UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM 10-Q ON
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________________ to _____________________
Commission file number: 0-22052
PROXYMED, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
FLORIDA 65-0202059
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2555 DAVIE ROAD, SUITE 110, FT. LAUDERDALE, FLORIDA 33317
(Address of principal executive offices) (Zip Code)
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(954) 473-1001
(Registrant's telephone number)
-------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
COMMON STOCK, $.001 PAR VALUE
17,867,433 SHARES AS OF MAY 3, 1999
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
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Current assets:
Cash and cash equivalents $ 2,963,293 $ 4,681,671
Accounts receivable - trade, net 5,902,146 6,383,996
Notes and other receivables 424,987 463,894
Inventory 2,998,942 2,970,210
Other current assets 370,750 254,979
----------- -----------
Total current assets 12,660,118 14,754,750
Property and equipment, net 4,382,449 4,335,944
Goodwill, net 14,957,230 15,539,821
Purchased technology, capitalized software
and other intangible assets, net 12,657,667 13,654,399
Other assets 542,774 551,660
----------- -----------
Total assets $45,200,238 $48,836,574
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 500,000 $ 498,453
Accounts payable and accrued expenses 5,844,201 6,244,631
Deferred revenue 704,625 447,178
----------- -----------
Total current liabilities 7,048,826 7,190,262
Long-term debt 683,167 667,193
Long-term deferred revenue 649,998 700,000
----------- -----------
Total liabilities 8,381,991 8,557,455
----------- -----------
Stockholders' equity:
Common stock - $.001 par value. Authorized
50,000,000 shares; issued and outstanding
17,833,206 and 17,808,172 shares, respectively 17,833 17,808
Additional paid-in capital 82,656,771 82,427,262
Accumulated deficit (45,596,557) (41,906,151)
Note receivable from stockholder (259,800) (259,800)
----------- -----------
Total stockholders' equity 36,818,247 40,279,119
----------- -----------
Total liabilities and stockholders' equity $45,200,238 $48,836,574
=========== ===========
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See accompanying notes.
2
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PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 1998
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Revenues:
Services and license fees $ 5,121,541 $ 3,308,681
Computer systems, prescription drugs
and other tangible goods 6,245,769 1,539,235
------------ ------------
11,367,310 4,847,916
------------ ------------
Costs and expenses:
Cost of services and license fees 456,772 550,660
Cost of tangible goods 4,376,877 1,219,194
Selling, general and
administrative expenses 6,973,937 4,148,048
Depreciation and amortization 3,268,896 630,673
------------ ------------
15,076,482 6,548,575
------------ ------------
Operating loss (3,709,172) (1,700,659)
Interest, net 18,766 (11,958)
------------ ------------
Net loss $ (3,690,406) $ (1,712,617)
============ ============
Basic and diluted loss per share
of common stock $ (.21) $ (.14)
============ ============
Weighted average common shares outstanding 17,818,894 11,858,345
============ ============
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See accompanying notes.
3
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PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
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Cash flows from operating activities:
Net loss $(3,690,406) $(1,712,617)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,268,896 630,673
Provision for doubtful accounts 73,091 43,875
Changes in assets and liabilities, net of
effect of acquisitions:
Accounts and other receivables 661,470 (653,290)
Inventory (28,732) 281,729
Accounts payable and accrued expenses (668,936) (1,102,516)
Deferred revenue 207,444 135,898
Other, net (121,735) 92,156
----------- -----------
Net cash used in operating activities (298,908) (2,284,092)
----------- -----------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (1,000,000) --
Capital expenditures (313,923) (238,038)
Capitalized software (150,000) (100,000)
----------- -----------
Net cash used in investing activities (1,463,923) (338,038)
----------- -----------
Cash flows from financing activities:
Net proceeds from sale of common stock -- 3,250,000
Proceeds from exercise of stock options and warrants 52,252 230,790
Payment of note payable (7,799) --
----------- -----------
Net cash provided by financing activities 44,453 3,480,790
----------- -----------
Net increase (decrease) in cash (1,718,378) 858,660
Cash and cash equivalents at beginning of period 4,681,671 2,654,423
----------- -----------
Cash and cash equivalents at end of period $ 2,963,293 $ 3,513,083
=========== ===========
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See accompanying notes.
