UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
[ ] 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)
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)
(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
20,593,480 Shares as of November 8, 2000
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
Assets 2000 1999
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,944,868 $ 11,487,938
Accounts receivable - trade, net 4,950,408 3,298,298
Notes and other receivables 192,167 246,366
Prepaid expenses 1,362,125 363,261
Inventory 2,419,263 1,842,055
Other current assets 56,923 56,149
Net current assets of discontinued operations -- 1,719,791
------------- -------------
Total current assets 17,925,754 19,013,858
Property and equipment, net 4,546,008 4,321,943
Goodwill, net 4,604,665 9,629,115
Purchased technology, capitalized software and other intangibles, net 7,823,317 10,027,887
Other assets 516,061 477,742
Net long-term assets of discontinued operations -- 1,302,339
------------- -------------
Total assets $ 35,415,805 $ 44,772,884
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ -- $ 1,000,000
Current portion of long-term debt -- 735,788
Accounts payable and accrued expenses 4,765,781 4,263,032
Deferred revenue 524,112 435,349
------------- -------------
Total current liabilities 5,289,893 6,434,169
Long-term deferred revenue and other long-term liabilities 806,270 583,136
------------- -------------
Total liabilities 6,096,163 7,017,305
------------- -------------
Stockholders' equity:
Series B 6% Convertible preferred stock - $.01 par value
Authorized and issued 15,000 shares; outstanding 110 shares
Liquidation preference $110,000 1 150
Series C 7% Convertible preferred stock - $.01 par value
Authorized 300,000 shares; issued and outstanding 253,265 shares
Liquidation preference $25,326,500 2,533 --
Common stock - $.001 par value. Authorized 100,000,000 shares;
issued and outstanding 20,157,415 (after deducting 225,913
shares in treasury) and 18,327,402 shares, respectively 20,157 18,327
Additional paid-in capital 113,053,268 101,477,438
Accumulated deficit (83,756,317) (63,740,336)
------------- -------------
Total stockholders' equity 29,319,642 37,755,579
------------- -------------
Total liabilities and stockholders' equity $ 35,415,805 $ 44,772,884
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Services and license fees $ 4,405,793 $ 4,375,761 $ 13,306,607 $ 13,955,436
Communication devices, computer systems
and other tangible goods 4,707,862 2,676,480 11,468,851 8,387,554
------------ ------------ ------------ ------------
9,113,655 7,052,241 24,775,458 22,342,990
------------ ------------ ------------ ------------
Costs and expenses:
Cost of services and license fees 312,183 332,879 1,058,990 962,886
Cost of tangible goods 3,177,394 1,894,505 7,883,497 5,458,494
Selling, general and administrative expenses 6,363,367 6,781,798 21,113,754 19,500,475
Restructuring charges -- -- 1,415,000 --
Depreciation and amortization 3,414,857 3,301,772 9,950,480 9,700,248
------------ ------------ ------------ ------------
13,267,801 12,310,954 41,421,721 35,622,103
------------ ------------ ------------ ------------
Operating loss (4,154,146) (5,258,713) (16,646,263) (13,279,113)
Income from litigation settlement, net 688,698 -- 688,698 --
Interest income (expense), net (353,240) (22,174) (4,265,619) 12,917
------------ ------------ ------------ ------------
Loss from continuing operations (3,818,688) (5,280,887) (20,223,184) (13,266,196)
Discontinued operations:
Loss from discontinued operations -- (263,169) (303,927) (358,264)
Gain on disposal of discontinued operations -- -- 511,130 --
------------ ------------ ------------ ------------
-- (263,169) 207,203 (358,264)
------------ ------------ ------------ ------------
Net loss (3,818,688) (5,544,056) (20,015,981) (13,624,460)
Deemed dividends and other charges 992,344 -- 15,628,192 --
------------ ------------ ------------ ------------
Net loss applicable to common shareholders $ (4,811,032) $ (5,544,056) $(35,644,173) $(13,624,460)
============ ============ ============ ============
Weighted average common shares outstanding 20,012,582 18,159,063 19,226,204 17,963,929
============ ============ ============ ============
Basic and diluted net income (loss) per
share of common stock:
From continuing operations $ (0.24) $ (0.29) $ (1.86) $ (0.74)
From discontinued operations -- (0.02) 0.01 (0.02)
------------ ------------ ------------ ------------
Net loss $ (0.24) $ (0.31) $ (1.85) $ (0.76)
============ ============ ============ ============
</TABLE>
See accompanying notes.
3
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Series B Series C
Preferred stock Preferred stock Common stock
----------------- -------------------- ---------------------
Number Par Number Par Number Par
of shares value of shares value of shares value
--------- ----- --------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1999 15,000 $ 150 -- $ -- 18,327,402 $18,327
Exercise of stock options
and warrants -- -- -- -- 168,438 168
Treasury stock received
for sales of discontinued
businesses -- -- -- -- (225,913) (226)
Common stock issued
for acquired businesses -- -- -- -- 33,708 34
Common stock issued for
stock compensation award -- -- -- -- 200,000 200
Conversions of Series B
Preferred stock (1,890) (19) -- -- 1,621,936 1,622
Redemptions of Series B
Preferred stock (13,000) (130) -- -- -- --
Warrants issued to
placement agent under
advisory agreement -- -- -- -- -- --
Warrants issued to
placement agent pursuant to
Convertible Debt offering -- -- -- -- -- --
Reclassification of unaccreted
value of Put Warrants -- -- -- -- -- --
Amortization of beneficial
conversion of
Convertible Debt -- -- -- -- -- --
Conversion of Convertible
Debt into Series C
Preferred stock, net of costs -- -- 243,265 2,433 -- --
Sale of Series C Preferred stock -- -- 10,000 100 -- --
Compensatory stock options -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- 31,844 32
Other -- -- -- -- -- --
Net loss -- -- -- -- -- --
------- ----- ------- ------- ---------- -------
Balances, September 30, 2000 110 $ 1 253,265 $ 2,533 20,157,415 $20,157
======= ===== ======= ======= ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Additional Accumulated
paid-in capital deficit Total
--------------- -------------- ------------
<S> <C> <C> <C>
Balances, December 31, 1999 $101,477,438 $ (63,740,336) $ 37,755,579
Exercise of stock options
and warrants 426,581 -- 426,749
Treasury stock received
for sales of discontinued
businesses (1,929,598) -- (1,929,824)
Common stock issued
for acquired businesses 67,381 -- 67,415
Common stock issued for
stock compensation award 284,800 -- 285,000
Conversions of Series B
Preferred stock (1,603) -- --
Redemptions of Series B
Preferred stock (15,773,977) -- (15,774,107)
