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 June 30, 2001
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[ ] 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
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PROXYMED, INC.
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(Exact name of registrant as specified in its charter)
Florida 65-0202059
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2555 Davie Road, Suite 110, Ft. Lauderdale, Florida 33317
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(Address of principal executive offices) (Zip Code)
(954) 473-1001
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(Registrant's telephone number)
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(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
26,370,287 Shares as of August 3, 2001
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1 - FINANCIAL STATEMENTS.
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
June 30, December 31,
Assets 2001 2000
------ ------------- -------------
Current assets:
Cash and cash equivalents $ 5,033,900 $ 8,841,100
Accounts receivable - trade, net 5,044,900 4,174,700
Other receivables 121,900 198,400
Inventory 2,926,300 2,640,700
Other current assets 595,000 860,800
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Total current assets 13,722,000 16,715,700
Property and equipment, net 3,779,600 3,905,000
Goodwill, net 9,766,300 3,038,600
Purchased technology, capitalized software and other intangibles, net 2,261,500 3,942,400
Other assets 55,100 64,700
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Total assets $ 29,584,500 $ 27,666,400
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Note payable $ 7,000,000 $ -
Accounts payable and accrued expenses 4,668,600 4,246,400
Deferred revenue and other current liabilities 374,200 313,800
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Total current liabilities 12,042,800 4,560,200
Long-term deferred revenue and other long-term liabilities 604,300 729,100
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Total liabilities 12,647,100 5,289,300
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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 246,165 and
253,265 shares, respectively; liquidation preference $24,616,500
and $25,326,500, respectively 2,500 2,500
Common stock - $.001 par value. Authorized 100,000,000 shares;
issued and outstanding 25,479,045 (after deducting 225,913
shares in treasury) and 20,593,480 shares, respectively 25,400 20,600
Additional paid-in capital 113,131,400 113,215,300
Accumulated deficit (95,786,000) (90,425,400)
Note receivable from stockholder (435,900) (435,900)
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Total stockholders' equity 16,937,400 22,377,100
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Total liabilities and stockholders' equity $ 29,584,500 $ 27,666,400
============= =============
See accompanying notes.
2
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------- -------------------------------
2001 2000 2001 2000
-------------- -------------- ------------- --------------
Revenues:
Transaction fees, services and
license fees $ 5,780,100 $ 4,602,200 $ 10,114,400 $ 8,901,500
Communication devices, computer
systems and other tangible goods 4,423,200 3,414,700 8,491,800 6,760,300
-------------- -------------- ------------- --------------
10,203,300 8,016,900 18,606,200 15,661,800
-------------- -------------- ------------- --------------
Costs and expenses:
Cost of services 1,605,600 397,000 2,284,800 882,800
Cost of tangible goods 3,115,300 2,365,100 5,762,600 4,703,700
Selling, general and administrative
expenses 5,062,800 7,057,000 10,687,700 14,616,800
Restructuring charges - 1,415,000 - 1,415,000
Depreciation and amortization 2,282,400 3,252,400 5,302,200 6,535,600
-------------- -------------- ------------- --------------
12,066,100 14,486,500 24,037,300 28,153,900
-------------- -------------- ------------- --------------
Operating loss (1,862,800) (6,469,600) (5,431,100) (12,492,100)
Interest income (expense), net (30,700) (4,005,600) 70,500 (3,912,400)
-------------- -------------- ------------- --------------
Loss from continuing operations (1,893,500) (10,475,200) (5,360,600) (16,404,500)
Discontinued operations:
Loss from discontinued operations - - - (303,900)
Gain on disposal of discontinued
operations - - - 511,100
-------------- -------------- ------------- --------------
- - - 207,200
-------------- -------------- ------------- --------------
Net loss (1,893,500) (10,475,200) (5,360,600) (16,197,300)
Deemed dividends and other charges 2,195,300 14,412,100 4,656,400 14,635,800
-------------- -------------- ------------- --------------
Net loss applicable to common
shareholders $ (4,088,800) $ (24,887,300) $ (10,017,000) $ (30,833,100)
============== ============== ============= ==============
Weighted average common shares outstanding 23,994,533 19,222,849 22,514,954 18,828,694
============== ============== ============= ==============
Basic and diluted net income (loss) per
share of common stock:
From continuing operations $ (0.17) $ (1.29) $ (0.44) $ (1.65)
From discontinued operations - - - 0.01
-------------- -------------- ------------- --------------
Net loss $ (0.17) $ (1.29) $ (0.44) $ (1.64)
============== ============== ============= ==============
See accompanying notes.