4
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PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION - The accompanying unaudited condensed
consolidated financial statements of ProxyMed, Inc. and subsidiaries
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and disclosures required by
generally accepted accounting principles. However, such information
reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a
fair statement of results for the interim periods.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results to be expected for the full
year. Reference is made to ProxyMed's annual report on Form 10-K for
the year ended December 31, 1998. Certain prior period amounts have
been reclassified to conform with the current period presentation.
(b) REVENUE RECOGNITION - Electronic transaction processing fee revenue is
recorded in the period the service is rendered. Revenue from sales of
software, software licenses, computer hardware and manufactured goods
is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the price is fixed or determinable and
collectibility is probable. The same criteria is applied to each
element of multiple element arrangements after allocating the revenues
to individual elements based on vendor-specific objective evidence of
fair value. Revenue from hardware leases, software rentals and
maintenance fees is recognized ratably over the applicable period.
Revenue from ProxyMed's prescription drug dispensing activities is
reported at net realizable amounts from insurance providers and
patients at the time the individual prescriptions are delivered to the
patients.
(d) NET LOSS PER SHARE - Basic loss per share of common stock is computed
by dividing net loss by the weighted average shares of common stock
outstanding during the period. Diluted per share results reflect the
potential dilution from the exercise or conversion of securities into
common stock; however, stock options and warrants totaling 2,777,456
shares and 2,662,526 shares for the three months ended March 31, 1999
and 1998, respectively, were excluded from the calculation of diluted
per share results because their effect was antidilutive.
(2) ACQUISITION OF BUSINESS - In January 1999, ProxyMed acquired the
electronic transaction processing business and assets of Specialized
Medical Management, Inc. of Dallas, Texas, a provider of healthcare
financial electronic transaction processing services primarily in the
Southwestern United States for $1,000,000 in cash. Additionally, costs
of $74,000 associated with the acquisition were incurred, and 10,000
shares of common stock and warrants to purchase 20,000 shares of
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ProxyMed's common stock at $11.44 (together valued at $181,563) were
issued to an unrelated third-party as a finders fee for this
transaction. The value of the shares was computed based on the fair
market value of the common stock, and the value of the warrant was
computed using the Black-Scholes method, subject in both cases to a
discount due to restrictions on the marketability of the securities for
one year from the date of issuance. The acquisition was accounted for
as a purchase, an the purchase price was allocated as follows: net
working capital ($206,408), property and equipment ($38,546) and other
intangible assets ($107,038). The excess of the consideration paid over
the estimated fair value of the net assets acquired in the amount of
$903,571 was recorded as goodwill and is being amortized over three
years. Pro forma operating results from inclusion of this acquisition
are not significantly different from historical results reported.
(3) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
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Cash paid for interest $ -- $ --
Acquisition of business:
Common stock and warrants issued for business acquired $ 181,563 $ --
Other acquisition costs accrued 74,000 --
Details of acquisitions: --
Working capital components, other than cash (206,408) --
Property and equipment (38,546) --
Goodwill (903,571) --
Other intangible assets (107,038) --
----------- -----------
Net cash used in acquisitions $(1,000,000) $ --
=========== ===========
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(4) SEGMENT INFORMATION - ProxyMed operates in the following reportable
segments which are separately managed: healthcare electronic transaction
processing and communication devices, network engineering services and
prescription drug dispensing. Intersegment sales are not material and there
were no foreign sales for any periods presented.