Warrants issued to
placement agent under
advisory agreement 1,300,000 -- 1,300,000
Warrants issued to
placement agent pursuant to
Convertible Debt offering 10,875,920 -- 10,875,920
Reclassification of unaccreted
value of Put Warrants 12,084,638 -- 12,084,638
Amortization of beneficial
conversion of
Convertible Debt 3,202,892 -- 3,202,892
Conversion of Convertible
Debt into Series C
Preferred stock, net of costs (359,673) -- (357,240)
Sale of Series C Preferred stoc 999,900 -- 1,000,000
Compensatory stock options 378,180 -- 378,180
Dividends on preferred stock (1,803) -- (1,771)
Other 22,192 -- 22,192
Net loss -- (20,015,981) (20,015,981)
------------- ------------- -------------
Balances, September 30, 2000 $ 113,053,268 $ (83,756,317) $ 29,319,642
============= ============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(20,015,981) $(13,624,460)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 10,281,155 10,467,507
Amortization of private placement related costs 4,473,975 --
Restructuring charges 1,415,000 --
Provision for doubtful accounts 318,845 192,145
Provision for obsolete inventory 180,000 110,000
Compensatory stock options and warrants
and stock compensation awards issued 1,204,847 --
Payment for non-compete agreement (200,000) --
Net gain on sales of discontinued operations (511,130)
Changes in net current assets of discontinued operations (734,577) 539,627
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts and other receivables (1,875,999) (1,471,551)
Inventory (757,208) (277,346)
Prepaid expenses (107,198) (228,305)
Accounts payable and accrued expenses (641,374) 247,502
Deferred revenue (61,237) 63,763
Other, net (32,490) (89,025)
------------ ------------
Net cash used in operating activities (7,063,372) (4,070,143)
------------ ------------
Cash flows from investing activities:
Capital expenditures (821,067) (1,994,568)
Capital expenditures of discontinued operations (230,072) (285,452)
Capitalized software (1,610,724) --
Acquisition of business, net of cash acquired -- (1,000,000)
Payments for acquisition-related costs (13,196) (1,006,060)
------------ ------------
Net cash used in investing activities (2,675,059) (4,286,080)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of convertible debt securities 21,332,299 --
Proceeds from sale of common stock -- 2,940,000
Proceeds from sale of preferred stock 1,000,000 --
Redemption of convertible preferred stock (15,774,106) --
Proceeds from exercise of stock options and warrants 426,749 241,055
Collections on notes receivable 1,636,498 --
Draw on line of credit 2,000,000 3,000,000
Repayment of line of credit (3,000,000) --
Payment of note payable, capital leases and long-term debt (426,079) (257,799)
------------ ------------
Net cash provided by financing activities 7,195,361 5,923,256
------------ ------------
Net decrease in cash (2,543,070) (2,432,967)
Cash and cash equivalents at beginning of period 11,487,938 4,626,649
------------ ------------
Cash and cash equivalents at end of period $ 8,944,868 $ 2,193,682
============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation - The accompanying unaudited condensed
consolidated financial statements of ProxyMed, Inc. and subsidiaries
("ProxyMed" or the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
disclosures required by 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 and nine months ended September
30, 2000 are not necessarily indicative of the results to be expected
for the full year. The unaudited consolidated financial statements
included herein should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the
Company's Form 10-K for the year ended December 31, 1999.
On March 31, 2000, ProxyMed sold its non-core network integration and
prescription drug dispensing segments. These two segments are shown as
discontinued operations and the consolidated financial statements and
related notes have been reclassified to segregate the net assets and
operating results of these segments (see Note 2). Certain prior period
amounts have been reclassified to conform to 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 amounts
paid 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.
(c) Net Loss Per Share - Basic loss per share of common stock is computed
by dividing net loss applicable to common shareholders by the weighted
average shares of common stock outstanding during the year. Diluted per
share results reflect the potential dilution from the exercise or
conversion of securities into common stock; however, stock options,
warrants and contingent shares totaling 36,224,839 shares and 3,549,480
shares at September 30, 2000 and 1999, respectively, as well as common
shares issuable on conversion of both Series B
6
<PAGE>
and Series C preferred stock (25,431,167 shares, if converted on
September 30, 2000) were excluded from the calculation of diluted per
share results because their effect was antidilutive.
(2) Discontinued Operations - In March 2000, ProxyMed sold its discontinued
network integration and prescription drug dispensing segments in
separate transactions. Proceeds from the sale of the network
integration segment were $3,398,000 and were paid with 208,913 shares
of ProxyMed common stock (valued at $1,776,000, the closing market
price of the common stock on the date of closing, and recorded as
treasury stock) and a note receivable of $1,622,000 due on July 31,
2000. The sale resulted in a gain of $574,000. As of September 30,
2000, all amounts due under this note receivable have been collected.
Proceeds from the sale of the prescription drug dispensing segment were
$255,000 and were paid with 17,000 shares of ProxyMed common stock
(valued at $154,000, the closing market price of the common stock on
the date of closing, and recorded as treasury stock) and a note
receivable of $101,000 payable in monthly installments over two years
and bearing interest at 9% per annum. The sale resulted in a loss of
$63,000.
The following table represents the results of discontinued operations
for the nine months ended September 30, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net revenues:
Network integration $ 2,371,758 $ 8,889,956
Prescription drug dispensing 574,665 1,610,469
----------- -----------
$ 2,946,423 $10,500,425
=========== ===========
Net income (loss):
Network integration $ (327,767) $ (263,465)
Prescription drug dispensing 23,840 (94,799)
----------- -----------
$ (303,927) $ (358,264)
=========== ===========
</TABLE>
(3) Redemption and Exchange Agreement
On December 23, 1999, the Company issued 15,000 shares of its Series B
6% Convertible Preferred Stock, par value $.01 per share (the "Series B
Preferred") and warrants to purchase 800,000 shares (the "Old
Warrants") of its common stock, par value $.001 per share, in a private
placement to institutional investors.
