20,000 shares vesting one and two years
from the date of grant, respectively. These options expire five years after the
dates of grant. See 'Stock Option Plans.'
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
The Company's employment agreements with Messrs. Blue, Guinan, Marks and
Mansfield have provisions limiting their personal liability for monetary damages
for breach of their fiduciary duties as officers and directors, except for
liability that cannot be eliminated under the Florida Business Corporation Act.
The Florida Business Corporation Act provides that directors of a corporation
will not be personally liable for monetary damages for breach of their fiduciary
duty as directors, except for liability (i) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(ii) for any unlawful payment of a dividend or unlawful stock repurchase or
redemption, as provided in Section 607.0834 of the Florida Business Corporation
Act, (iii) for any transaction from which the director derived an improper
personal benefit, or (iv) for a violation of criminal law. The Restated Articles
of Incorporation and Bylaws of the Company also provide that the Company shall
indemnify its directors and officers to the
36
<PAGE>
fullest extent permitted by Section 607.0831 of the Florida Business Corporation
Act, including circumstances in which indemnification is otherwise
discretionary.
The Underwriting Agreement (as defined below) provides for reciprocal
indemnification among the Company and the Underwriters and their respective
officers, directors and control persons against certain civil liabilities in
connection with the Registration Statement of which this Prospectus is a part,
including liabilities under the Securities Act.
The Company has procured and maintains a policy of insurance under which
the directors and officers of the Company are insured, subject to the limits of
the policy, against certain losses arising from claims made against such
directors and officers, including liabilities under the Securities Act. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
CERTAIN TRANSACTIONS
Mr. Blue was a principal shareholder in three medical centers which were
customers of the Company's former drug dispensing business in 1995 and 1994. Dr.
Steven Fox, a former director of the Company, was a principal shareholder in two
medical centers which were also customers of the Company's former drug
dispensing business in 1995 and 1994. The Company received a total of
approximately 4% and 6% of its revenues in 1995 and 1994, respectively, from
these five medical centers.
In July 1995, Mr. Blue purchased 8,000 shares of the Company's Series A
Preferred Stock at an aggregate price of $200,000 pursuant to the Company's
private placement of such stock. See 'Risk Factors--Significant Influence by
Management,' 'Management's Discussion and Analysis--Liquidity and Capital
Resources,' and 'Description of Capital Stock.'
In June 1994, the Company acquired all of the outstanding common stock of
Progressive Infusion Care, Inc., a company that provides home infusion therapy
services. The Company issued 250,000 shares of its Common Stock for Progressive
Infusion Care, Inc. Of these shares, Travis J. Leonardi who was not affiliated
with the Company at the time of the acquisition, received 125,000 shares and was
elected President of the Company's home infusion subsidiary, ProxyFusion, Inc.
The Company sold this home infusion business in September 1995. See
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and Notes 2 and 3 of Notes to Consolidated Financial Statements.
The foregoing transactions were made on terms no less favorable to the
Company than those available from unaffiliated parties. Company policy requires
that all material transactions between the Company and its officers, directors
and/or major shareholders (those beneficially owning 5% or more of the Company's
Common Stock) and/or entities affiliated with such persons (i) be on terms no
less favorable to the Company than those that could be obtained from
unaffiliated third parties, and (ii) receive approval by a majority of the
disinterested members of the Company's Board of Directors. The above-described
transactions were approved pursuant to this policy, and the Company intends to
continue the policy for the foreseeable future.
37
<PAGE>
PRINCIPAL SHAREHOLDERS AND SELLING SHAREHOLDER
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of May 7, 1996, and as adjusted to
reflect the sale of shares offered hereby (assuming no exercise of the
Underwriters' over-allotment option), with respect to (i) each person known to
the Company to be the beneficial owner of more than 5% of the Company's Common
Stock, (ii) each director, (iii) each executive officer named in the Executive
Compensation chart, (iv) the Selling Shareholder and (v) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
BEFORE OFFERING
------------------------ PERCENT OWNED
NAME AND ADDRESS NUMBER(2) PERCENT AFTER OFFERING(2)
- -------------------------------------------------------------- --------- ------- -----------------
<S> <C> <C> <C>
Harold S. Blue(1)(3).......................................... 582,200 16.6% 10.7%
John Paul Guinan(1)(4)........................................ 95,000 2.8% 1.8%
Gary N. Mansfield(1)(5)....................................... 88,000 2.6% 1.7%
Bennett Marks(1)(6)........................................... 80,000 2.4% 1.5%
Harry A. Gampel(1)(7)......................................... 166,000 4.9% 3.1%
Samuel X. Kaplan(1)(8)........................................ 15,000 * *
Travis J. Leonardi(1)......................................... 115,000 3.5% 2.2%
Bertram J. Polan(1)(9)........................................ 20,000 * *
Eugene R. Terry(1)(8)......................................... 15,000 * *
Orbis Pension Trustees, Ltd.(10).............................. 250,000 7.0% 4.5%
One Connaught Place
London W2 2DY
England
Cari Gonzalez-Limberg(11)..................................... 55,000 1.7% --
P.O. Box 5124
Clearwater, Florida 34618-5124
All directors and executive officers
as a group (9 persons)(12).................................... 1,176,200 30.9% 20.5%
</TABLE>
- ------------------------
* Less than 1%
(1) The address for each person noted is 2501 Davie Road, Suite 230, Ft.
Lauderdale, Florida 33317-7424.
(2) In accordance with Rule 13d-3 of the Exchange Act, shares that are not
outstanding, but that are subject to options, warrants, rights or
conversion privileges exercisable within 60 days from the date of this
Prospectus, have been deemed to be outstanding for the purpose of computing
the percentage of outstanding shares owned by the individual having such
right, but have not been deemed outstanding for the purpose of computing
the percentage for any other person.
(3) Includes 412,200 shares held of record, 120,000 shares issuable upon the
exercise of currently exercisable stock options and 50,000 shares issuable
upon the conversion of Series A Preferred Stock.
(4) Includes 5,000 shares held of record, and 90,000 shares issuable upon the
exercise of currently exercisable stock options.
(5) Includes 33,000 shares held of record and 55,000 shares issuable upon the
exercise of currently exercisable stock options.
(6) Includes 5,000 shares held of record and 75,000 shares issuable upon the
exercise of currently exercisable stock options.
(7) Includes 133,500 shares held of record, 20,000 shares issuable upon the
exercise of currently exercisable stock options and warrants, and 12,500
shares issuable upon the conversion of Series A Preferred Stock.