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------
1999 1998
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Net revenues:
Healthcare EDI and
communication devices $ 7,525,059 $ 2,878,064
Network integration services 3,354,923 1,626,330
Prescription drug dispensing 487,328 343,522
------------ ------------
$ 11,367,310 $ 4,847,916
============ ============
Operating income (loss):
Healthcare EDI and
communication devices $ (2,483,858) $ (647,015)
Network integration services 135,540 (207,134)
Prescription drug dispensing (21,846) (11,516)
Corporate (1,339,008) (834,994)
------------ ------------
$ (3,709,172) $ (1,700,659)
============ ============
Total assets:
Healthcare EDI and
communication devices $ 35,677,262 $ 12,414,472
Network integration services 3,962,288 2,495,938
Prescription drug dispensing 1,063,082 961,721
Corporate 4,497,606 4,737,035
------------ ------------
$ 45,200,238 $ 20,609,166
============ ============
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(5) CONTINGENCIES - ProxyMed is the defendant in a lawsuit filed April 28, 1999
in the United States District Court, Eastern District of Virginia (Case No.
CA2-99-CV-604-A) by Advanced Health Corporation, alleging patent
infringement. The suit alleges that its PreScribe 2000/trademark/ product
includes particular operating features covered by Advanced Health's
patents. ProxyMed does not believe the product infringes these patents, and
it intends to vigorously oppose the lawsuit. Further, the product in
question is in development and has not been released. Thus, in the event
any infringement exists, ProxyMed believes any damages assessed are
unlikely to be material. Also, the product may be redesigned if necessary
to reduce its potential for infringement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
ProxyMed is a healthcare information services company providing
financial and clinical electronic transaction processing services and healthcare
technology software products to physicians and other healthcare providers such
as nursing homes, pharmacies, commercial and hospital laboratories, insurance
companies and managed care organizations. In addition, we derive revenues from
network engineering services and related computer hardware sales principally to
state government agencies, sales and leasing of computer peripheral equipment to
various healthcare and non-healthcare customers, contract manufacturing of
circuit boards to non-healthcare customers, and the dispensing of prescription
drugs to patients who are residing in long-term care facilities. Our products
and services are provided from our four principal operating facilities located
in Fort Lauderdale and Tallahassee, Florida; Santa Ana, California; and New
Albany, Indiana.
We operate in the following reportable segments which are separately
managed: healthcare electronic transaction processing and communication devices,
network engineering services, and prescription drug dispensing. Business
combinations were consummated during the periods presented and are included in
the financial statements after their respective dates of acquisition.
Specialized Medical Management, Inc. was acquired by us in January 1999; Key
Communications Service, Inc. merged with us in December 1998 (accounts of Key
Communications are included as of May 1, 1998 due to a leveraged buy-out
consummated on April 30, 1998 by Key Communications' shareholders); and
Integrated Medical Services was acquired in May 1998. These entities are
reportable under the healthcare electronic transaction processing and
communication devices segment.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET REVENUES. Consolidated net revenues for the three months ended
March 31, 1999 increased by $6,519,394, or 134%, to $11,367,310 from
consolidated net revenue of $4,847,916 for the three months ended March 31,
1998. Of this increase, revenues from our healthcare electronic transaction and
communication devices segment increased by $4,647,000 over the 1998 period due
to the net effect of: (i) revenue increases from our acquisitions of Key
Communications ($5,110,000), and Specialized Medical Management and Integrated
Medical Services ($1,037,000), which were all consummated subsequent to the 1998
period; less (ii) revenue in the 1998 period from a sale of a non-exclusive
source code software license for ClinScan,/trademark/ our laboratory ordering
and results reporting software system (reduction of $1,500,000). Additionally,
due to increases in sales volume, both our network engineering services segment
revenues increased by approximately $1,728,000, and our drug dispensing segment
revenue increased by $144,000, over the 1998 period.
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COST OF SALES AND GROSS PROFIT MARGIN. Cost of services and license
fees includes labor and travel costs, third-party support arrangements,
third-party electronic transaction processing costs and Internet related
communication fees. Cost of sales for our computer systems, prescription drugs
and other tangible goods includes hardware, third-party software, prescription
and non-prescription drugs, manufactured goods and direct labor and consumable
materials used in contract manufacturing.
Consolidated gross profit margin for the three months ended March 31,
1999 was 57% compared to 63% for the three months ended March 31, 1998. This
decrease is primarily due to the favorable impact in the 1998 period from the
sale of our non-exclusive source code software license for ClinScan in our
healthcare electronic transaction processing and communication devices segment.