Due to the decline in the price of the Company's common stock below
$4.21 for a period of ten consecutive trading days in April and May
2000, certain contractual provisions were triggered which would have
permitted the holders of the Series B Preferred shares to immediately
convert the preferred shares and exercise the Old Warrants into a
potentially large number of shares of common stock. As a result, on
7
<PAGE>
May 4, 2000, the Company entered into a Redemption and Exchange
Agreement (the "Redemption Agreement") with the holders of 13,000
shares of the Series B Preferred (the "Redemption Agreement Holders").
Under the terms of the Redemption Agreement, the Company immediately
redeemed 4,000 shares of the Series B Preferred for $4,687,000 (a 16.5%
premium) and was required to redeem an additional 2,500 shares of the
Series B Preferred on each of June 19, 2000, August 1, 2000, and August
31, 2000, and an additional 1,500 shares of the Series B Preferred on
September 29, 2000. So long as the Company remained in compliance with
the terms of the Redemption Agreement, the Redemption Agreement Holders
were prohibited from converting their shares of Series B Preferred into
shares of common stock. As a result of the completion of a private
placement financing of convertible securities (see Note 4), the Company
was able to redeem the remaining 9,000 shares of the Series B Preferred
in June 2000 for $10,636,000. The total premium of $2,170,000 paid on
the redemption of the 13,000 shares of Series B Preferred, in addition
to $728,000 of unamortized original issuance costs of the Series B
Preferred, was recorded as dividend charges included in the net loss
applicable to common stockholders in the quarter ended June 30, 2000.
Also pursuant to the Redemption Agreement, 693,333 of the Old Warrants
(with an exercise price of $12.05 per share) issued to the Redemption
Agreement Holders were exchanged for an equal number of warrants (the
"Exchanged Warrants") with an exercise price of $1.50 per share. Such
holders also received, in the aggregate, 650,000 additional warrants to
purchase common stock (the "New Warrants") at an exercise price of
$1.50 per share. The total value of the Exchanged Warrants and New
Warrants of approximately $1,325,000 was included as dividend charges
in the net loss applicable to common stockholders for the quarter ended
June 30, 2000. The Exchanged Warrants expire on December 23, 2002 and
the New Warrants expire on May 5, 2003. The exercise price and number
of shares of common stock which may be purchased upon exercise of the
Exchanged Warrants and the New Warrants are subject to adjustment upon
the occurrence of certain dilution events including, without
limitation, certain issuances of common stock, stock options or
convertible securities issued after November 2000, or certain corporate
transactions such as stock splits, mergers or asset sales. Subject to
certain restrictions, the holders of the Exchanged Warrants and the New
Warrants agreed not to exercise such warrants for a period of 180 days
following the date of the Redemption Agreement. The Company incurred
approximately $451,000 in costs for professional fees related to the
negotiation of the Redemption Agreement which were recorded as dividend
charges included in the net loss applicable to common stockholders in
the quarter ended June 30, 2000.
Additionally, under the terms of the Redemption Agreement, the Company
has agreed to pay the Redemption Agreement Holders the aggregate amount
of $4,333,333 if there is a change of control of the Company on or
before December 23, 2002.
The Company has not entered into an agreement to redeem the shares of
Series B Preferred held by the holder of 2,000 shares of the Series B
Preferred (the "Remaining Holder"). To date, the Remaining Holder has
converted 1,890 shares of the Series B
8
<PAGE>
Preferred into an aggregate of 1,621,936 shares of common stock, and
110 shares of Series B Preferred remain outstanding. In addition, as a
result of certain anti-dilution provisions, 106,667 Old Warrants issued
to the Remaining Holder at an exercise price of $12.05 have been
converted into 1,285,337 warrants with an exercise price of $1.00 per
share.
(4) Issuance of Securities
On May 8, 2000, ProxyMed entered into a one-year advisory agreement
with Commonwealth Associates, L.P. ("Commonwealth") to assist the
Company in performing certain financial advisory services including the
sale of securities and the possible sale, merger, or other business
combination involving the Company. Pursuant to this agreement, the
Company paid to Commonwealth a cash fee of $250,000 and issued to
Commonwealth a five-year warrant to purchase 1,000,000 shares of common
stock at an exercise price of $1.00 per share (valued at $1,300,000).
These costs are being amortized over a one-year period through April
2001.
In June 2000, the Company sold, in a private placement to institutional
and individual investors (the "Financing"), a total of $24,310,000 of
7% Convertible Senior Secured Notes (the "Notes") due January 1, 2001.
Together with the Notes, the Company issued five-year warrants for the
purchase of an aggregate of 12,155,000 shares of the Company's common
stock at an exercise price of $1.00 per share. The total net proceeds
received by the Company from the Financing was approximately
$21,332,000. Under different circumstances the Notes were convertible
into either common stock at a conversion price of $1.00 per share, or
into shares of the Company's Series C 7% Convertible Preferred Stock
(the "Series C Preferred") at the rate of one Series C Preferred share
for each $100 of principal and accrued interest under the Notes. As
described below, all of the Notes have been converted into shares of
Series C Preferred. The conversion price of the Series C Preferred, the
warrant exercise price, and number of shares of common stock issuable
upon exercise of the warrants are subject to adjustment upon the
occurrence of certain dilution events including, without limitation,
certain issuances of common stock, stock options or convertible
securities issued after June 2001, or certain corporate transactions
such as stock splits, mergers or asset sales. As the conversion price
of the Notes was less than the market price of the Company's common
stock on the dates of issuance, the Company recorded a beneficial
conversion charge in interest expense of approximately $3,203,000. The
total proceeds were allocated between the debt and the warrants
resulting in an accretion charge through interest expense of
approximately $260,000 recorded in the quarter ended June 30, 2000.
The warrants issued to the investors in the Financing provided that
they were not exercisable until such time as the Company had obtained
shareholder approval of a certain increase in the number of shares of
its authorized common stock (see Note 8). However, since the investors
agreed to accept a $2.00 per warrant redemption price as protection in
case shareholder approval did not occur before January 1, 2001, the
value of these "put" warrants was accreted up to their redemption value
through July 7,
9
<PAGE>
2000, the date shareholder approval was obtained, at which time the
unaccreted value of $12,084,638 was reclassified from debt to equity.
Charges of approximately $259,000 and $481,000 associated with
accreting the put warrants up to their redemption value were recorded
as interest expense in the quarters ended June 30, and September 30,
2000, respectively.