(8) Represents shares issuable upon the exercise of currently exercisable stock
options.
(9) Includes 5,000 shares held of record and 15,000 shares issuable upon
exercise of currently exercisable stock options.
(10) Represents shares issuable upon the conversion of Series A Preferred Stock.
(11) Ms. Gonzalez-Limberg (the 'Selling Shareholder') acquired these shares in
August 1994 as consideration for her sale to the Company of her Tampa,
Florida, pharmacy business. She received registration rights for these
shares pursuant to the purchase and sale agreement
38
<PAGE>
for that transaction, and the inclusion of such shares in this Offering is
being made pursuant to her exercise of such registration rights. The assets
associated with her former pharmacy business were sold in the Eckerd sale.
See Note 2(d) of Notes to Consolidated Financial Statements.
(12) Includes 708,700 shares held of record, 405,000 shares issuable upon the
exercise of currently exercisable stock options and warrants, and 62,500
shares issuable upon the conversion of Series A Preferred Stock.
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par
value $.001 per share, and 2,000,000 shares of Preferred Stock, par value $.01
per share, of which 130,000 shares are designated as the Series A Preferred
Stock. As of May 7, 1996, and prior to the sale of the Shares offered hereby,
there were 3,335,225 shares of Common Stock and 77,000 shares of Series A
Preferred Stock outstanding.
COMMON STOCK
Holders of Common Stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available
therefor. In the event of the liquidation, dissolution or winding up of the
Company, after payment of debts, expenses and preference rights of the preferred
stock, if any, holders of Common Stock are entitled to share ratably in the
distribution of the remaining assets. Holders of Common Stock are not entitled
to the benefit of any preemptive or other subscription rights, conversion rights
or redemption or sinking fund provisions. Each holder of Common Stock is
entitled to one vote per share on all matters submitted to a vote of the holders
of such stock. The holders of Common Stock do not have the right to cumulative
voting in the election of directors.
All the outstanding shares of Common Stock are and, when issued, the shares
of Common Stock offered hereby will be, fully paid and nonassessable.
PREFERRED STOCK
The Series A Preferred Stock has a liquidation preference of $25.00 per
share, plus accrued and unpaid dividends, and is convertible at any time by the
holder into shares of Common Stock at a conversion rate of 6.25 shares of Common
Stock for every share of Series A Preferred Stock (representing a conversion
price of $4.00 per share of Common Stock), subject to adjustment under certain
circumstances. The Series A Preferred Stock is senior to the Common Stock with
respect to dividends and liquidation. The holders of Series A Preferred Stock
are entitled to vote their shares together with the holders of Common Stock as a
single class. Each share of Series A Preferred Stock is entitled to the number
of votes equal to the number of shares of Common Stock into which the share of
Series A Preferred Stock is convertible. The holders of Series A Preferred Stock
are entitled to receive dividends prior to the holders of the Common Stock,
including the purchasers of Common Stock in this Offering. The outstanding
Series A Preferred Stock has a stated annual dividend of 9%, which dividends are
cumulative if unpaid. Accumulations of dividends on shares of Series A Preferred
Stock do not bear interest.
The Company's Board of Directors has the authority to establish the
designations, liquidation preferences, dividend rights, sinking fund terms and
other preferences and rights (including voting rights) of any as yet
undesignated series of preferred stock. The Board of Directors may, without
shareholder approval, issue additional preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power and other rights of holders of the Common Stock. The Company has no
current plans to issue any additional shares or to designate any new series of
preferred stock; however, any issuance and designation of such shares could be
used to dilute the stock ownership of persons seeking to gain control of the
Company and could otherwise have the effect of delaying, deterring
39
<PAGE>
or preventing a change in control of the Company. See 'Risk Factors--Possible
Anti-Takeover Effects; Authorization of Preferred Stock.'
WARRANTS
In connection with the Company's initial public offering in August 1993,
the Company issued to its underwriter, for nominal consideration, warrants to
purchase up to 97,655 shares of Common Stock. These warrants, which contain
certain anti-dilution provisions, are exercisable until August 1998 at an
exercise price of $5.90 per share.
In connection with a private placement of Common Stock in August 1994, the
Company issued to its placement agent, for nominal consideration, warrants to
purchase up to 71,070 shares of Common Stock. These warrants, which contain
certain anti-dilution provisions, are exercisable until August 1999 at an
exercise price of $4.58 per share. As part of the same transaction, purchasers
received warrants to purchase 108,501 shares of Common Stock which are
exercisable until August 1999 at an exercise price of $7.20 per share and which
contain certain anti-dilution provisions.
In connection with a private placement of Series A Preferred Stock in July
1995, the Company issued to the Representative, which served as placement agent
for that private placement, for nominal consideration, warrants to purchase up
to 142,500 shares of Common Stock. These warrants, which contain certain
anti-dilution provisions, are exercisable until June 2000 at an exercise price
of $6.25 per share.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar is North American Transfer Co.,
147 West Merrick Road, Freeport, New York 11520.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 5,280,225 shares of
Common Stock outstanding (5,580,225 if the Underwriters' over-allotment option
is exercised in full). An additional 481,250 shares of Common Stock may be
issued upon the conversion of the outstanding Series A Preferred Stock,
1,250,476 shares of Common Stock may be issued upon the exercise of outstanding
options and warrants (excluding the shares underlying the Representative's
Warrants) and 120,000 shares of Common Stock may be issued upon the occurrence
of a defined change in control of the Company. Substantially all of the shares
of Common Stock outstanding following this Offering, as well as the shares
underlying the Series A Preferred Stock and other outstanding warrants, will be
freely tradeable without restriction under the Securities Act, except for (i)
any such shares held at any time by an 'affiliate' of the Company, as such term
is defined under Rule 144 promulgated under the Securities Act ('Rule 144'), and
(ii) shares subject to the 'lockup agreements' described below. See
'Management--Stock Option Plans.'
In general, under Rule 144 as currently in effect, a person who has
beneficially owned shares for at least two years, including an 'affiliate,' as
that term is defined in Rule 144, is entitled to sell, within any three-month
period, a number of 'restricted' shares that does not exceed the greater of 1%
of the then-outstanding shares of Common Stock and the average weekly trading
volume during the four calendar weeks preceding such sale. Sales under Rule 144
are subject to certain manner of sale limitations, notice requirements and the
availability of current public information about the Company. Rule 144(k)
provides that a person who is not deemed an 'affiliate' during the three months
preceding a sale and who has beneficially owned shares for at least three years
is entitled to sell such shares at any time under Rule 144 without regard to the
limitations described above.
