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 March 31, 2001
[ ] 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
24,757,988 Shares as of May 11, 2001
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
March 31, December 31,
Assets 2001 2000
------------- -------------
Current assets:
Cash and cash equivalents $ 4,447,000 $ 8,841,100
Short-term investments 3,000,000 --
Accounts receivable - trade, net 4,606,000 4,174,700
Other receivables 169,100 198,400
Inventory 2,763,900 2,640,700
Other current assets 736,900 860,800
------------- -------------
Total current assets 15,722,900 16,715,700
Property and equipment, net 3,811,100 3,905,000
Goodwill, net 1,472,500 3,038,600
Purchased technology, capitalized software and other intangibles, net 2,872,800 3,942,400
Other assets 55,900 64,700
------------- -------------
Total assets $ 23,935,200 $ 27,666,400
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 3,855,500 $ 4,246,400
Deferred revenue 666,100 313,800
------------- -------------
Total current liabilities 4,521,600 4,560,200
Long-term deferred revenue and other long-term liabilities 509,000 729,100
------------- -------------
Total liabilities 5,030,600 5,289,300
------------- -------------
Stockholders' equity:
Series B 6% Convertible preferred stock - $.01 par value
Authorized and issued 15,000 shares; outstanding 110 shares;
liquidation preference $110,000 -- --
Series C 7% Convertible preferred stock - $.01 par value
Authorized 300,000 shares; issued and outstanding 253,265 shares;
liquidation preference $25,326,500 2,500 2,500
Common stock - $.001 par value. Authorized 100,000,000 shares;
issued and outstanding 21,038,725 (after deducting 225,913
shares in treasury) and 20,593,480 shares, respectively 21,000 20,600
Additional paid-in capital 113,209,600 113,215,300
Accumulated deficit (93,892,600) (90,425,400)
Note receivable from stockholder (435,900) (435,900)
------------- -------------
Total stockholders' equity 18,904,600 22,377,100
------------- -------------
Total liabilities and stockholders' equity $ 23,935,200 $ 27,666,400
============= =============
See accompanying notes.
2
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended March 31,
-----------------------------
2001 2000
------------ ------------
Revenues:
Services and license fees $ 4,334,300 $ 4,299,300
Communication devices, computer systems
and other tangible goods 4,068,600 3,345,700
------------ ------------
8,402,900 7,645,000
------------ ------------
Costs and expenses:
Cost of services and license fees 678,000 485,800
Cost of tangible goods 2,648,500 2,342,400
Selling, general and administrative expenses 5,625,000 7,556,100
Depreciation and amortization 3,019,800 3,283,200
------------ ------------
11,971,300 13,667,500
------------ ------------
Operating loss (3,568,400) (6,022,500)
Interest income, net 101,200 93,200
------------ ------------
Loss from continuing operations (3,467,200) (5,929,300)
Discontinued operations:
Loss from discontinued operations -- (303,900)
Gain on disposal of discontinued operations -- 511,100
------------ ------------
-- 207,200
------------ ------------
Net loss (3,467,200) (5,722,100)
Deemed dividends and other charges 2,461,100 223,800
------------ ------------
Net loss applicable to common shareholders $ (5,928,300) $ (5,945,900)
============ ============
Weighted average common shares outstanding 21,018,936 18,434,539
============ ============
Basic and diluted net income (loss) per
share of common stock:
From continuing operations $ (0.28) $ (0.33)
From discontinued operations -- 0.01
------------ ------------
Net loss $ (0.28) $ (0.32)
============ ============
See accompanying notes.