As a result of completion of the redemption of the Series B Preferred
pursuant to the Redemption Agreement, the Notes, plus accrued interest
thereon of $20,000, automatically converted into 243,265 shares of
Series C Preferred on June 30, 2000. Shares of Series C Preferred are
immediately convertible into common stock at any time by the holder at
an initial conversion price of $1.00 per share, subject to adjustment
upon the occurrence of certain dilution events including, without
limitation, certain issuances of common stock, stock options or
convertible securities issued after June 15, 2001, or certain corporate
transactions such as stock splits, mergers or asset sales. Shares of
Series C Preferred are mandatorily convertible if the Company raises
more than $30 million in gross proceeds from the issuance of securities
in a private or public placement or if the closing stock price of the
Company is trading at $3.00 for 20 consecutive trading days. The Series
C Preferred is entitled to receive a 7% annual non-cumulative dividend,
payable quarterly in cash or shares of common stock at the Company's
option. If paid in stock, the stock is valued at $1.00 per share,
subject to adjustment. Dividends on the Series C Preferred for the
quarter ended September 30, 2000 were paid with 436,065 shares of
common stock issued in October 2000. Additionally, upon the conversion
of the Notes to Series C Preferred, the unamortized balance of the
beneficial conversion feature of $9,762,741 was taken as a charge
included in the net loss applicable to common stockholders in the
quarter ended June 30, 2000.
Commonwealth represented the Company as private placement agent in the
transaction for which it received cash fees of $2,431,000 and five-year
warrants to purchase 7,293,000 shares of the Company's common stock at
an exercise price of $1.00 per share (valued at $10,876,000). Other
costs of the transaction aggregated approximately $547,000.
Costs of $13,854,000 incurred in the Financing have been capitalized
and are being amortized through the original maturity date of the
Notes. Of this amount, $268,000 has been charged to interest expense.
However, due to the conversion of the Notes to Series C Preferred on
June 30, 2000, the unamortized financing costs of $13,585,000, and the
unaccreted value of the debt of $12,704,580, were reclassified to
equity.
The Company is required to register with the Securities and Exchange
Commission the underlying common shares by December 16, 2000. The
investors in this transaction have agreed to a one-year lock-up on the
transfer or sale of any shares of common stock received upon conversion
of the Series C Preferred shares and exercise of the warrants issued.
Additionally, Commonwealth has agreed to a 15-month lockup on the sale
or transfer of the shares of common stock underlying the warrants
issued in connection with this financing and certain officers of the
Company have also agreed to a similar lockup on all common stock owned
or acquired during the
10
<PAGE>
15-month period. At the discretion of Commonwealth, lockup periods for
all parties can be extended for a period of up to an additional 12
months or may be terminated early. Furthermore, as part of the
financing, the size of ProxyMed's board of directors was required to be
increased including the appointment of four new members, two of which
were appointed by the investors and the other two by Commonwealth. On
July 20, 2000, one existing director resigned and five new directors
were appointed to serve with the remaining three directors.
In August 2000, the Company sold 10,000 shares of Series C Preferred
for $1 million in a private placement and issued five-year warrants for
the purchase of 500,000 shares of the Company's common stock at an
exercise price of $1.00 per share to Mr. Hoover, its new chairman/chief
executive officer, under terms substantially identical to the
Financing. Mr. Hoover's shares are locked-up similarly to those of
other officers of the Company, as noted above. As the conversion price
of these preferred shares was less than the market price of the
Company's common stock on the date of issuance, the Company recorded a
beneficial conversion charge of $500,000 in the three months ended
September 30, 2000.
(5) Restructuring Charge
In May 2000, the Company announced a reorganization plan aimed at
reducing costs and reallocating resources. As a result, the Company
reduced its workforce by approximately 70 employees, including the
resignation of its chief executive officer, president/chief operating
officer, chief financial officer, chief marketing officer and other
management positions. The Company recorded a charge of $1,415,000 in
the quarter ended June 30, 2000 primarily for separation payments and
marketing and telecommunication contracts that were canceled in
connection with the implementation of the reorganization plan. As of
September 30, 2000, $734,000 of this restructuring charge has been
paid. In conjunction with this restructuring, the Company also paid
$200,000 to its former president/chief operating officer under the
non-compete clause of his employment contract. This payment has been
recorded as a prepaid expense and is being amortized over a one year
period through May 2001.
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<PAGE>
(6) Segment Information - ProxyMed operates in the following reportable
segments which are separately managed: electronic healthcare
transaction processing and laboratory communication devices.
Intersegment sales are not material and there were no foreign sales for
any periods presented.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Electronic healthcare transaction processing $ 2,305,012 $ 2,464,104 $ 7,095,723 $ 7,890,505
Laboratory communication devices 6,808,643 4,588,137 17,679,735 14,452,485
----------- ----------- ------------ ------------
$ 9,113,655 $ 7,052,241 $ 24,775,458 $ 22,342,990
=========== =========== ============ ============
Operating income (loss):
Electronic healthcare transaction processing $(5,776,699) $(5,285,924) $(18,427,298) $(14,603,399)
Laboratory communication devices 1,622,553 27,211 3,196,035 1,324,286
Restructuring charges - - (1,415,000) -
----------- ----------- ------------ ------------
$(4,154,146) $(5,258,713) $(16,646,263) $(13,279,113)
=========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
September 30,
----------------------------
Total assets: 2000 1999
----------- -----------
<S> <C> <C>
Electronic healthcare transaction processing $24,481,113 $29,948,279
Laboratory communication devices 10,934,692 6,409,887
----------- -----------
$35,415,805 $36,358,166
=========== ===========
</TABLE>
12
<PAGE>
(7) Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Common stock issued for payment of preferred stock dividends $ 223,770 $ --
=========== ===========
Acquisition of business:
Common stock and warrants issued for business acquired $ -- $ 181,563
Other acquisition costs accrued -- 174,000
Details of acquisition:
Working capital components, other than cash -- (206,408)
Property and equipment -- (38,546)
Goodwill -- (999,549)
Other intangible assets -- (111,060)
----------- -----------
Net cash used in acquisition $ -- $(1,000,000)
=========== ===========
Disposition of businesses:
Common stock received $(1,929,823) $ --
Notes and other receivables received (1,723,125) --
Net gain recognized 511,130
Details of dispositions:
Working capital components, other than cash 1,940,081 --
Property and equipment 1,070,926 --
Goodwill 109,658 --
Other assets 21,153 --
----------- -----------
Net cash provided by dispositions $ -- $ --
=========== ===========
</TABLE>
As of September 2000, the Company acquired $504,653 of equipment through the
execution of capital leases.