40
<PAGE>
The officers and directors of the Company (who will beneficially hold in
the aggregate 1,176,200 shares of Common Stock after this Offering, including
shares of Common Stock issuable upon the conversion of shares of Series A
Preferred Stock and the exercise of outstanding options and warrants exercisable
within 60 days from the date of this Prospectus) have entered into lockup
agreements under which they have agreed not to sell or otherwise dispose of any
shares of Common Stock for a period of six months from the date of this
Prospectus without the prior written consent of the Representative.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that sales of
such shares will have on the market price of the Common Stock prevailing from
time to time. Sale of substantial amounts of Common Stock by existing
shareholders could adversely affect prevailing market prices. See 'Risk
Factors--Shares Eligible for Future Sale.'
41
<PAGE>
UNDERWRITING
The Underwriters named below (collectively, the 'Underwriters'), for which
Commonwealth Associates is acting as representative (the 'Representative'), have
agreed, severally but not jointly, subject to the terms and conditions contained
in the underwriting agreement between the Company and the Underwriters (the
'Underwriting Agreement'), to purchase from the Company and the Selling
Shareholder, and the Company and the Selling Shareholder have agreed to sell to
the several Underwriters, an aggregate of 2,000,000 shares of Common Stock. The
number of shares of Common Stock that each Underwriter has agreed to purchase is
set forth opposite its name below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------------------------------------------------ ----------------
<S> <C>
Commonwealth Associates......................................................................... 1,530,000
Advest, Inc..................................................................................... 35,000
Cruttenden Roth, Incorporated................................................................... 35,000
Hanifen, Imhoff Inc............................................................................. 35,000
Josephthal Lyon & Ross Incorporated............................................................. 35,000
Needham & Company, Inc.......................................................................... 35,000
Pennsylvania Merchant Group Ltd................................................................. 35,000
Tucker Anthony Incorporated..................................................................... 35,000
Unterberg Harris................................................................................ 35,000
Van Kasper & Company............................................................................ 35,000
Wedbush Morgan Securities Inc................................................................... 35,000
The Boston Group, L.P........................................................................... 20,000
JW Charles Securities, Inc...................................................................... 20,000
Hampshire Securities Corporation................................................................ 20,000
Madison Securities.............................................................................. 20,000
Nutmeg Securities, Ltd.......................................................................... 20,000
Sands Brothers & Co., Ltd....................................................................... 20,000
----------------
Total:................................................................................... 2,000,000
----------------
----------------
</TABLE>
The Underwriters are committed on a 'firm commitment' basis to purchase and
pay for all of the shares of Common Stock offered hereby (other than shares
offered pursuant to the over-allotment option) if any shares are purchased. The
shares are being offered by the Underwriters, subject to prior sale, when, as,
and if delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel and to certain other conditions.
The Underwriters propose to offer the shares of Common Stock to the public
at the public offering price set forth on the cover page of this Prospectus. The
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the 'NASD') concessions, not in excess
of $.30 per share, of which not in excess of $.10 per share may be reallowed to
other dealers who are members of the NASD. After the commencement of the
Offering, the public offering price, the concessions, and reallowance may be
changed by the Underwriters.
42
<PAGE>
The Company has granted to the Underwriters, exercisable for 45 days from
the date of this Prospectus, an option to purchase up to an additional 300,000
shares of Common Stock at the public offering price set forth on the cover page
of this Prospectus, less the underwriting discounts and commissions. The
Underwriters may exercise this option in whole or, from time to time, in part,
solely for the purpose of covering over-allotments, if any, made in connection
with the sale of the shares of Common Stock offered hereby.
At the Company's request, the Underwriters have agreed to offer to sell to
Bergen 100,000 shares of Common Stock offered hereby at the public offering
price. See 'Business--Strategic Relationships.'
The Company has agreed to pay the Representative, in its individual rather
than representative capacity, a non-accountable expense allowance equal to 2% of
the gross proceeds of the Common Stock offered hereby (including any Common
Stock purchased pursuant to the Underwriters' over-allotment option). The
Company has also agreed to pay or reimburse the Representative for certain other
expenses incurred by the Representative.
The Company has agreed to sell to the Representative and/or its designees
warrants (the 'Representative's Warrants') to purchase up to 200,000 shares of
Common Stock at an exercise price per share equal to 120% of the public offering
price. Both the number of shares issuable upon exercise of the Representative's
Warrants and the exercise price per share thereunder are subject to adjustment
under certain circumstances. The Representative's Warrants may not be sold,
transferred, assigned, pledged, or hypothecated for a period of one year from
the effective date of the Registration Statement, except to any successor,
officer, or partner of the Representative, or to officers or partners of any
such successor or partner, and are exercisable during the four-year period
commencing one year from the effective date of the Registration Statement (the
'Warrant Exercise Term'). During the Warrant Exercise Term, the holders of the
Representative's Warrants are given, at nominal cost, the opportunity to profit
from a rise in the market price of the Common Stock. Further, the terms upon
which the Company will be able to obtain additional equity capital may be
adversely affected since the holders of the Representative's Warrants can be
expected to exercise or exchange them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than those provided in the Representative's Warrants. Any profit
realized by the Representative on the sale of the Representative's Warrants or
the underlying shares of Common Stock may be deemed additional underwriting
compensation. See 'Risk Factors--Representative's Warrants.'
The holder of the Representative's Warrants has the right, in lieu of
payment in cash of the exercise price, to surrender all or part of the
Representative's Warrants in exchange for a number of shares of Common Stock
equal to the value of the Representative's Warrants being surrendered
(determined by subtracting the aggregate exercise price of the Representative's
Warrants being surrendered from the Current Market Value (as defined) of the
shares of Common Stock issuable upon exercise of the Representative's Warrants
being surrendered) divided by the Current Market Price of one share of Common
Stock.
The Company has agreed that it will, on any two occasions during the
four-year period commencing one year from the date of this Prospectus, register
the Representative's Warrants and the Common Stock underlying the
Representative's Warrants, the first time at the Company's expense. The Company
has also agreed, during the seven-year period commencing one year from the date
of this Prospectus, to register on a 'piggy-back' basis on an unlimited number
of occasions, the Representative's Warrants and the Common Stock underlying the
Representative's Warrants whenever the Company files a Registration Statement,
subject to certain limitations.