3
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended March 31,
-----------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (3,467,200) $ (5,722,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,019,800 3,613,800
Provision for doubtful accounts 30,400 87,900
Provision for obsolete inventory 48,600 --
Compensatory stock options and warrants 325,000 10,000
Net gain on sales of discontinued operations -- (511,100)
Changes in net current assets of discontinued operations -- (734,600)
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts and other receivables (461,600) (582,500)
Inventory (171,800) (600,900)
Prepaid expenses (224,900) (195,000)
Accounts payable and accrued expenses (285,000) 2,513,800
Deferred revenue 52,200 143,300
Other, net 3,100 (12,700)
------------ ------------
Net cash used in operating activities (1,131,400) (1,990,000)
------------ ------------
Cash flows from investing activities:
Short-term investments (3,000,000) --
Capital expenditures (240,100) (752,500)
Capital expenditures of discontinued operations -- (230,000)
Capitalized software -- (1,017,300)
Payments for acquisition-related costs (3,800) (5,200)
------------ ------------
Net cash used in investing activities (3,243,900) (2,005,000)
------------ ------------
Cash flows from financing activities:
Dividends on preferred stock (1,600) --
Proceeds from exercise of stock options and warrants -- 426,700
Collections on notes receivable 8,400 --
Payment of capital leases (25,600) (5,500)
------------ ------------
Net cash provided by (used in) financing activities (18,800) 421,200
------------ ------------
Net decrease in cash and cash equivalents (4,394,100) (3,573,800)
Cash and cash equivalents at beginning of period 8,841,100 11,487,900
------------ ------------
Cash and cash equivalents at end of period $ 4,447,000 $ 7,914,100
============ ============
See accompanying notes.
4
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation - The accompanying unaudited condensed
consolidated financial statements of ProxyMed, Inc. and
subsidiaries ("ProxyMed" or the "Company") have been prepared
in accordance with the instructions to Form 10-Q and do not
include all of the information and disclosures required by
accounting principles generally accepted in the United States
of America. However, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement
of results for the interim periods.
The results of operations for the three months ended March 31,
2001 are not necessarily indicative of the results to be
expected for the full year. The unaudited consolidated
financial statements included herein should be read in
conjunction with the audited consolidated financial statements
and the notes thereto included in the Company's Form 10-K for
the year ended December 31, 2000.
On March 31, 2000, the Company sold its non-core network
integration and prescription drug dispensing segments. These
two segments are shown as discontinued operations and the
consolidated financial statements and related notes have been
reclassified to segregate the net assets and operating results
of these segments (see Note 2).
In May 2001, the Company acquired substantially all of the
assets and the business of MDP Corporation ("MDP") for $10
million (see Note 8). ProxyMed paid $3 million cash at closing
and obligated itself with monthly cash interest payments and a
$7 million debt payment due in May 2002. ProxyMed believes
that its current operations, including the operations of MDP,
will provide funding for a portion of this debt, but that it
will need to raise funds through the issuance of additional
equity or debt in the public or private capital markets, the
securing of an asset-based line of credit, or the sale of
non-core assets in order to pay off any remaining portion of
the debt. The Company's ability to raise additional funds may
be adversely affected if the Company does not continue to
improve its operating performance or achieve increased market
acceptance of its products and services. There can be no
assurance that additional funding will be available to the
Company or that, if available, it will be available on terms
favorable to the Company. Failure to obtain additional
financing could have a material adverse impact on the
Company's financial position.
(b) Short-Term Investments - The Company's short-term investments
are primarily comprised of readily marketable debt securities
that are bought and held principally for the purpose of
selling them in the near term.
(c) Revenue Recognition - Electronic transaction processing fee
revenue is recorded in the period the service is rendered.
Revenue from sales of software, software licenses, computer
hardware and manufactured goods is recognized when persuasive
evidence of an arrangement exists, delivery has occurred, the
price is fixed or determinable and collectibility is probable.
The same criteria is applied to each element of multiple
element arrangements after allocating the amounts paid to
individual elements based on vendor-specific objective
evidence of fair value. Revenue from certain up-front fees is
amortized ratably over the expected life of the customer.
Revenue from hardware leases, software rentals and maintenance
fees is recognized ratably over the applicable period.
5
(d) Net Loss Per Share - Basic net loss per share of common stock
is computed by dividing net loss applicable to common
shareholders by the weighted average shares of common stock
outstanding during the year. Diluted per share results reflect
the potential dilution from the exercise or conversion of
securities into common stock; however, stock options, warrants
and contingent shares totaling 39,859,328 shares and 4,290,978
shares at March 31, 2001 and 2000, respectively, as well as
common shares issuable on conversion of both Series B and
Series C preferred stock (25,447,502 and 1,897,533 shares, if
converted on March 31, 2001 and 2000, respectively) 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 final gain of $608,400 (originally reported as a gain of
$574,200 at March 31, 2000). As of March 31, 2001, 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 $63,100.