3
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended June 30,
------------------------------
2001 2000
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Cash flows from operating activities:
Net loss $ (5,360,600) $ (16,197,300)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 5,302,200 6,866,300
Amortization of private placement related costs - 3,991,900
Restructuring charges - 1,415,000
Provision for doubtful accounts 31,400 257,800
Provision for obsolete inventory 50,500 51,500
Compensatory stock options and warrants 433,300 369,400
Payment for non-compete agreement - (200,000)
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 receivable and other receivables (42,700) (1,204,400)
Inventory (287,600) (1,003,700)
Prepaid expenses (206,900) (243,700)
Accounts payable and accrued expenses (174,400) (237,700)
Deferred revenue 52,300 24,300
Other, net (108,100) (33,000)
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Net cash used in operating activities (310,600) (7,389,300)
------------ -------------
Cash flows from investing activities:
Acquisition of business (3,000,000) -
Short term investments (3,000,000) -
Redemption of short term investments 3,000,000 -
Capital expenditures (396,400) (660,600)
Capital expenditures of discontinued operations - (230,000)
Capitalized software - (1,586,800)
Payments for acquisition-related costs (23,200) (8,400)
------------ -------------
Net cash used in investing activities (3,419,600) (2,485,800)
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Cash flows from financing activities:
Proceeds from sale of convertible debt securities - 21,332,300
Redemption of convertible preferred stock - (15,721,800)
Proceeds from exercise of stock options - 426,800
Dividends on preferred stock (1,600) -
Collections on notes receivable 25,500 1,136,700
Draw on line of credit - 2,000,000
Repayment of line of credit - (3,000,000)
Payment of note payable, capital leases and long-term debt (100,900) (403,200)
------------ -------------
Net cash provided by (used in) financing
activities (77,000) 5,770,800
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Net decrease in cash and cash equivalents (3,807,200) (4,104,300)
Cash and cash equivalents at beginning of period 8,841,100 11,487,900
------------ -------------
Cash and cash equivalents at end of period $ 5,033,900 $ 7,383,600
============ =============
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 and six months ended June 30,
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 3).
In May 2001, the Company acquired substantially all of the assets and the
business of MDP Corporation ("MDP") for $10 million (see Note 2).
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) 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
5
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.
(c) 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 35,578,967 shares and 26,881,240
shares at June 30, 2001 and 2000, respectively, as well as common shares
issuable on conversion of both Series B and Series C preferred stock
(24,737,502 and 24,667,506 shares, if converted on June 30, 2001 and
2000, respectively) were excluded from the calculation of diluted per
share results because their effect was antidilutive.
(d) New Accounting Pronouncements - In June 2001, the Financial Accounting
------------------------------
Standards Board issued SFAS No. 141, "Business Combinations" and SFAS No.
142, "Goodwill and Other Intangible Assets." SFAS No. 141 eliminates the
pooling-of-interest method for business combinations and requires
application of the purchase method. SFAS No. 142 changes the accounting
for goodwill from an amortization approach to a non-amortization
(impairment) approach. SFAS No. 142 requires amortization of goodwill
recorded in connection with previous business combinations to cease upon
adoption of the SFAS No. 142 by calendar year companies on January 1,
2002. The Company is currently studying the impact of these statements on
its financial position, results of operations and cash flows.