The Underwriting Agreement provides for reciprocal indemnification among
the Company and the Underwriters and their respective officers, directors and
control persons against certain civil liabilities in
43
<PAGE>
connection with the Registration Statement of which this Prospectus is a part,
including liabilities under the Securities Act.
The Company and its officers and directors have agreed not to offer, issue,
sell, contract to sell, grant any option for the sale of, or otherwise dispose
of, directly or indirectly, any securities of the Company or other rights to
purchase any securities of the Company, for a period of six months from the
effective date of the Registration Statement, without the prior written consent
of the Representative.
In connection with this Offering, certain Underwriters and selling group
members or their affiliates may engage in passive market making transactions in
the Common Stock on the Nasdaq SmallCap Market in accordance with Rule 10b-6A
under the Exchange Act. Passive market making consists of, among other things,
displaying bids on the Nasdaq SmallCap Market limited by the bid prices of
independent market makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited to a specified percentage of the passive market maker's average daily
trading volume in the Common Stock during a specified prior period, and all
possible market making activity must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Olle, Macaulay & Zorrilla, P.A., Miami, Florida. Certain legal
matters will be passed upon for the Underwriters by Squadron, Ellenoff, Plesent
& Sheinfeld, LLP, New York, New York.
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1995 and
the related consolidated statements of operations, stockholders' equity and cash
flows of the Company for each of the two years in the period ended December 31,
1995 are included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549, and at the Commission's Regional Offices at Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and 13th
Floor, Seven World Trade Center, New York, New York 10048. Copies of such
material may be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549.
The Company has filed with the Commission a registration statement (the
'Registration Statement') under the Securities Act with respect to the
securities offered by this Prospectus. This Prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and this Offering, reference is
made to the Registration Statement, including the exhibits filed therewith,
which may be inspected without charge at the Commission's public reference
facility at 450 Fifth
44
<PAGE>
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and upon request at its
above-described Regional Offices. Copies of the Registration Statement may be
obtained from the Commission at its public reference facility upon payment of
prescribed fees. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and, where the
contract or other document has been filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by reference to the
applicable documents filed with the Commission. In addition, reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the Nasdaq Stock Market, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
45
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
Report of Independent Accountants..................................................................... F-2
Consolidated Financial Statements:
Consolidated Balance SheetDecember 31, 1995...................................................... F-3
Consolidated Statements of Operations
Years Ended December 31, 1995 and 1994......................................................... F-4
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1995 and 1994......................................................... F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1995 and 1994......................................................... F-6
Notes to Consolidated Financial Statements....................................................... F-7 - F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
ProxyMed, Inc.
We have audited the accompanying consolidated balance sheet of ProxyMed,
Inc. and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of ProxyMed, Inc.
and subsidiaries as of December 31, 1995, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Miami, Florida
February 9, 1996
F-2
<PAGE>
<TABLE>
<CAPTION>
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents...................................................................... $ 463,980
Accounts receivable--trade, net of allowance for doubtful accounts of $107,000................. 358,085
Other receivables.............................................................................. 1,626,844
Current portion of note receivable............................................................. 371,014
Inventory...................................................................................... 238,263
Other current assets........................................................................... 32,872
-----------
Total current assets...................................................................... 3,091,058
Property and equipment, net......................................................................... 929,962
Note receivable, less current portion............................................................... 278,261
Intangible assets, net.............................................................................. 618,956
Other assets........................................................................................ 75,100
-----------
Total assets.............................................................................. $ 4,993,337
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of capital lease obligations.............................................. $ 218,491
Current portion of deferred revenue............................................................ 1,158,981
Accounts payable and accrued expenses.......................................................... 722,852
-----------
Total current liabilities................................................................. 2,100,324
Deferred revenue, less current portion.............................................................. 100,000
Capital lease obligations, less current installments................................................ 199,393
-----------
Total liabilities......................................................................... 2,399,717
-----------
Commitments and contingencies (Notes 10 and 11)
Stockholders' equity:
Series A 9% Convertible preferred stock, $.01 par value. Authorized 130,000 shares; issued and
outstanding 83,000 shares; liquidation preference $2,075,000...................................... 830
Common stock, $.001 par value. Authorized 20,000,000 shares; issued and outstanding 3,297,063
shares..................................................................................... 3,297
Additional paid-in capital..................................................................... 10,774,052
Accumulated deficit............................................................................ (8,184,559)
-----------
Total stockholders' equity................................................................ 2,593,620
-----------
Total liabilities and stockholders' equity................................................ $ 4,993,337
-----------
-----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
<S> <C> <C>
Net sales........................................................................... $ 7,622,803 $16,533,006
----------- -----------
Costs and expenses:
Cost of sales.................................................................. 5,196,745 12,042,092
Selling, general and administrative expenses................................... 5,052,940 8,617,079
----------- -----------
10,249,685 20,659,171
----------- -----------
Operating loss............................................................ (2,626,882) (4,126,165)
Other expense:
Loss on sale of assets (Note 3)................................................ (740,044) --
Interest, net.................................................................. (151,625) (139,492)
----------- -----------
Loss before extraordinary item............................................ (3,518,551) (4,265,657)
Extraordinary item--gain on sale of subsidiary, net of income tax effect (Note 3)... 669,664 --
----------- -----------
Net loss.................................................................. (2,848,887) (4,265,657)
Dividends on cumulative preferred stock............................................. 113,362 --
----------- -----------
Net loss applicable to common shareholders................................ $(2,962,249) $(4,265,657)
----------- -----------
----------- -----------
Loss per share of common stock:
Loss before extraordinary item................................................. $ (1.13) $ (1.52)
Extraordinary gain............................................................. .21 --
----------- -----------
Net loss.................................................................. $ (.92) $ (1.52)
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
PREFERRED
STOCK COMMON STOCK
--------------- ------------------
NUMBER NUMBER ADDITIONAL
OF PAR OF PAR PAID-IN ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL DEFICIT TOTAL