The following table represents the results of discontinued operations
for the three months ended March 31, 2001 and 2000:
2001 2000
----------- -----------
Net revenues:
Network integration $ -- $ 2,371,700
Prescription drug dispensing -- 574,700
----------- -----------
$ -- $ 2,946,400
=========== ===========
Net income (loss):
Network integration $ -- $ (327,700)
Prescription drug dispensing -- 23,800
----------- -----------
$ -- $ (303,900)
=========== ===========
6
(3) Inventory
Inventory consists of the following at March 31, 2001:
Materials, supplies and component parts $1,861,100
Work in process 163,400
Finished goods 739,400
----------
$2,763,900
==========
(4) Equity Transactions
On February 7, 2001, 693,333 warrants with an exercise price of $1.50
issued to holders of Series B Convertible Preferred Stock were reset into
3,425,493 warrants with a new exercise price of $1.25883 as a result of
anti-dilution provisions contained in the warrants. As a result of this warrant
reset, the Company recorded a deemed dividend charge of $1,968,000 in the
quarter ended March 31, 2001. Subsequent to March 31, 2001, ProxyMed exchanged
these warrants and 650,000 other warrants with an exercise price of $1.50 issued
to the same holders into 3,282,423 shares of common stock pursuant to an
exchange agreement (see Note 8).
7
(5) Segment Information
ProxyMed operates in two reportable segments that offer different
services and products: electronic healthcare transaction processing, and
laboratory communication devices and services. Electronic healthcare transaction
processing includes transaction and value-added services principally between
physicians and insurance companies (payer services) and physicians and
pharmacies (prescription services); and laboratory communication devices and
services includes the sales, leasing and services of communication devices
principally to laboratories and the contract manufacturing of printed circuit
boards (laboratory services). Intersegment sales are not material and there were
no foreign sales for any periods presented.
Three Months Ended March 31,
-----------------------------
2001 2000
------------ ------------
Net revenues:
Electronic healthcare transaction processing $ 2,721,600 $ 2,324,000
Laboratory communication devices and services 5,681,300 5,321,000
------------ ------------
$ 8,402,900 $ 7,645,000
============ ============
Operating income (loss):
Electronic healthcare transaction processing $ (3,246,000) $ (4,304,800)
Laboratory communication devices and services 988,500 584,400
Corporate and consolidating (1,310,900) (2,302,100)
------------ ------------
$ (3,568,400) $ (6,022,500)
============ ============
March 31,
-----------------------------
2001 2000
------------ ------------
Total assets:
Electronic healthcare transaction processing $ 7,540,800 $ 20,778,200
Laboratory communication devices and services 8,460,500 7,565,600
Corporate and consolidating 7,933,900 11,454,100
------------ ------------
$ 23,935,200 $ 39,797,900
============ ============
8
(6) Supplemental Disclosure of Cash Flow Information
Three Months Ended March 31,
--------------------------
2001 2000
----------- -----------
Common stock issued for payment of preferred stock dividends $ 491,400 $ 223,800
=========== ===========
Disposition of businesses:
Common stock received $ -- $(1,929,800)
Notes and other receivables received -- (1,723,100)
Net gain recognized -- 511,100
Details of dispositions:
Working capital components, other than cash -- 1,940,100
Property and equipment -- 1,070,900
Goodwill -- 109,600
Other assets -- 21,200
----------- -----------
Net cash provided by dispositions $ -- $ --
=========== ===========
(7) Contingency
In December 2000, the Company accrued $200,000 for a deficiency in its
licensing of software used in its internal computer systems. In March 2001, an
additional $175,000 was accrued for this contingency.
(8) Subsequent Events
(a) Warrant Exchange - As reported in its Form 8-K filed April 24,
2001, the Company entered into exchange agreements (the
"Exchange Agreements") with the former holders of $13,000,000
of its $15,000,000 Series B Convertible Preferred Stock (the
"Preferred Stock"). The Company and such holders had
previously entered into a Redemption and Exchange Agreement,
dated May 4, 2000 (the "Redemption Agreement"). Under the
terms of the Redemption Agreement, 693,333 warrants to
purchase the Company's common stock, par value $0.001 per
share (the "Common Stock") issued to the holders of the
Preferred Stock subject to the Redemption Agreement were
exchanged for new warrants (the "Exchanged Warrants") with an
exercise price of $1.50 per share. In addition, such holders
received, in the aggregate, 650,000 additional warrants (the
"New Warrants") at an exercise price of $1.50 per share. In
February 2001, the Exchanged Warrants were reset under
anti-dilution provisions contained therein into an aggregate
of 3,425,493 warrants with a new exercise price of $1.25883
per share.