(e) Reclassifications - Certain prior year amounts have been reclassified to
-----------------
conform to the current year presentation.
(2) Acquisition of Business
-----------------------
In May 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.
ProxyMed paid $3 million at closing and executed a $7 million promissory note
payable in May 2002. Interest on this note is payable monthly at 7% simple
interest. The assets of MDP collateralize the note. The acquisition was
accounted for as a purchase and the purchase price was allocated as follows:
working capital ($302,400); property and equipment ($165,000); and other assets
($3,800). The excess of the consideration paid over the estimated fair value of
net assets acquired in the amount of $9,578,800 was recorded as goodwill.
6
The following unaudited pro forma summary presents the consolidated results
of operations of ProxyMed and MDP as if the acquisition of this business had
occurred at the beginning of 2000, including additional pro forma amortization
of goodwill of $1,064,400 and $1,596,500 and interest expense of $161,100 and
$243,700 for the six months ended June 30, 2001 and 2000, respectively. These
pro forma results do not necessarily represent results that would have occurred
if the acquisitions had taken place at those dates, or of results which may
occur in the future.
Six Months Ended June 30,
------------------------------
2001 2000
------------ ------------
Revenues $ 20,860,700 $ 18,732,600
Loss from continuing operations $ (6,339,200) $(18,104,600)
Net loss applicable to
common shareholders $(10,995,600) $(32,533,200)
Basic and diluted net loss
per share of common stock $ (0.49) $ (1.73)
(3) 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 June 30, 2000). As of August 3, 2000, all amounts due under this
note receivable had 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 six months ended June 30, 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)
========== ==========
7
(4) Inventory
---------
Inventory consists of the following at June 30, 2001:
Materials, supplies and component parts $1,699,700
Work in process 370,400
Finished goods 856,200
----------
$2,926,300
==========
(5) Equity Transactions
-------------------
(a) Series B Warrants - In April 2001, the Company entered into exchange
-----------------
agreements (the "Series B Exchange Agreements") with the former holders
of $13,000,000 of its $15,000,000 Series B 6% Convertible Preferred Stock
(the "Series B Preferred"). 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 issued to the
holders of the Series B Preferred 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. 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.
Under the Series B 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. In accordance with the
terms of the Exchange Agreements, the Company registered these shares
under Form S-3 effective on June 25, 2001. For this transaction, the
Company recorded a deemed dividend charge of $1,854,600 in the quarter
ended June 30, 2001.
In connection with the cancellation and exchange of these warrants, the
holders of the Series B Preferred and the holders of Series C 7%
Convertible Preferred Stock (the "Series C Preferred") agreed to waive
certain anti-dilution rights afforded by certain outstanding warrants,
the Series B Preferred and the Series C Preferred.
8
(b) Series C Warrants - In June 2001, the Company offered to exchange into
-----------------
shares of common stock (the "Series C Exchange Offer") (i) 12,655,000
warrants (the "Investor Warrants") that were issued to holders of the
Series C Preferred, (ii) 8,293,000 warrants (the "Agent's Warrants") that
were issued to Commonwealth Associates, L.P. ("Commonwealth") in
connection with the private placement of the Series C Preferred, and
(iii) 1,000,000 warrants (the "Advisory Warrants") that were issued to
Commonwealth for certain advisory services that Commonwealth provided to
the Company. Under the terms of the Series C Exchange Offer, the Company
would issue 0.75 shares of its common stock for each Investor Warrant,
0.75 shares of its common stock for each Agent's Warrant, and 0.625
shares of its common stock for each Advisory Warrant.
The Series C Exchange Offer solicitation is open until August 15, 2001
and will be completed by the Company if holders of at least 80% of the
Investor Warrants, holders of at least 80% of the Agent's Warrants and
holders of at least 80% of the Advisory Warrants agree to the exchange.