------- ----- --------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994.................. -- $ -- 2,451,250 $2,451 $ 5,132,644 $ (967,467) $ 4,167,628
Sale of common stock, net of expenses of
$391,401................................. -- -- 434,000 434 2,212,165 -- 2,212,599
Common stock issued for acquired
businesses............................... -- -- 289,449 289 1,473,505 -- 1,473,794
Common stock issued for services........... -- -- 13,750 14 64,486 -- 64,500
Distributions to stockholders.............. -- -- -- -- (316,829) -- (316,829)
Reclassification of retained earnings of
pooled company upon termination of S
Corporation tax status................... -- -- -- -- 102,548 (102,548) --
Net loss................................... -- -- -- -- -- (4,265,657) (4,265,657)
------- ----- --------- ------ ----------- ----------- -----------
Balances, December 31, 1994................ -- -- 3,188,449 3,188 8,668,519 (5,335,672) 3,336,035
Sale of preferred stock, net of expenses of
$318,781................................. 95,000 950 -- -- 2,055,269 -- 2,056,219
Common stock issued for acquired
businesses............................... -- -- 22,114 23 86,042 -- 86,065
Common stock and options issued for
services................................. -- -- 11,500 11 66,252 -- 66,263
Preferred stock dividends.................. -- -- -- -- (102,075) -- (102,075)
Conversion of preferred stock to common
stock.................................... (12,000) (120) 75,000 75 45 -- --
Net loss................................... -- -- -- -- -- (2,848,887) (2,848,887)
------- ----- --------- ------ ----------- ----------- -----------
Balances, December 31, 1995................ 83,000 $ 830 3,297,063 $3,297 $10,774,052 $ (8,184,559) $ 2,593,620
------- ----- --------- ------ ----------- ----------- -----------
------- ----- --------- ------ ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................................. $(2,848,887) $(4,265,657)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization....................................................... 297,883 341,967
Loss on sale of assets (Note 3)..................................................... 740,044 65,786
Gain on sale of subsidiary (Note 3)................................................. (669,664) --
Provision for doubtful accounts..................................................... 73,598 79,184
Changes in assets and liabilities, net of effect of acquisitions and dispositions:
Accounts receivable............................................................... 934,786 (613,482)
Inventory......................................................................... 44,721 (237,661)
Other assets...................................................................... 38,244 247,669
Accounts payable and accrued expenses............................................. (3,505,399) 2,891,703
----------- -----------
Net cash used in operating activities............................................... (4,894,674) (1,490,491)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of dispensary assets............................................... 3,551,481 --
Proceeds from sale of subsidiary...................................................... 892,363 --
Capital expenditures.................................................................. (389,585) (1,328,722)
----------- -----------
Net cash provided by (used in) investing activities................................. 4,054,259 (1,328,722)
----------- -----------
Cash flows from financing activities:
Net proceeds from sale of equity securities (Note 4).................................. 2,056,219 2,212,599
Proceeds from notes payable........................................................... -- 560,000
Payment of notes payable and long-term debt........................................... (1,580,412) (263,038)
Payment of capital lease obligations.................................................. (207,250) (172,010)
Payment of preferred stock dividends.................................................. (102,075) --
Capital distributions................................................................. -- (316,829)
Decrease in officer loans............................................................. -- 40,413
----------- -----------
Net cash provided by financing activities........................................... 166,482 2,061,135
----------- -----------
Net decrease in cash.................................................................... (673,933) (758,078)
Cash at beginning of period............................................................. 1,137,913 1,850,184
Net cash from businesses purchased...................................................... -- 45,807
----------- -----------
Cash at end of period................................................................... $ 463,980 $ 1,137,913
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest................................................................ $ 292,310 $ 57,660
----------- -----------
----------- -----------
Common stock and options issued for services.......................................... $ 66,263 $ 64,500
----------- -----------
----------- -----------
Capital lease obligations incurred.................................................... $ -- $ 611,953
----------- -----------
----------- -----------
Common stock issued for businesses purchased.......................................... $ 86,065 $ 1,473,794
-----------
-----------
Details of acquisitions and dispositions:
Working capital components, other than cash......................................... $ 1,986,321 368,657
Property and equipment.............................................................. 1,748,111 (373,319)
Intangible assets................................................................... 1,002,239 (1,545,791)
Long-term debt and capital lease obligations........................................ -- 142,708
Other assets........................................................................ (222,447) (20,242)
Net loss............................................................................ (70,380) --
----------- -----------
Net cash from acquisitions and dispositions....................................... $ 4,443,844 $ 45,807
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business of the Company--The Company's revenues have been derived
principally from dispensing prescription drugs to patients who are members of
health maintenance organizations ('HMOs') by delivery to long-term care
facilities, and until their sale in 1995, through dispensaries, by mail, and
through infusion administered in the patient's home (see Note 3). The Company's
operations have been principally in Florida. In addition, by utilizing certain
proprietary systems which were developed by the Company and used by its
customers in its pharmacy operations, the Company has evolved into a healthcare
technology company that develops and distributes a wide range of software
products and services, and operates a healthcare information network that
connects physicians, pharmacies, HMOs and all other providers. The development
and distribution of healthcare technology products and services is an emerging
business and, as such, is subject to uncertainty as to demand and market
acceptance for the newly introduced products and services. Achieving market
acceptance for the Company's products and services will require significant
marketing efforts and expenditure of significant funds to create awareness and
demand by pharmacies, physician groups, managed care organizations and other
potential customers. Through December 31, 1995, revenues from these technology
products and services have not been material. The Company's operations are
subject to extensive and evolving statutory and regulatory framework on both the
state and federal level.
(b) Principles of Consolidation--The consolidated financial statements
include the accounts of the Company 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 generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(d) Revenue Recognition--Revenues from the Company's prescription drug
dispensing activities are reported at net realizable amounts from HMO providers
and patients at the time the individual prescriptions are filled or services are
provided. Through 1995, revenues from the Company's healthcare technology
activities have not been significant.
(e) Cash and Cash Equivalents--The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents. Excess cash, if any, is generally deposited in money market
accounts of major stock brokerage firms or bank accounts covered by federal
depository insurance, or in U.S. Treasury Bills.
(f) Inventory--Inventory, which consists of prescription drugs, is stated
at the lower of cost (first-in, first-out method) or market.
(g) Property and Equipment--Property and equipment, including capitalized
software costs, is stated at cost. Property and equipment under capital leases
is stated at the present value of minimum lease payments at the inception of the
lease. Depreciation of property and equipment is calculated on the straight-line
method over the estimated useful lives of the assets. Capitalized software costs
are amortized on the
F-7
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
straight-line method over the estimated economic life of the product. Property
and equipment held under capital leases and leasehold improvements are amortized
on the straight-line method over the shorter of the lease term or the estimated
useful lives of the assets.