(8) Other
(a) Related Party Transaction - In April 1997, the Company made loans
totaling $350,000 to Mr. Blue, its former chairman of the board and
chief executive officer. The funds were advanced pursuant to two demand
promissory notes in the principal amounts of $290,000 and $60,000,
respectively, each bearing interest at a rate of 7-3/4% per annum. In
June 2000, the Company amended the terms of these notes whereby
interest on the notes ceased to accrue subsequent to June 2000 and the
loan plus accrued interest, totaling $435,983 at June 30, 2000, would
be payable in a balloon payment in December 2001. The loans are
collateralized with options to purchase 550,000 shares of common stock
granted to him under the Company's stock option plans.
Additionally, in August 2000, the Company entered into a consulting
agreement with Mr. Blue which commenced upon the appointment of a new
chief executive officer. Under the terms of this agreement, the
chairman will provide consulting services to the Company for a period
of one year and will receive consulting fees
13
<PAGE>
in an amount equal to his current annual base salary in lieu of any
separation payments and other benefits he would have been entitled to
receive under his employment agreement.
(b) Debt payment - In April 2000, the Company paid the third and final debt
payment to the former owner of Clinical MicroSystems, Inc., which was
acquired by the Company in March 1997. The $750,000 payment was paid
with $375,000 in cash and 33,708 shares of common stock. The number of
shares of common stock issued was based on a price of $11.12 per share
(as determined by the purchase agreement). However, at the time of the
actual payment, the price of the stock had fallen to $2.00 per share.
Therefore, due to this drop in the stock price, the Company reduced the
remaining goodwill and other intangible assets related to this
acquisition to zero (total of $212,230) and recorded the excess as a
reduction of amortization expense ($95,356) in the quarter ended June
30, 2000.
(c) Employment agreements - The Company has entered into three-year
employment agreements with its new chairman/chief executive officer,
new chief operating officer, and chief financial officer with
compensation for up to nine months and the vesting of all options
granted if terminated under certain conditions. As part of the
employment agreement with the Company's new chairman/chief executive
officer, 200,000 shares of common stock were issued resulting in a
compensation charge of $285,000 in the quarter ended September 30,
2000. Under separate stock option agreements entered into concurrently
with their employment agreements, the new chairman/chief executive
officer and chief operating officer received non-qualified options to
purchase 5,000,000 shares of common stock at $1.50 per share and
650,000 shares of common stock at $1.00, respectively. The options vest
equally on each of the first, second and third anniversary dates of the
respective option agreements.
(d) Settlement of litigation - In September 2000, the Company received an
out-of-court settlement for a matter of approximately $689,000, net of
legal and other costs. This settlement has been recorded as other
income in the three months ended September 30, 2000.
(e) Other - At ProxyMed's annual meeting held on July 7, 2000, the
shareholders of the Company ratified and/or approved (i) the amendment
of the articles of incorporation to increase the number of authorized
shares of common stock from 50,000,000 to 100,000,000, (ii) the
issuance of up to 50,000,000 shares of common stock and securities
convertible into or exercisable for common stock in connection with the
Financing; (iii) the issuance of the 15,000 shares of Series B
Preferred and related 800,000 Old Warrants, the issuance of common
stock upon the conversion of the Series B Preferred, exercise of the
800,000 Old Warrants, and the payment of dividends of the Series B
Preferred, the issuance of the 650,000 New Warrants in connection with
the Redemption Agreement, and the issuance of common stock upon the
exercise of the New Warrants issued in connection with the Redemption
Agreement; and (iv) the Company's 2000 Stock Option Plan and 2000-1/2
Stock Option Plan pursuant to which options to
14
<PAGE>
purchase 300,000 and 3,000,000 shares of common stock may be issued,
respectively. The shareholders also elected four members to the
Company's Board of Directors.
In September 2000, the Company's Board of Directors approved the
issuance of options for the six independent directors to purchase
1,400,000 shares of the Company's common stock at an exercise price as
of the approval date of $1.22 per share. Of these options granted,
466,667 have been issued under existing stock option plans previously
approved by the Company's shareholders and will vest after one year.
The remaining 933,333 options have been granted outside of any approved
plan and are subject to approval of a stock option plan by the
shareholders at the next annual meeting. These remaining options will
vest equally on the second and third anniversary dates of the date of
grant at an exercise price of $1.22 per share. As a result, the Company
is potentially subject to quarterly charges against earnings for
increases in the value of the 933,333 options, based on the ending
quarterly stock price of ProxyMed common stock in relation to the
exercise price of $1.22, until such grants are approved under a new
plan at its next annual meeting of shareholders.
15
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
ProxyMed is an electronic healthcare transaction processing services
company providing connectivity services and related value-add products to
physicians, payers, pharmacies, medical laboratories, and other healthcare
providers and suppliers. Our electronic transaction processing services support
a broad range of both financial and clinical transactions. To facilitate these
services, we operate ProxyNet(R), our secure, proprietary national electronic
information network, which provides physicians and other primary care providers
with direct connectivity to one of the industry's largest list of payers, the
largest list of chain and independent pharmacies and the largest list of
clinical laboratories. Our products and services are provided from our three
operating facilities located in Fort Lauderdale, Florida; Santa Ana, California;
and New Albany, Indiana.
In March 2000, we sold our non-core network integration and
prescription drug dispensing segments. These two segments are shown as
discontinued operations in the consolidated financial statements.
In May 2000, a number of factors, including a weak Nasdaq stock market,
particularly in the eHealth segment, and sales into the market of a significant
number of shares of our common stock resulting from margin calls against our
largest shareholder, contributed to the decline in the price of our common stock
below $4.21 for a period of ten consecutive trading days in April and May 2000.