The Company may extend the solicitation deadline and/or accept less than
the 80% threshold in its sole discretion. All shares exchanged are
subject to a lock-up through February 15, 2002 and, in accordance with
the Series C Exchange Offer, the Company is required to register these
shares. As a result of the Series C Exchange Offer, assuming full
participation, ProxyMed expects to record a deemed dividend charge of
approximately $2.6 million during the third quarter of 2001.
(c) Stock Options - In April 2001, the Company's Board of Directors
-------------
authorized the issuance of 975,000 options to purchase the Company's
common stock to ProxyMed's executive and senior management as part of
their compensation plan for the 2001 year. Of these options granted,
290,000 were issued with an exercise price of $1.01 under available stock
option plans, and the balance of 685,000 options were granted under the
Company's proposed 2001 Stock Option Plan, subject to approval by the
Company's shareholders at its annual meeting on July 25, 2001. The
shareholders approved a new 2001 Stock Option Plan and the 685,000
options were issued with an exercise price of $0.92 per share. These
options are for a ten-year term and vest after five years. In addition,
these options contain a clause which enables the accelerated vesting of a
portion or all of the options if specific, pre-determined individual
performance goals are met during the 2001 year.
(d) Conversions of Preferred Stock - As of June 30, 2001, 7,100 shares of
------------------------------
Series C Preferred had been converted into 710,000 shares of common
stock.
9
(6) Segment Information
-------------------
ProxyMed operates in two reportable segments that offer different services
and products: (i) electronic healthcare transaction processing; and (ii)
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 servicing of communication devices
principally to laboratories and the contract manufacturing of printed circuit
boards (laboratory services). Inter-segment sales are not material, and there
were no foreign sales for any periods presented. The operations of MDP are
included in the healthcare transaction processing segment (payer services).
Six Months Ended June 30,
----------------------------------
2001 2000
-------------- -------------
Net revenues:
Electronic healthcare transaction processing $ 6,807,500 $ 4,790,700
Laboratory communication devices and services 11,798,700 10,871,100
-------------- -------------
$ 18,606,200 $ 15,661,800
============== =============
Operating income (loss):
Electronic healthcare transaction processing $ (5,193,600) $ (8,619,800)
Laboratory communication devices and services 1,879,400 1,258,600
Corporate and consolidating (2,116,900) (3,715,900)
Restructuring charges - (1,415,000)
-------------- -------------
$ (5,431,100) $ (12,492,100)
============== =============
June 30,
----------------------------------
2001 2000
-------------- -------------
Total assets:
Electronic healthcare transaction processing $ 16,349,100 $ 18,265,400
Laboratory communication devices and services 7,182,700 7,899,300
Corporate and consolidating 6,052,700 11,561,300
-------------- -------------
$ 29,584,500 $ 37,726,000
============== =============
10
(7) Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Six Months Ended June 30,
------------------------------------
2001 2000
------------ -------------
Common stock issued for payment of preferred stock dividends $ 830,500 $ 223,800
============ =============
Acquisition of business:
Debt issued for business acquired 7,000,000 -
Other acquisition costs accrued 50,000 -
Details of acquisition:
Working capital components, other than cash (302,400) -
Property and equipment (165,000) -
Goodwill (9,578,800) -
Other assets (3,800) -
------------ -------------
Net cash used in acquisition $ (3,000,000) $ -
============ =============
Disposition of businesses:
Common stock received - (1,929,800)
Notes and other receivables received - (1,723,100)
Net gain recognized - 511,100
Detail of dispositions:
Working capital components, other than cash - 1,940,100
Property and equipment - 1,070,900
Goodwill - 109,700
Other assets - 21,100
------------ -------------
Net cash provided by dispositions $ - $ -
============ =============
(8) 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.
11
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-added 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. ProxyMed paid $3 million at closing and executed a $7 million
promissory note payable in May 2002. Interest on this note is payable monthly
at 7% simple interest. The assets of MDP collateralize the note.
Results of Operations
---------------------
Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000.