(h) Intangible Assets--Intangible assets consist primarily of goodwill,
which was recorded in 1994 as a result of the acquisition of Scripts, Inc. (see
Note 2). Goodwill is amortized on the straight-line basis over 40 years. The
recoverability of goodwill is assessed based upon an analysis of estimated
future cash flows on an undiscounted basis, as is permitted under Statement of
Financial Accounting Standards No. 121, 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.' Accumulated
amortization of the intangible assets at December 31, 1995 is $67,769.
(i) Income Taxes--The Company provides for income taxes pursuant to the
provisions of Statement of Financial Accounting Standards No. 109, 'Accounting
for 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 based on the weight of available
evidence.
(j) Net Loss Per Share--Net loss per share of common stock is computed by
dividing net loss applicable to common shareholders by the weighted average
shares of common stock outstanding during the year (3,211,320 shares and
2,806,584 shares for the years ended December 31, 1995 and 1994, respectively).
The effects of common stock equivalents and convertible preferred stock have not
been included in the computations as their effect would be anti-dilutive.
(2) ACQUISITIONS
(a) Progressive Infusion Care, Inc.--On June 4, 1994, the Company issued
250,000 shares of its common stock in exchange for all the outstanding common
stock of Progressive Infusion Care, Inc. ('Progressive'), a company that
provides home infusion therapy services to HMO and private pay patients. The
acquisition was accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements for all periods presented include
the accounts and operations of Progressive.
Net sales and net income (loss) of the Company and Progressive for the
period prior to the acquisition were as follows:
<TABLE>
<CAPTION>
PROXYMED PROGRESSIVE TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Six months ended June 30, 1994:
Net sales............................................... $ 6,195,259 $ 1,148,738 $ 7,343,997
Net income (loss)....................................... $(1,311,577) $ 102,548 $(1,209,029)
</TABLE>
Distributions of $316,829 were taken by Progressive's shareholders in 1994
while Progressive operated as an S corporation.
(b) Service Drugs--On February 16, 1994, the Company acquired substantially
all the assets and liabilities of two corporations doing business collectively
as Service Drugs. Service Drugs provided pharmacy services to HMO members from
six dispensaries in Central Florida. The Company issued
F-8
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) ACQUISITIONS--(CONTINUED)
120,000 shares of common stock for Service Drugs, and agreed to issue up to
120,000 additional shares of common stock, with a maximum value of such
additional shares of $1,420,000 (which will be charged to expense if and when
issued), if there is a change in control (as defined), of the Company by 1998.
The acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities were recorded at their estimated fair values at the date
of acquisition. The excess of the consideration paid over the estimated fair
value of net assets acquired in the amount of $860,360 was recorded as goodwill;
however, the remaining goodwill related to Service Drugs was written off at the
time of the sale of assets described in Note 3.
(c) Scripts, Inc.--On April 16, 1994, the Company acquired substantially
all the assets and certain of the liabilities of Scripts, Inc. ('Scripts').
Scripts provides pharmacy services to HMOs, HMO members, adult congregate living
facilities and nursing homes. The Company issued a total of 131,763 shares of
its common stock for Scripts, including contingently issuable shares earned
based on net sales through March 31, 1995. The acquisition was accounted for as
a purchase and, accordingly, the acquired assets and liabilities were recorded
at their estimated fair values at the date of acquisition. The excess of the
consideration over the estimated fair value of net assets acquired in the amount
of $635,725 was recorded as goodwill.
The following unaudited pro forma summary for 1994 presents the
consolidated results of operations of the Company, Service Drugs and Scripts as
if the acquisitions had occurred at the beginning of 1994: net sales
$17,414,000; net loss $(4,474,000); and net loss per share of common stock
$(1.57). These pro forma results do not necessarily represent results which
would have occurred if the acquisitions had taken place at that date.
(d) Other Acquisitions--During 1994, the Company purchased certain assets
and assumed certain liabilities of two pharmacies which, individually, were not
material to the financial position or operations of the Company. In
consideration of these acquisitions, the Company issued 59,800 shares of common
stock, and conveyed cash and notes totaling $155,000. Goodwill and the value of
a non-compete agreement, totaling $114,771, were recorded at the time of the
acquisitions; however, the remaining value of these assets was written off at
the time of the sale of assets described in Note 3.
(3) DISPOSITIONS
(a) Sale of Certain Dispensary Assets--On March 15, 1995, the Company sold
to Eckerd Corporation ('Eckerd') certain, but not all, of the assets related to
the Company's HMO prescription drug dispensing operations for up to $4,851,481.
The purchase price included $3,525,000 for the Company's prescription drug
files, transferable licenses, customer lists, goodwill and other intangible
assets relating to the portion of the pharmaceutical dispensing business being
sold, payable as follows: $1,325,000 was paid at closing; $900,000 was paid on
August 4, 1995 based on prescription business retained by Eckerd; up to $350,000
is to be paid on April 4, 1996; and up to $950,000 is to be paid on October 5,
1996 (included in other receivables). The amounts to be paid in 1996 are subject
to downward adjustment if the percentage of future business is less than 75% of
the prescription business which existed at the time of the sale, which was
approximately 91,000 prescriptions per month. To the extent that the number of
prescriptions filled by Eckerd is less than 75% of this base number, the Company
will receive a proportionate payment amount per prescription filled. The portion
of the sales price that is based on retention (originally totaling $2,200,000)
was recorded as deferred revenue, and is being recognized as income when earned.
Based on prescription data supplied by Eckerd and other independent sources, the
Company earned $1,121,019 as of
F-9
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) DISPOSITIONS--(CONTINUED)
December 31, 1995. The Company has agreed to continue to perform clinical
pharmacy services through September 15, 1996 with respect to the prescription
business which was sold, the costs of which have been accrued. The purchase
price also included certain inventories of prescription drugs and other assets
in the amount of $1,126,481, and $200,000 for the lease of certain other assets
which were deemed to be essential in operating the dispensing operations. In
addition, Eckerd subleased certain of the dispensaries and other assets used in
the Company's prescription drug business for various periods of time, none of
which extend beyond March 15, 1996. Net sales related to these prescription drug
dispensing operations prior to their sale on March 15, 1995 were approximately
$3,404,000 in 1995 and $13,513,000 in 1994.