Certain contractual provisions were triggered which would have permitted our
Series B Preferred shareholders to convert their preferred shares and exercise
their warrants into a significant number of shares of common stock. As a result,
we entered into a Redemption and Exchange Agreement with holders of 13,000 of
the 15,000 shares of the Series B Preferred stock. In order for us to comply
with the terms of the Redemption and Exchange Agreement and continue to fund our
operating requirements, we were required to raise additional capital, and in
June 2000, we sold, in a private placement to institutional and individual
investors, a total of $24,310,000 of convertible debt securities and issued
five-year warrants for the purchase of an aggregate of 20,448,000 shares of the
Company's common stock at an exercise price of $1.00 per share to the investors
and the placement agent, resulting in net proceeds to us of approximately
$21,332,000. On June 30, 2000, upon the completion of the redemption of the
13,000 Series B Preferred, the convertible debt automatically converted into
Series C Preferred shares. See Notes 3 and 4 to the consolidated financial
statements for further details concerning these transactions.
Additionally, in May 2000, in an effort to reduce our operating costs,
we announced a reorganization aimed at reducing costs and reallocating
resources. As a result, we reduced our workforce, including the resignation of
our chief executive officer, president/chief operating officer, chief financial
officer, chief marketing officer, and other management positions. In August
2000, our chairman/interim chief executive officer became vice-
16
<PAGE>
chairman and we have subsequently hired a new chairman/chief executive officer
and new chief operating officer.
Results of Operations
Three Months Ended September 30, 2000 Compared to Three Months Ended
September 30, 1999
Net Revenues. Consolidated net revenues for the three months ended
September 30, 2000 increased by $2,061,414, or 29%, to $9,113,655 from
consolidated net revenues of $7,052,241 for the three months ended September 30,
1999. This net increase is primarily due to volume increases in our laboratory
communication device operations and eHealth operations (increases of $2,221,000
and $260,000, respectively) offset by lower volume and lower average per unit
revenues in financial claims transactions processed (decrease of $419,000).
Cost of Sales and Gross Profit Margin. Cost of services and license
fees include third-party electronic transaction processing costs, certain
telecommunication costs, third-party databases, and certain labor and travel
costs. Cost of sales for communication devices, computer systems and other
tangible goods includes hardware, third-party software, direct labor and
consumable materials. Consolidated gross profit margin for the three months
ended September 30, 2000 was 62% compared to 68% for the three months ended
September 30, 1999. This decrease was primarily due to a change in the mix of
revenues generated by our laboratory communication device operations from higher
margin leasing of communication devices to lower margin sales and servicing of
these devices and contract manufacturing.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the three months ended September 30,
2000 decreased by $418,431, or 6%, to $6,363,367 from consolidated SG&A expenses
of $6,781,798 for the three months ended September 30, 1999. This decrease is
primarily due to (i) expenses related to the issuance of compensatory options
and warrants and other stock compensation awards to outside consultants and our
new chairman/chief executive officer in the 2000 period ($835,000); offset by
(ii) decreases in selling and marketing expenses for our products and services
($369,000), and (iii) decreases in net payroll, outside labor and related
expenses (net of capitalization for software development) due to the effect of
our restructuring plan which commenced in May 2000 ($935,000). As a result of
these factors, the impact of our restructuring in May 2000, and the attainment
of the reported quarterly revenue levels in the 2000 period, consolidated SG&A
expenses as a percentage of consolidated net sales was 70% in the 2000 period
compared to 96% in the 1999 period.
Interest, net. We incurred net interest expense for the three months
ended September 30, 2000 of $353,240 compared to $22,174 for the three months
ended September 30, 1999. This increase is primarily the result of the
amortization of costs from our private placement of convertible debt securities
completed in June 2000
17
<PAGE>
($480,000) offset by additional interest earned on higher cash balances invested
($101,000).
Income from litigation settlement, net. In September 2000, we settled a
matter out-of-court which resulted in income of $688,698, net of legal and other
costs.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $4,154,146 for the three months ended September
30, 2000 compared to $5,258,713 for the three months ended September 30, 1999.
Deemed Dividends and Other Charges. We incurred charges of $992,344 in
the three months ended September 30, 2000 primarily from the beneficial
conversion feature resulting from the conversion price of the preferred stock
being less than the market price of our common stock on the date of issuance for
the private placement of $1 million of Series C 7% Preferred stock in August
2000 to our new chairman/chief executive officer ($500,000) and quarterly
dividends to our Series C Preferred shareholders ($491,000).
Net Loss Applicable to Common Shareholders. As a result of the
foregoing, we recorded a net loss applicable to common shareholders of
$4,811,032 for the three months ended September 30, 2000 compared to $5,544,056
for the three months ended September 30, 1999.
Nine Months Ended September 30, 2000 Compared to Nine Months Ended
September 30, 1999
Net Revenues. Consolidated net revenues for the nine months ended
September 30, 2000 increased by $2,432,468, or 11%, to $24,775,458 from
consolidated net revenues of $22,342,990 for the nine months ended September 30,
1999. This net increase is primarily due to volume increases in our laboratory
communication device operations and eHealth operations (increases of $3,227,000
and $544,000, respectively) offset by volume and average per unit revenue
decreases in financial claims transactions processed (decrease of $914,000) and
a one-time source code license sale in the 1999 period (decrease of $425,000).
Cost of Sales and Gross Profit Margin. Cost of services and license
fees includes third-party electronic transaction processing costs, certain
telecommunication costs, third-party databases, and certain labor and travel
costs. Cost of sales for communication devices, computer systems and other
tangible goods includes hardware, third-party software, direct labor and
consumable materials. Consolidated gross profit margin for the nine months ended
September 30, 2000 was 64% compared to 71% for the nine months ended September
30, 1999. This decrease was primarily due to a change in the mix of revenues
generated by our laboratory communication device operations from higher margin
leasing of communication devices to lower margin sales and servicing of these
devices and contract manufacturing and the impact of the high margin, one-time
source code license sale in the 1999 period.
18
<PAGE>
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the nine months ended September 30, 2000
increased by $1,613,279, or 8%, to $21,113,754 from consolidated SG&A expenses
of $19,500,475 for the nine months ended September 30, 1999. This increase is
primarily due to (i) expenses related to the issuance of compensatory options
and warrants and other stock compensation awards to outside consultants and our
new chairman/chief executive officer in the 2000 period ($1,205,000); (ii)
increases in professional fees for legal and consulting projects ($204,000);
(iii) increases in selling and marketing expenses for our products and services
($318,000); (iv) increases in our provision for bad debts ($199,000); offset by
(iv) decreases in net payroll, outside labor and related expenses (net of
capitalization for software development) due to the effect of our restructuring
plan which commenced in May 2000 and higher amounts capitalized in the 2000
period for proxyMed.com ($299,000). As a result of these factors and our
restructuring plan we implemented in May 2000, consolidated SG&A expenses as a
percentage of consolidated net sales decreased to 85% in the 2000 period from
87% in the 1999 period.