Under the Exchange Agreements, the Company canceled and
exchanged all outstanding Exchanged Warrants and New Warrants
for an aggregate of 3,282,423 shares of Common Stock. As
required, under terms of the Exchange Agreements, the Company
registered these shares under Form S-3 by May 9, 2001. For
this transaction, the Company expects to record a $1.8 million
deemed dividend charge in the quarter ended June 30, 2001.
9
In connection with the cancellation and exchange of these warrants,
the holders of the Preferred Stock and the holders of the Series C
Convertible Preferred Stock have agreed to waive certain
anti-dilution rights afforded by certain outstanding warrants, the
Preferred Stock and the Series C Convertible Preferred Stock.
(b) Business Acquisition - On May 1, 2001, the Company acquired
substantially all of the assets and the business of MDP
Corporation, a privately-owned, electronic claims clearinghouse and
patient statement processor based in Atlanta, Georgia, for $10
million cash. The transaction required that ProxyMed pay $3 million
at closing and execute a $7 million promissory note payable in 12
months. Interest on this note is payable monthly at 7% simple
interest. The note is collateralized by the assets of MDP. The
acquisition will be accounted under the purchase method of
accounting and is expected to result in goodwill of approximately
$9 million.
10
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, medical laboratories, pharmacies, and other healthcare
providers. Our electronic transaction processing services support a broad range
of both financial and clinical transactions. To facilitate these services, we
operate ProxyNet(R), our secure, proprietary national electronic information
network, which provides physicians and other primary care providers with direct
connectivity to one of the industry's largest group of payers, the largest group
of clinical laboratories and the largest group of chain and independent
pharmacies. Our products and services are currently provided from our operating
facilities located in Fort Lauderdale, Florida; New Albany, Indiana; Santa Ana,
California; and Atlanta, Georgia.
In March 2000, we sold our non-core network integration and
prescription drug dispensing segments. These two segments are shown as
discontinued operations in the consolidated financial statements.
In May 2001, the Company acquired substantially all of the assets and
the business of MDP Corporation ("MDP"), a privately-owned electronic claims
clearinghouse and patient statement processor based in Atlanta, Georgia, for $10
million cash. The transaction required that ProxyMed pay $3 million at closing
and execute a $7 million promissory note payable in 12 months. Interest on this
note is payable monthly at 7% simple interest. The note is collateralized by the
assets of MDP. The acquisition will be accounted under the purchase method of
accounting and is expected to result in goodwill of approximately $9 million.
Results of Operations
Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000.
Net Revenues. Consolidated net revenues for the three months ended
March 31, 2001 increased by $757,900, or 10%, to $8,402,900 from consolidated
net revenues of $7,645,000 for the three months ended March 31, 2000. This net
increase is primarily due to (i) transaction volume increases of 6% in our payer
services division, and 30% in our prescription services division (increase of
$397,600); and (ii) a 7% revenue increase in our laboratory services division
primarily as a result of increased contract manufacturing revenues (increase of
$360,300).
11
Cost of Sales and Gross Profit Margin. Cost of services and license
fees include third-party electronic transaction processing costs, certain
telecommunication costs, revenue sharing and rebate arrangements with our
business partners, third-party databases licenses and certain labor and travel
expenses. Cost of sales for communication devices, computer systems and other
tangible goods includes hardware, third-party software, and consumable
materials. Consolidated gross profit margin for the three months ended March 31,
2001 was 60% compared to 63% for the three months ended March 31, 2000. This
decrease is primarily due to our overall revenue mix for each period. For 2001
we are projecting that gross margins may continue to decline throughout the
year, primarily as a result of the sources of revenue in our payer services
division, including our acquisition of MDP. A growing percentage of revenues for
this division may be dependent upon paying rebates to our strategic partners.