Because of the effect of deferring a portion of the sales price until it is
realized in future periods as discussed above, a loss of $740,044 (net of the
gain from the recognition of deferred revenue as described in the preceding
paragraph) from the sale of these assets has been included in the statement of
operations for the year ended December 31, 1995. As the Company earns additional
revenue from future prescription sales by Eckerd as discussed above, the
appropriate portion of the remaining deferred revenue will be recognized as
income. The Company estimates that the ultimate gain on this transaction
(including collection of the remaining deferred revenue) will be nominal after
accruing at the time of sale for costs associated with the transaction of
approximately $800,000, including severance pay, lease termination costs, costs
associated with the obligation to perform clinical pharmacy services, and other
items.
(b) Sale of Subsidiary--On September 29, 1995, the Company sold to National
Health Care Affiliates, Inc. and an affiliate thereof (collectively 'NHCA') all
of the outstanding common stock of its wholly-owned subsidiary, ProxyFusion,
Inc., for $1,542,029. ProxyFusion provided the Company's home infusion therapy
services. Of the total purchase price, $800,000 was paid at closing, with the
balance in the form of a 6% note payable in quarterly payments over two years.
Also, as part of the agreement, certain intercompany indebtedness is being
repaid to the Company over six months, and the Company has retained certain
accounts receivable. The Company estimates that the ultimate gain on this
transaction will be approximately $870,000 (before income taxes of approximately
$326,000 which will be eliminated by available net operating loss
carryforwards). Of this amount, $669,664 was recorded as an extraordinary gain
in 1995, and $200,000 is being amortized over the 30-month period of the
Company's covenant-not-to-compete. Net sales related to these operations prior
to their sale on September 29, 1995 were approximately $1,936,000 in 1995 and
$1,983,000 in 1994.
Pro forma data reflecting the results of operations as if both the sale of
assets to Eckerd and the sale of the subsidiary to NHCA had occurred as of
January 1, 1994 is as follows. Due to costs incurred by the Company subsequent
to these sales in connection with the further development and marketing of its
electronic prescription processing programs and network (ProxyScript, RxReceive
and ProxyNet), amongst other factors, such pro forma data may not be indicative
of future results of operations.
F-10
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) DISPOSITIONS--(CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Net sales.......................................................... $ 2,280,000 $ 1,037,000
----------- -----------
Costs and expenses:
Cost of sales.................................................... 1,531,000 745,000
Selling, general and administrative expenses..................... 3,088,000 1,399,000
----------- -----------
4,619,000 2,144,000
----------- -----------
Operating loss.............................................. (2,339,000) (1,107,000)
Interest expense, net.............................................. 81,000 15,000
----------- -----------
Net loss.................................................... (2,420,000) (1,122,000)
Preferred stock dividends.......................................... 113,000 --
----------- -----------
Net loss applicable to common shareholders.................. $(2,533,000) $(1,122,000)
----------- -----------
----------- -----------
Net loss per share of common stock................................. $ (.79) $ (.40)
----------- -----------
----------- -----------
</TABLE>
(4) SALES OF EQUITY SECURITIES
(a) Private Placement--In 1994, the Company raised $2,212,599 (net of
expenses of $391,401) through a private placement sale of 434,000 shares of
unregistered common stock at a price of $6.00 per share. As part of the
transaction, the Company issued redeemable warrants to the investors to purchase
108,501 additional shares of common stock at an exercise price of $7.20 per
share, and 71,070 warrants to the placement agent at an exercise price of $4.58
per share, all exercisable through August 19, 1999.
(b) Preferred Stock--In 1995, the Company raised $2,056,219 (after expenses
of $318,781) through a private placement sale of 23.75 units of Series A
Convertible Preferred Stock for $100,000 per unit. Each unit is comprised of
4,000 shares of Preferred Stock. Each share of Preferred Stock is convertible
into shares of common stock at an initial conversion price of $4 per share
(i.e., 6.25 shares of common stock for each share of Preferred Stock). The
conversion price is subject to adjustment under certain conditions. In addition,
the Company can require preferred shareholders to convert their shares into
common stock pursuant to the Preferred Stock's original terms, at any time after
the market price of the common stock is at least $8 per share for 40 consecutive
trading days. Harold S. Blue, the Company's Chairman and Chief Executive
Officer, purchased two units in the offering.
Holders of the preferred stock are entitled to vote their shares along with
common shareholders on the basis of the number of shares of common stock into
which the preferred stock is convertible. The preferred stock bears a cumulative
annual dividend of 9% payable semi-annually, and has a liquidation preference
equal to the offering price per share plus any accrued and unpaid dividends. As
part of the transaction, the Company issued warrants to purchase 142,500 shares
of common stock to the placement agent at an exercise price of $6.25 per share,
exercisable through June 9, 2000.
F-11
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) SALES OF EQUITY SECURITIES--(CONTINUED)
The Company has 1,870,000 authorized but unissued shares of preferred
stock, par value $.01 per share, which is entitled to rights and preferences to
be determined at the discretion of the Board of Directors.
(c) Other Warrants--In connection with Company's initial public offering in
1993, underwriter warrants are outstanding for the purchase of up to 97,655
shares of common stock at an exercise price of $5.90 per share through August 5,
1998.
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIVES
----------------------
<S> <C> <C>
Furniture, fixtures and equipment........................... $ 893,531 5 to 7 years
Capitalized software costs.................................. 246,390 3 to 5 years
Leasehold improvements...................................... 115,662 5 years
----------
1,255,583
Less accumulated depreciation............................... 325,621
----------
Property and equipment, net................................. $ 929,962
----------
----------
</TABLE>
(6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following at December
31, 1995:
<TABLE>
<S> <C>
Accounts payable........................................................................... $369,884
Accrued expenses related to sales of assets and subsidiary................................. 300,399
Other accrued expenses..................................................................... 52,569
--------
Total accounts payable and accrued expenses........................................... $722,852
--------
--------
</TABLE>
(7) INCOME TAXES
The significant components of the deferred tax asset account is as follows
at December 31, 1995:
<TABLE>
<S> <C>
Net operating losses--Federal........................................................... $ 2,400,000
Net operating losses--State............................................................. 388,000
Other--net (principally allowance for
doubtful accounts and depreciation)................................................... 12,000
-----------
Total deferred tax assets.......................................................... 2,800,000
Less valuation allowance................................................................ (2,800,000)
-----------
Net deferred tax assets............................................................ $ --
-----------
-----------
</TABLE>
F-12
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES--(CONTINUED)
Based on the weight of available evidence, a valuation allowance has been
provided to offset the entire deferred tax asset amount. Net deferred assets and
the valuation allowance recorded relating thereto increased by $814,000 in 1995,
primarily due to net operating losses. The net operating loss carryforwards,
which amount to $7,060,000 as of December 31, 1995, begin to expire in 2008.