The gross margin for this segment was 73% in the 1999 period compared to 84% in
the 1998 period. The gross profit margin in our network engineering services
segment was 27% in the 1999 period compared to 33% in the 1998 period; this
decrease was primarily due to lower margins on increased computer hardware
sales. The gross profit margin in our drug dispensing segment was 32% in the
1999 period and was comparable to 34% in the 1998 period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses for the three months ended March 31, 1999
increased by $2,825,889, or 68%, to $6,973,937 from consolidated SG&A expenses
of $4,148,048 for the three months ended March 31, 1998. This increase was
primarily due to the following: (i) increases in our healthcare electronic
transaction processing and communication devices segment SG&A expenses from our
acquisitions of Key Communications ($2,019,000), and Specialized Medical
Management and Integrated Medical Services ($1,117,000), net of decreases of
$807,000 from existing segment operations in payroll, facility and
telecommunication costs due to consolidation of our operations; and (ii) an
increase in our corporate SG&A expenses primarily in payroll, marketing, and
facility and telecommunication costs ($487,000) to support our growth. SG&A
expenses in our network engineering and drug dispensing segments remained at
levels comparable to the prior period.
Consolidated SG&A expenses as a percentage of our consolidated net
sales decreased to 61% in the 1999 period, from 86% in the 1998 period, as we
established a higher revenue base principally through our acquisitions and
revenue growth.
DEPRECIATION AND AMORTIZATION. Consolidated depreciation and
amortization expense increased $2,638,223, or 418%, to $3,268,896 for the three
months ended March 31, 1999 from $630,673 for the three months ended March 31,
1998. This increase was due to the following factors: (i) amortization charges
for goodwill and other intangible assets associated with our recent acquisitions
($2,431,000); and (ii) depreciation and
amortization charges associated with capitalized software products, internal
systems and fixed assets ($207,000).
INTEREST, NET. We earned net interest income for the three months ended
March 31, 1999 of $18,766, whereas we incurred net interest expense for the
three months ended
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March 31, 1998 of $11,958. The 1999 amount reflects greater interest earned on
invested funds due to higher average cash balances primarily due to cash
balances at Key Communications and lower interest expense on the debt issued for
the acquisition of Clinical MicroSystems, Inc.
NET LOSS. As a result of the foregoing, we recorded a net loss of
$3,690,406 for the three months ended March 31, 1999, as compared to a net loss
of $1,712,617 for the three months ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
In the three month period ended March 31, 1999, cash used in operating
activities totaled $298,908. This was primarily due to our net loss partially
offset by depreciation and amortization charges. In January 1999, we purchased
the healthcare electronic transaction processing assets of Specialized Medical
Management for $1,000,000 in cash. Additionally, we spent approximately $464,000
for fixed assets and capitalized software development costs and paid $7,800 to
retire a note payable acquired in the Key Communications acquisition. These
activities were financed through available cash resources and proceeds from the
exercise of stock options and warrants. After these expenditures, we had cash
and cash equivalents totaling $2,963,293 as of March 31, 1999.
These available funds continue to be used for operations, the further
development and marketing of our products and services, equipment and other
general corporate purposes. As a result of the acquisitions of Clinical
MicroSystems, Hayes Computer Systems, Inc. and PreScribe in 1997, we are
obligated to make certain payments in the next 12 months. These payments are as
follows: $500,000 for Clinical MicroSystems, a contingent payment of $1,000,000
for Hayes Computer Systems if certain operating criteria are achieved, and
$500,000 for PreScribe. The Clinical MicroSystems and Hayes Computer Systems
payments may be made at least 50% in cash and the balance, if any, in common
stock. In April 1999, we paid off the Clinical MicroSystems obligation by
disbursing $250,000 in cash and issuing 25,000 shares of common stock. At this
time, ProxyMed anticipates that the Hayes Computer Systems operating criteria
will be achieved, and the $1,000,000 contingent payment will be paid in June
1999. Upon payment, this cost will be allocated to the long-term assets
acquired, a substantial portion of which is in-process research and development
technology, which will be expensed. However, ProxyMed has not yet completed this
technology, and if it is determined that the technology will be abandoned, the
cost will be allocated substantially to goodwill and amortized over three years.