Additionally, MDP's patient statement business has a lower gross profit margin
than our other current payer services transactions currently offered.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the three months ended March 31, 2001
decreased by $1,931,100, or 26%, to $5,625,000 from consolidated SG&A expenses
of $7,556,100 for the three months ended March 31, 2000. This decrease is
primarily due to (i) decreases in net payroll, outside labor and related
expenses (net of capitalization for software development primarily for
proxyMed.com) due to the effect of our restructuring plan which commenced in May
2000, additional personnel reductions enacted at the end of 2000 and in the 2001
period, and the issuance of stock options in lieu of temporary salary reductions
in the 2001 period (decrease of $1,610,200); (ii) decreases in selling and
marketing expenses for our products and services (decrease of $496,900); (iii)
decreases in telecommunication expenses resulting from renegotiating contracts
with carriers, the elimination of certain telecommunication services and lower
usage (decrease of $131,000); (iv) net decreases in other general expenses
($183,000); offset by increases in (v) charges for the issuance of compensatory
options and warrants to outside consultants (increase of $315,000); and (vi) a
contingency for software licensing deficiencies (increase of $175,000). As a
result of these factors, consolidated SG&A expenses as a percentage of
consolidated net sales decreased to 67% in the 2001 period compared to 99% in
the 2000 period.
Depreciation and Amortization. Depreciation and amortization for the
three months ended March 31, 2001 decreased by $263,400 to $3,019,800 from
depreciation and amortization of $3,283,200 for the three months ended March 31,
2000. This decrease is primarily the result of the write-off of impaired fixed
assets and previously capitalized software at December 31, 2000.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $3,467,200 for the three months ended March 31,
2001 compared to $5,929,300 for the three months ended March 31, 2000.
Deemed Dividends and Other Charges. We incurred total deemed dividend
and other charges of $2,461,100 in the three months ended March 31, 2001
primarily as a result of (i) non-cash accounting charges from the February 2001
anti-dilution reset in number and price of certain warrants issued to our Series
B preferred stockholders
12
($1,968,000), and (ii) quarterly dividends paid to our Series C Preferred
shareholders through issuance of 436,840 shares of common stock in April 2001
($491,400).
Net Loss Applicable to Common Shareholders. As a result of the
foregoing, we recorded a net loss applicable to common shareholders of
$5,928,300 for the three months ended March 31, 2001 compared to $5,945,900 for
the three months ended March 31, 2000.
Liquidity and Capital Resources
In the three month period ended March 31, 2001, cash used in operating
activities totaled $1,131,400. This was primarily due to our net loss partially
offset by depreciation and amortization charges and non-cash compensatory stock
option and warrants. During this period, we spent $240,100 for fixed assets,
paid $25,600 against our capital leases, paid dividends to the holders of Series
B Preferred Stock with cash payments of $1,600, and paid dividends totaling
$491,500 to the holders of our Series C Preferred Stock by issuing 436,840
shares of our common stock issued during April 2001. These activities were
principally financed through available cash resources. After these activities,
we had cash, cash equivalents and short-term investments (consisting solely of
readily marketable debt securities) totaling $7,447,000 as of March 31, 2001.
These available funds continue to be used for operations, strategic
acquisitions, the further development of our products and services, and other
general corporate purposes. In May 2001, we acquired the assets of MDP
Corporation. The transaction required that we pay $3 million at closing and
execute a $7 million promissory note payable in 12 months. The acquisition of
MDP is expected to be accretive to our operations. In addition to our
acquisition of MDP, we continue to evaluate other acquisition opportunities and
strategic alternatives that may add synergies to our product offerings and
business strategy.
Through the second quarter of 2000, we had been aggressively
implementing our strategic plan which concentrated on providing a one-stop
solution for physicians and empowering them with Internet-enabled tools as
desktop solutions. As a result of our reassessment of our business plan, our new
strategy is now more tightly focused on leveraging our leading position as an
independent back-end connectivity provider rather than developing products and
services for the physician's desktop. Through strategic relationships and
partnerships with front-end solutions providers, our goal is to drive more
healthcare transactions through ProxyNet(R), our secure proprietary national
electronic healthcare information network, while remaining neutral in the battle
for the physician's desktop. Additionally, since we do have an existing customer
base of physicians and other healthcare providers, we expect that there will be
opportunities to increase revenues by cross-selling our existing products and
services to these current customers, as well as revenue opportunities from the
development of new services from our development efforts, including
proxyMed.com, our healthcare Internet portal. While we have reduced the specific
groups within our development workforce in an effort to control expenses,
nevertheless, we remain committed to developing additional
13
capabilities and value-added products and services to our back-end connectivity
network and to proxyMed.com.
At the current time, we do not have any material commitments for
capital expenditures. However, we have identified approximately $700,000 in
capital expenditure purchases to be made in 2001 relating to HIPAA compliance
for our computer networks and facilities. Through March 31, 2001, we have spent
approximately $73,300 towards this project. Additionally, we have reserved
$375,000 for the software licensing contingency deficiency that was brought to
our attention in late 2000.