The benefit for income taxes differs from the amount computed by applying
the statutory federal income tax rate to the net loss reflected on the
Consolidated Statements of Operations due to the following:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Federal income tax benefit at statutory rate..................................... 35.0% 35.0%
State income tax benefit......................................................... 3.5 3.5
Increase in valuation allowance.................................................. (38.5) (38.5)
----- -----
-- --
----- -----
----- -----
</TABLE>
(8) SIGNIFICANT CUSTOMERS
Approximately 26% and 75% of the Company's sales for 1995 and 1994 were to
providers under contract with Humana Medical Plan, Inc. and Humana Health
Insurance Company of Florida, Inc., an HMO with national operations. In 1994,
another customer accounted for 11% of the Company's sales. The operations that
accounted for these sales were disposed of in 1995 as discussed in Note 3.
(9) STOCK OPTIONS
In 1993 and 1995, the Company adopted two stock option plans for
executives, directors and other key personnel, under which both incentive stock
options and non-qualified options may be issued. Under the 1993 and 1995 plans,
options to purchase up to 400,000 shares and 100,000 shares, respectively, 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 or who will own more than 10% of the outstanding voting power
must be granted at 110% of the fair market value at the date of grant. In order
to qualify as an incentive stock option, the value of shares exercisable in any
one calendar year cannot exceed $100,000 (as determined at the date of grant).
In addition, in 1995 the Company adopted a stock option plan for outside
directors. Under this plan, options to purchase up to 200,000 shares of common
stock may be granted at prices and with vesting periods as may be determined by
the Board of Directors or the Compensation Committee thereof.
Stock options under all plans generally vest within two years, and expire
five years from the date granted. At December 31, 1995, options to purchase
369,750 shares were exercisable. Stock option activity was as follows for the
two years ended December 31, 1995:
<TABLE>
<CAPTION>
BALANCE,
BEGINNING OPTIONS OPTIONS OPTIONS BALANCE OPTION
OF YEAR GRANTED EXERCISED EXPIRED END OF YEAR PRICE RANGE
--------- ------- --------- ------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1994........................ 270,500 138,000 -- 40,500 368,000 $6.00 - 8.63
1995........................ 368,000 453,250 -- 198,500 622,750 $4.75 - 7.88
</TABLE>
F-13
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) STOCK OPTIONS--(CONTINUED)
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, 'Accounting for Stock-Based Compensation' ('SFAS 123'). SFAS
123 provides, but does not require the use of, an alternative method for
accounting for stock-based employee compensation plans (the 'fair value based
method'). The Company presently utilizes the 'intrinsic value based method' of
accounting prescribed in Accounting Principles Board Opinion No. 25 ('APB 25'),
'Accounting for Stock Issued to Employees.' For companies electing to remain
with the accounting prescribed in APB 25, certain pro forma disclosures of net
income and earnings per share will be required in future financial statements,
as if the fair value based method of accounting defined in SFAS 123 had been
applied. SFAS 123 applies to fiscal years beginning after December 15, 1995. The
Company does not intend to change its method of accounting and will instead
provide pro forma disclosures as if the alternate fair value method had been
applied. Accordingly, the adoption of this standard will not have an effect on
the Company's financial position or results of operations.
(10) COMMITMENTS AND CONTINGENCIES
(a) Leases--The Company leases certain premises and equipment under
operating leases which expire over the next five years. The leases for the
premises contain renewal options, and require the Company to pay such costs as
property taxes, maintenance and insurance. In addition, the Company has acquired
certain computer and telephone equipment under capital leases. Property and
equipment includes such equipment with an original cost of $96,520, and
accumulated depreciation of $32,385 as of December 31, 1995. Additional
equipment under capital leases totaling $697,331 has been written off in
connection with the sales of assets and subsidiary described in Note 3.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and the present value of
future minimum capital lease payments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
- ------------------------------------------------------------------------ -------- ---------
<S> <C> <C>
1996.................................................................... $276,816 $ 154,000
1997.................................................................... 168,500 145,000
1998.................................................................... 37,031 110,000
1999.................................................................... 16,919 21,000
2000.................................................................... -- 6,000
-------- ---------
Total minimum lease payments............................................ 499,266 $ 436,000
---------
---------
Less amount representing interest....................................... 81,382
--------
Present value of net minimum lease payments............................. $417,884
--------
--------
</TABLE>
Total rent expense for all operating leases amounted to $161,000 for 1995
and $357,000 for 1994.
(b) Employment Agreements--The Company has employment agreements with
certain of its officers and employees for terms of up to three years, with
compensation for up to nine months if terminated under certain conditions.
F-14
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
(c) Employee Matter--The Company is a defendant in an administrative
proceeding filed in September 1995 involving a former employee. Based on its
internal investigation, the Company does not anticipate that the ultimate
resolution of this matter will be material.
(11) SUBSEQUENT EVENT
On February 1, 1996, the Company, Bergen Brunswig Drug Company and
IntePlex, Inc. (collectively, 'Bergen'), signed a strategic marketing agreement
whereby Bergen paid a one-time, non-refundable fee of $1,000,000 for a
non-exclusive license to market the Company's electronic prescription processing
products throughout the U.S. The Company will pay Bergen from 10% to 30% of net
revenues derived from the sale of these products, depending on the overall
annual volume of sales. The $1,000,000 fee, and related costs, will be
recognized in the first quarter of 1996. Bergen Brunswig Drug Company and
IntePlex, Inc. are wholly-owned subsidiaries of Bergen Brunswig Corporation, a
supplier of pharmaceutical products with reported 1995 revenues of $8.4 billion.
F-15
<PAGE>
===============================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary................................ 3
Risk Factors...................................... 6
Use of Proceeds................................... 14
Price Range of Common Stock....................... 15
Dividend Policy................................... 15
Capitalization.................................... 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 17
Business.......................................... 21
Management........................................ 32
Certain Transactions.............................. 37
Principal Shareholders and
Selling Shareholder............................. 38
Description of Capital Stock...................... 39
Shares Eligible for Future Sale................... 40
Underwriting...................................... 42
Legal Matters..................................... 44
Experts........................................... 44
Additional Information............................ 44
Financial Statements.............................. F-1
===============================================================================
2,000,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
COMMONWEALTH ASSOCIATES
MAY 7, 1996
===============================================================================