In addition, we are continuously evaluating acquisition opportunities and
other strategic alternatives that add synergies to our product offerings and
business strategy.
In general, we believe that the long-term effects of our various
acquisitions will be accretive to our operating results and our liquidity. For
example, the electronic transaction processing operations relating to the
acquisitions of Integrated Medical Services, US HealthData Interchange and
Specialized Medical Management are being
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merged into one location; the lab operations relating to the Clinical
MicroSystems products and the Key Communications operations are being merged
together; and the PreScribe technology is being merged with the pre-existing
prescription electronic transaction processing products. Hayes Computer Systems
will continue to be operated from its existing location as a separate segment.
While no assurances can be given that revenue synergies will occur, we expect
that there will be opportunities to increase revenues by cross-selling products
and services to the customers of the acquired entities, as well as revenue
opportunities from the development of new services from our product development
efforts. In addition, we expect to experience cost reduction synergies from the
operations that have been or are planned to be combined. These savings will
occur primarily from elimination of facilities, duplicate personnel in the areas
of network operations, management and customer service, duplicate marketing
efforts and other general and administrative costs. However, on a short-term
basis, we generally incur additional expenses resulting from our acquisitions
due to stay-pay incentives during the transition period and moving costs for
employees that are retained. We do not expect our interest costs to increase as
a result of our acquisitions, as most of the financing for the acquisitions
resulted from issuances of our equity securities, and debt carried by the
acquired entities was paid off. While amortization of goodwill and other
intangible assets from our acquisitions will not affect our future cash
outflows, we expect that such acquisition-related charges will approximate
$2,800,000 per quarter through the second quarter of 2001.
We have a revolving bank line of credit of up to $5,000,000, subject to
availability of suitable collateral, which was renewed in August 1998.
Borrowings, if any, are due on demand, collateralized by certificates of deposit
and U.S. Treasury Notes, and bear interest at the prime rate less 3/4%. There
were no outstanding borrowings on this line of credit as of March 31, 1999.
We do not have any material commitments for capital expenditures.
The ratio of current assets to current liabilities was 1.8 times at
March 31, 1999 and 2.1 times at December 31, 1998. This decrease is primarily
due to our use of cash for operations, the acquisition of Specialized Medical
Management and capital expenditures as described above. For the periods ended
March 31, 1999 and 1998, accounts receivable turnover for us was 6.7 times in
the 1999 period and is comparable to 6.6 times in the 1998 period. Our inventory
turnover was 6.2 times in the 1999 period compared to 5.6 times in the 1998
period and is attributable to higher inventory turnover at Key Communications.
We expect to continue to incur negative net cash flow from operations
until we begin receiving higher levels of revenues from our healthcare
electronic transaction processing and communication devices segment and/or from
cash generated by our network engineering services segment. Management is
committed to the strategy of investing funds in further marketing and
development of our products and services and may pursue additional acquisitions
which are deemed to be in accordance with our business strategy, both of which
may require additional equity or debt financing. As a result of these factors,
we believe that we will have to access sources of cash to continue
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to fund our operating needs, our acquisition obligations and our strategic
needs. In the recent past, we have raised cash to fund our operations and pay
for acquisitions from the private placement sales of our common stock. We
believe that we can continue to finance our short-term cash needs in this
manner. In addition, we believe that asset-based debt financing will be
available to help finance our short-term needs. Further, we believe that we may
be able to raise cash for both our short-term and long-term needs through the
public equity markets. However, there can be no assurances that any such
financing will be available under terms and conditions acceptable to us.
FUTURE OUTLOOK
We continue to grow through strategic acquisitions and concentration on
our core healthcare electronic transaction processing and communication devices
segment, our distribution channels with other healthcare entities and other
plans to increase the usage of our healthcare information technology products
and services to achieve requisite economies of scale. We have successfully
reduced our operating losses before non-cash charges. Such non-cash charges are
significant and result primarily from amortization expenses related to our
acquisitions. However, we anticipate that we will continue to incur operating
losses until we generate sufficient recurring revenues from our products and
services to cover the total of our cash and non-cash expenses. There can be no
assurance that we will realize an adequate level of recurring revenues from the
sale of our products and services, or that revenues from its operations or those
of our recently acquired businesses and any future acquisitions will ultimately
result in achievement of profitability.