Restructuring Charges. In May 2000, we announced a reorganization plan
aimed at reducing costs and reallocating resources. As a result, we reduced our
workforce by approximately 70 employees, including the resignation of our chief
executive officer, president/chief operating officer, chief financial officer,
chief marketing officer, and other management positions. For this plan, we
recorded a charge of $1,415,000 in the nine months ended September 30, 2000
primarily for severance payments and marketing and termination fees due under
telecommunication contracts that were canceled. We estimate that our annual
expenses will be reduced by approximately $8.0 million under this plan.
Depreciation and Amortization. Consolidated depreciation and
amortization expense increased $250,232, or 3%, to $9,950,480 for the nine
months ended September 30, 2000 from $9,700,248 for the nine months ended
September 30, 1999. This net increase was primarily due to the (i) commencement
of the amortization of our proxyMed.com development projects in June 2000
($231,000); (ii) additional computer hardware and peripherals purchased for our
computer networks and additional personnel and new manufacturing equipment at
our laboratory printer device operations ($172,000); (iii) amortization of a
non-compete agreement with our former president/chief operating officer
($67,000); offset by (iv) an adjustment to amortization expense related to the
final debt payment paid in April 2000 for the acquisition of Clinical
MicroSystems, which we acquired in March 1997 ($95,000); and (v) the termination
of the exclusivity period related to our 1997 acquisition of PreScribe(R)
(decrease of $125,000).
Interest, net. We incurred net interest expense for the nine months
ended September 30, 2000 of $4,265,619, whereas we earned net interest income
for the nine months ended September 30, 1999 of $12,917. The current period
amount reflects charges related to the amortization of costs from our private
placement of convertible debt securities completed in June 2000, including
approximately $3,203,000 for a beneficial conversion charge resulting from the
conversion price of the convertible debt being less than the market price of our
stock on the dates of issuance offset by additional interest income of
approximately $261,000 earned on higher cash balances invested.
19
<PAGE>
Income from litigation settlement, net. In September 2000, we settled a
matter out-of-court which resulted in income of $688,698, net of legal and other
costs.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $20,223,184 for the nine months ended September
30, 2000 compared to a loss from continuing operations of $13,266,196 for the
nine months ended September 30, 1999.
Discontinued Operations. As a result of selling both the network
integration and prescription drug dispensing segments in the first quarter of
2000 for total proceeds of $3,652,942, we recorded a net gain of $511,130. The
loss from the operations of our discontinued network integration and
prescription drug dispensing segments was $303,927 in the nine months ended
September 30, 2000 compared to $358,264 in the nine months ended September 30,
1999.
Revenues from the network integration segment were $2,371,758 in the
nine months ended September 30, 2000 compared to $8,889,956 in the nine months
ended September 30, 1999. The net loss for this segment was $327,767 in the 2000
period compared to $263,465 in the 1999 period.
Revenues from the prescription drug dispensing segment were $574,665 in
the nine months ended September 30, 2000 compared to $1,610,469 in the nine
months ended September 30, 1999. Net income for this segment was $23,840 in the
2000 period compared to a net loss of $94,799 in the 1999 period.
Deemed Dividends and Other Charges. As a result of the Redemption and
Exchange Agreement entered into in May 2000 with the holders of 13,000 of the
15,000 Series B Preferred stock issued in December 1999 and the private
placement of convertible debt securities in June 2000, we incurred charges of
$14,412,078 in the nine months ended September 30, 2000 consisting of the
following: (i) the unamortized beneficial conversion feature of the debt upon
the conversion to the new Series C Preferred stock ($9,763,000), (ii) the
premiums paid on the redemption of the Series B Preferred shares ($2,898,000),
(iii) the repricing of existing warrants ($610,000), (iv) the issuance of new
warrants ($715,000), and (v) professional and other fees ($451,000). In August
2000, we incurred a charge of $500,000 from a beneficial conversion feature
resulting from the private placement of $1 million of Series C Preferred stock
to our new chairman/chief executive officer ($500,000). Additionally, for the
nine months ended September 30, 2000, we paid dividends totaling $225,429 to the
holders of the Series B Preferred stock by issuing 29,278 shares of our common
stock and with cash payments of $1,659, and paid dividends totaling $490,685 to
the holders of the Series C Preferred stock by issuing 436,065 shares of our
common stock in October 2000.
Net Loss Applicable to Common Shareholders. As a result of the
foregoing, we recorded a net loss applicable to common shareholders of
$35,644,173 for the nine months ended September 30, 2000 compared to $13,624,460
for the nine months ended September 30, 1999.
20
<PAGE>
Liquidity and Capital Resources
In the nine-month period ended September 30, 2000, cash used in
operating activities totaled $7,063,372. This was primarily due to our net loss
partially offset by depreciation and amortization charges, restructuring
charges, non-cash compensatory stock option, warrant and other stock
compensation awards, and non-cash charges related to the redemption of the
Series B Preferred stock and the private placement sale of convertible
securities in June 2000. During the nine month period ended September 30, 2000,
we paid approximately $15,774,000 to redeem 13,000 shares of Series B Preferred
stock under the Redemption and Exchange Agreement, paid in full our outstanding
line of credit with Transamerica of $3,000,000, spent $2,662,000 for fixed
assets and capitalized software development costs, and issued 31,844 shares of
common stock to holders of Series B Preferred stock as dividends. These
activities were financed through the private placements of $25,310,000 in
convertible securities (resulting in net proceeds to us of $22,332,000), the
collection of notes receivables from our sale of discontinued operations
($1,636,000), the collection of a litigation settlement ($689,000, net of
expenses), proceeds from the exercise of stock options ($427,000), capital lease
financing ($505,000), and available cash resources. After these proceeds and
expenditures, we had cash and cash equivalents totaling $8,944,868 as of
September 30, 2000.
These available funds continue to be used for operations, the further
development of our products and services, and other general corporate purposes.