As we have continued to reduce our expenses subsequent to December
2000, we have achieved our goal operational cash flow break-even; however, we
must be able to maintain and increase our revenues. We believe that we can
continue to make progress in our business strategy and achieve bottom-line
profitability by the beginning of the third quarter of 2001. While our payer
services and laboratory services divisions continue to generate positive cash
flows, our prescription services division has not generated positive cash flow
to date. In addition, through April 2000, we were incurring significant expense
to expand our proxyMed.com portal and to support our corporate staff. As a
result, we reduced expenditures, including the layoff of operations and
corporate employees between the fourth quarter of 2000 and the first quarter of
2001, in order to achieve overall profitability. We continue to believe that
there will ultimately be significant opportunities in the electronic
prescription transaction space. Today, we continue to support our existing
prescription services customers with appropriate levels of service. Going
forward, as the market grows transaction volume through increased physician
adoption and utilization, we intend to be ready to take advantage of such
opportunities.
With our completed acquisition of MDP, we have obligated ourselves with
monthly cash interest charges of approximately $41,000 and a $7 million debt
payment due in May 2002. Based on our current level of revenues and
expenditures, we believe that our operations, including the operations of MDP,
will provide funding for a portion of this debt, but that we will need to raise
funds through the issuance of additional equity or debt in the public or private
capital markets, the securing of an asset-based line of credit, or the sale of
non-core assets in order to pay off any remaining debt, to fund specific
research and development projects or to pursue additional strategic
acquisitions. Our ability to raise any additional funds may be adversely
affected if, among other things, we do not continue to improve our operating
performance or achieve increased market acceptance of our products and services.
There can be no assurance that any additional funding will be available to us,
or if available, that it will be available on acceptable terms. If we are
successful in obtaining additional financing, the terms of the financing may
have the effect of significantly diluting or adversely affecting the holdings or
the rights of the holders of our common stock. Failure to obtain additional
financing could have a material impact on our financial position and our ability
to successfully execute our business plan and may put us at a competitive
disadvantage.
14
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
This document contains forward-looking statements that reflect our
current assumptions and expectations regarding future events. While these
statements reflect our current judgment, they are subject to risks and
uncertainties. Actual results may differ significantly from projected results
due to a number of factors, including, but not limited to, the soundness of our
business strategies relative to the perceived market opportunities; the
successful integration of our acquisition of MDP; our ability to successfully
develop, market, sell, install and upgrade our clinical and financial
transaction services and applications to physicians, payers, medical
laboratories and pharmacies; our ability to compete effectively on price and
support services; our assessment of the healthcare industry's need, desire and
ability to become technology efficient; and our ability and that of our business
associates to comply with various government rules regarding healthcare
information and patient privacy. These and other risk factors are more fully
discussed in our filings with the Securities and Exchange Commission, which we
strongly urge you to read. We expressly disclaim any intent or obligation to
update any forward-looking statements. When used in this document, the words
"believes", "estimated", "expects", "anticipates", "may" and similar expressions
are intended to identify forward-looking statements.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Not Applicable.
15
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) On February 7, 2001, 693,333 warrants with an exercise price
of $1.50 issued to holders of Series B Convertible Preferred
Stock were reset into 3,425,493 warrants with a new exercise
price of $1.25883 as a result of anti-dilution provisions
contained in the warrants. As a result of this warrant reset,
the Company recorded a deemed dividend charge of $1,968,000 in
the quarter ended March 31, 2001 Subsequent to March 31, 2001,
ProxyMed exchanged these warrants and 650,000 other warrants
with an exercise price of $1.50 issued to the same holders
into 3,282,423 shares of common stock pursuant to an exchange
agreement.
Item 4. - Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.1 - Employment Agreement dated March 29, 2001 between
Lonnie W. Hardin and ProxyMed, Inc.
(b) Reports on Form 8-K:
- No reports on Form 8-K were filed during the quarter
ended March 31, 2001
16
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)
May 15, 2001 /s/ Judson E. Schmid
------------ ------------------------------
(Date) Judson E. Schmid
Executive Vice-President and
Chief Financial Officer
17
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
10.1 Employment Agreement dated March 29, 2001 between Lonnie W.
Hardin and ProxyMed, Inc.
18