YEAR 2000 COMPLIANCE
GENERAL. Many currently installed computer systems and software
products are coded to accept only two digit dates. Such systems may not be able
to distinguish 20th century dates from 21st century dates. To address these and
any other Year 2000 operational issues which may affect us, in September 1998 we
appointed a Year 2000 Committee and hired a Year 2000 project manager to review
our internal computer systems and our products and services as well as review
the progress of our principal customers, vendors and resellers.
The Committee has developed a priority order list of our products and
services and has commenced the Year 2000 project plan in accordance with this
list. Our Year 2000 project plan consists of four phases: assessment,
remediation, validation and distribution.
The primary purpose of the assessment phase is to list and analyze the
inventory of our products sold and supported. The major issues encountered
during this phase are the identification of language the software is written in,
the source code and any third-party libraries in a product. The remediation
phase is where changes to the programs and codes are actually made. The
validation phase is where the remediated products are tested and then submitted
for independent verification and validation. The distribution
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phase, specifically for proprietary products, is where the remediated products
are provided to our customers.
PRODUCTS AND SERVICES. With respect to our products and services, our
laboratory software applications have been distributed to our current customers;
our financial claims software applications are in various stages of remediation
and distribution; and our prescription software applications are in various
stages of validation and distribution. We expect that all of our software
products and our clinical and financial transaction processing networks will be
Year 2000 ready by July 1999. All new software application releases are being
prepared in accordance with our Year 2000 readiness standards.
Concurrently, we have contacted all third party vendors whose
proprietary tools and library products are incorporated into our products in
order to determine their respective Year 2000 readiness status. Certain of those
third parties have required actions to be taken by us. Such actions have been
performed in accordance with instructions provided by the vendor. If for any
reason, certain of these vendors will not be Year 2000 Ready in accordance with
our needs, we will address these issues in our Contingency Plan.
Finally, we have contacted our customers to inform them of our Year
2000 readiness status. Updates to that information are posted on our website
when necessary.
ACQUISITIONS. The Committee is also responsible for identifying Year
2000 issues that may be present in acquisition candidates, as Year 2000
compliance is a factor in determining the suitability of an acquisition. Recent
acquisitions have included representations from the sellers regarding Year 2000
compliance, so that we may have recourse in the event that unforeseen Year 2000
issues arise.
Based on representations made at time of our merger with Key
Communications, we believe that Key Communication's products and services will
operate satisfactorily in a Year 2000 environment. We have begun the assessment
phase to verify those representations. Based on procedures performed to date, we
do not expect any additional actions to be required.
Concerning our acquisition of Specialized Medical Management, we have
identified three potential Year 2000 issues. First, all of Specialized Medical
Management's customers require a software upgrade. We are in the process of
replacing their software with our Year 2000-ready products and expect that this
will be completed by May 1, 1999. Second, Specialized Medical Management's
financial transactions network is being combined with our existing financial
transactions network, which is Year 2000 compliant, by July 1999. Third, certain
financial transaction services currently provided to a certain payer will either
be remediated or we will purchase a replacement.
INTERNAL SYSTEMS, VENDORS AND SUPPLIERS. We are continuing with the
assessment phase with respect to our internal administrative systems and have
completed the assessment phase for our vendors and suppliers. Both are in
various stages of remediation. We plan to complete the Year 2000 compliance for
these areas by the end
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of the third quarter of 1999. We have contacted all of our significant clinical
and financial transaction processing partners in order to assess their Year 2000
readiness status. Again, if for any reason, certain of these vendors will not be
Year 2000 Ready in accordance with our needs, we will address these issues in
our Contingency Plan.