As a result of the completed sales of our network integration and prescription
drug dispensing segments in March 2000, we received payments of approximately
$1,636,000 through September 30, 2000 under the notes issued to us by the
purchasers of these businesses. Additionally, as a result of acquisitions made
in 1997 and 1998, we paid (i) approximately $330,000 in April 2000 for the final
assessment of a tax audit at Key Communications Services, Inc.; (ii) $750,000 in
April 2000 to the former owner of Clinical MicroSystems with $375,000 in cash
and 33,708 shares of common stock; and (iii) $500,000 in June 2000 to the former
owner of our PreScribe(R) software system. We are continuously evaluating
acquisition opportunities and other strategic alternatives that may add
synergies to our product offerings and business strategy.
In May 2000, we announced a reorganization plan aimed at reducing costs
and reallocating resources. As a result, we reduced our workforce by
approximately 70 employees, including the resignation of our chief executive
officer, president/chief operating officer, chief financial officer, chief
marketing officer, and other management positions as well as sales, marketing
and implementation staff. We estimate that our annual expenses will be reduced
by approximately $8.0 million under this plan, and during the third quarter of
2000, we have seen the expected expense reduction results of this plan. Our
previous chairman/interim chief executive officer has become our vice-chairman
and we have since appointed a new chairman/chief executive officer and a new
chief operations officer.
We had been aggressively implementing our strategic plan which
concentrated on providing a one-stop solution for physicians and empowering them
with internet-enabled tools as desktop solutions. As a result of our
reassessment of our business plan, our new
21
<PAGE>
strategy is now more narrowly focused on leveraging our leading position as an
independent back-end connectivity provider rather than developing products and
services for the physician's desktop. Through strategic relationships and
partnerships with front-end solutions providers, our goal is to drive more
healthcare transactions through ProxyNet while remaining neutral in the battle
for the physician's desktop. Additionally, since we do have an existing customer
base of physicians and other healthcare providers, we expect that there will be
opportunities to increase revenues by cross-selling our existing products and
services to these current customers, as well as revenue opportunities from the
development of new services from our development efforts, including
proxyMed.com, our healthcare internet portal, and our hand-held prescription
device. We remain committed to developing additional capabilities and
value-added products and services to our back-end connectivity and to
proxyMed.com. As a result, we did not significantly reduce our development
workforce in our restructuring plan.
In June 2000, we paid in full our accounts receivable-based revolving
line of credit which had an outstanding balance of $3,000,000. The creditor did
not renew this line of credit and we have not entered into any other line of
credit arrangement at this time. We have not yet determined if we will pursue
another similar arrangement; however, if we are successful in securing such an
arrangement, the terms may differ significantly from our prior arrangement.
At the current time, we do not have any material commitments for
capital expenditures.
If we are able to continue to increase revenues and control our
expenses, we will achieve our goal of being cash flow break-even by the end of
2000. While we believe that we have sufficient cash and cash equivalents on hand
to fund our future operational capital requirements based on our current level
of revenues and expenditures, we may need to raise funds through the issuance of
additional equity or debt in the public or private capital markets in order to
fund specific research and development projects or pursue additional strategic
acquisitions. Our ability to raise any additional funds may be adversely
affected if, among other things, we do not continue to improve our operating
performance or achieve increased market acceptance of our products and services.
There can be no assurance that any additional funding will be available to us,
or if available, that it will be available on acceptable terms. If we are
successful in obtaining additional financing, the terms of the financing may
have the effect of significantly diluting or adversely affecting the holdings or
the rights of the holders of our common stock. We believe that if we are not
successful in obtaining additional financing for further product development or
strategic acquisitions, such inability could impact our ability to successfully
advance our business plan and may put us at a competitive disadvantage.
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
This document contains forward-looking statements that reflect the
Company's current expectations regarding future events, including, without
limitation, statements regarding the level of expenses expected to be incurred
by the Company in the future, the
22
<PAGE>
Company's ability to fund its future capital requirements, and opportunities for
increasing revenues. While these statements reflect the Company's best current
judgment, they are subject to risks and uncertainties that could cause such
statements to prove to be incorrect and cause actual results to differ
significantly from projected results, including, without limitation, risks and
uncertainties relating to: ProxyMed's ability to improve its operating
performance, increase revenues and maintain its expenses within estimated
ranges; ProxyMed's ability to achieve increased market acceptance of its
products and services; ProxyMed's ability to secure additional funding sources,
if needed; and the validity of ProxyMed's assumptions, beliefs and opinions
relating to ProxyMed's growth strategy based upon ProxyMed's interpretation and
analysis of healthcare industry trends and management's ability to successfully
develop, market, sell and implement its e-commerce solutions, clinical and
financial e-transaction services and software applications and internet
strategies to physicians, pharmacies, laboratories, and payers. These factors
and other risk factors are more fully discussed in the Company's filings with
the Securities and Exchange Commission. ProxyMed expressly disclaims any intent
or obligation to update any forward-looking statements.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Not Applicable.
23
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) On August 18, 2000, the Company sold in a private placement
for $1 million to its new chairman/chief executive officer
10,000 shares of Series C 7% Convertible Preferred stock and
warrants to purchase 500,000 shares of its common stock at an
exercise price of $1.00 per share. Proceeds of this
transaction were used for general working capital purposes.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 - Financial Data Schedule.
99.1 - Employment Agreement dated July 28, 2000 between
Michael K. Hoover and ProxyMed, Inc.
99.2 - Employment Agreement dated September 29, 2000 between
Judson E. Schmid and ProxyMed, Inc.
99.3 - Employment Agreement dated October 2, 2000 between
Nancy J. Ham and ProxyMed, Inc.
99.4 - Press Release dated August 15, 2000 announcing
appointment of Michael K. Hoover as Chief Executive
Officer and Chairman of the Board.
(b) Reports on Form 8-K:
- No reports on Form 8-K were filed during the quarter
ended September 30, 2000
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ProxyMed, Inc.
(Registrant)
November 13, 2000 /s/ Judson E. Schmid
----------------- --------------------------------------------
(Date) Judson E. Schmid
Executive Vice-President and
Chief Financial Officer
25
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 - Financial Data Schedule.
99.1 - Employment Agreement dated July 28, 2000 between
Michael K. Hoover and ProxyMed, Inc.
99.2 - Employment Agreement dated September 29, 2000 between
Judson E. Schmid and ProxyMed, Inc.
99.3 - Employment Agreement dated October 2, 2000 between
Nancy J. Ham and ProxyMed, Inc.
99.4 - Press Release dated August 15, 2000 announcing
appointment of Michael K. Hoover as Chief Executive
Officer and Chairman of the Board.