COSTS. Since the formation of the Year 2000 Committee in September
1998, we have spent $64,000 through April 30, 1999 primarily for personnel
costs. The total estimated budget for expenditures directly related to our Year
2000 effort is approximately $500,000. The budget includes staffing costs for
employees hired specifically to address Year 2000 issues; however, it does not
include the internal staff costs incurred or to be incurred as these costs are
considered part of the normal release structure of our products. The estimated
budget also includes hardware upgrade costs much of which would have been
incurred in our normal equipment replacement plans. As such, anticipated total
spending for the Year 2000 effort is not expected to have a significant impact
on our ongoing results of operations.
CONTINGENCY PLAN. While some "worst case scenarios" are associated with
risks outside our control (including power and communications), we have started
assessing those scenarios within our control. The Year 2000 Committee identified
the major areas of concern to be the handling of data formatting and
transmitting compliant data and our customers' usage of our software products.
To deal with some of these concerns, we have informed our financial network
users of the availability of an algorithm to allow those with non-compliant
formats to continue transmitting to payers in a Year 2000 compatible format.
During the second quarter of 1999, we will be formulating documented scenarios
for our customer service representatives to assist our hardware and software
users if they have Year 2000 related issues.
We expect that, by the fourth quarter 1999, we will have a documented
business continuity plan to cover all aspects of our customer and internal
concerns, including our products and services, alternative vendors/suppliers,
backup power sources and staffing issues to assure coverage immediately before
and after the millennium. However, due to the general uncertainty inherent in
the Year 2000 issue, there can be no assurance that all Year 2000 problems will
be foreseen and corrected on a timely basis.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This document contains "forward-looking statements" within the meaning
of the federal securities laws. These forward-looking statements include
assumptions, beliefs and opinions relating to our growth strategy based upon our
interpretation and analysis of healthcare industry trends and management's
ability to successfully develop, implement, market and sell our secure network
transaction processing services, software programs, clinical databases and
financial transaction services to physicians and other healthcare providers.
This strategy assumes that physicians will prefer "one-stop shopping" for our
products and services and that we will be able to successfully develop, acquire,
maintain and upgrade competitive clinical and financial transaction sets and
successfully integrate
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them with our existing products and services. This strategy also assumes that we
will be able to successfully develop and execute our distribution relationships,
especially with the providers of information systems to physicians under our
electronic partnership program and with medical laboratories, pharmacy chains,
independent pharmacy owners and pharmacy information system vendors. Many known
and unknown risks, uncertainties and other factors, including general economic
conditions, healthcare reform initiatives, millennium compliance issues that may
arise, and risk factors detailed from time to time in our Securities and
Exchange Commission filings, may cause these forward-looking statements to be
incorrect, and may cause actual results to be materially different from any
future results expressed or implied by these assumptions, opinions and beliefs.
We expressly disclaim any intent or obligation to update any forward-looking
statements.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ProxyMed is the defendant in a lawsuit filed April 28, 1999 in the
United States District Court, Eastern District of Virginia (Case No.
CA2-99-CV-604-A) by Advanced Health Corporation, alleging patent
infringement. The suit alleges that our PreScribe 2000/trademark/
product includes particular operating features covered by Advanced
Health's patents. We do not believe the product infringes these
patents, and we intend to vigorously oppose the lawsuit. Further, the
product in question is in development and has not been released. Thus,
in the event any infringement exists, we believe any damages assessed
are unlikely to be material. Also, the product may be redesigned if
necessary to reduce its potential for infringement.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
During the last several months, we been in discussions with a few
unrelated parties concerning various strategic alternatives to enhance
shareholder value, and have hired the investment banking firm Salomon
Smith Barney to help advise us. There can be no assurance as to whether
or when we will enter into any agreement with respect to any of these
proposals. Consummation of any transaction will be based solely on the
determination of our board of directors as to the best opportunity for
our shareholders, whether through a transaction or continuing to
execute our existing business plan.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 - Financial Data Schedule.*
*Previously filed.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROXYMED, INC.
(Registrant)
JULY 20, 1999 /S/ BENNETT MARKS
- ------------- -------------------------------------
(Date) Bennett Marks
Co-President, Chief Financial
Officer and Principal Accounting
Officer
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