Net Revenues. Consolidated net revenues for the three months ended June
30, 2001 increased by $2,186,400, or 27%, to $10,203,300 from consolidated net
revenues of $8,016,900 for the three months ended June 30, 2000. This net
increase is primarily due to (i) a 58% increase in the volume of electronic
clinical and financial healthcare transactions (including patient statement and
claims transaction volume from MDP) offset by decreases in implementation and
other fees in our prescription services division (net increase of $1,619,100);
and (ii) a 10% revenue increase in our laboratory services division primarily as
a result of increased sales of communication device units (increase of
$567,300).
Cost of Sales. Cost of transaction fees, services and license fees include
third-party electronic transaction processing costs, certain telecommunication
costs, revenue sharing and rebate arrangements with our business
12
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 cost of sales for the three months ended June 30, 2001 increased as
a percentage of revenues compared to the three months ended June 30, 2000
primarily due to (i) direct costs at MDP for our statement processing services
(which have a higher direct cost than our other payer services transactions
currently offered); and (ii) a shift in the revenue mix in our laboratory
services division from lower cost leases to higher cost communication device
units. For the remainder of 2001, we are projecting that cost of sales as a
percentage of revenues will continue to rise, 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.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the three months ended June 30, 2001
decreased by $1,994,200, or 28%, to $5,062,800 from consolidated SG&A expenses
of $7,057,000 for the three months ended June 30, 2000. This decrease is
representative of our goal to closely monitor our expenses and is primarily due
to (i) decreases in net payroll, outside labor and related expenses (net of
capitalization for software development primarily for proxyMed.com in the 2000
period) 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 first
quarter of 2001, and includes the issuance of stock options in lieu of temporary
salary reductions in the 2001 period (decrease of $1,000,600); (ii) decreases in
selling and marketing expenses for our products and services (decrease of
$440,600); (iii) decreases in telecommunication expenses resulting from
renegotiating contracts with carriers, the elimination of certain
telecommunication services and lower usage (decrease of $135,000); (iv)
decreases in bad debt expense as a result of improved collection efforts
(decrease of $197,700); (v) decrease in charges for the issuance of compensatory
options and warrants to outside consultants as fees related to our financial
advisory agreement with Commonwealth Associates ceased to be amortized in April
2001 (decrease of $251,000), offset by (vi) increases in other general expenses
(net increase of $30,700). As a result of these factors, consolidated SG&A
expenses as a percentage of consolidated net sales decreased to 50% in the 2001
period compared to 88% in the 2000 period.
Restructuring Charges. In May 2000, we had 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 three months ended June 30, 2000
primarily for severance payments and marketing and termination fees due under
telecommunication contracts that were canceled.
Depreciation and Amortization. Depreciation and amortization for the three
months ended June 30, 2001 decreased by $970,000 to $2,282,400 from depreciation
and amortization of $3,252,400 for the three months ended June 30, 2000. This
decrease is primarily the result of (i) the concluding of goodwill and purchased
technology amortization associated with the 1997 and 1998 acquisitions of IMS
and USHDI in the 2001 period (decrease of $1,271,700); (ii) the termination of
the exclusivity period related
13
to our 1997 acquisition of PreScribe(R) in June 2000 (decrease of $125,000);
(iii) the write-off of obsolete and impaired fixed assets and previously
capitalized software in December 2000 (decrease of $103,700); offset by (iv) the
commencement of goodwill amortization from our May 2001 acquisition of MDP
(increase of $538,100).
Interest, Net. We incurred net interest expense of $30,700 for the three
months ended June 30, 2001 compared to net interest expense of $4,005,600 for
the three months ended June 30, 2000. The 2001 period amount includes interest
expense of $81,900 related to the note payable for our acquisition of MDP while
the 2000 period 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.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $1,893,500 for the three months ended June 30,
2001 compared to a loss of $10,475,200 for the three months ended June 30, 2000.
Deemed Dividends and Other Charges. We incurred total deemed dividend and
other charges of $2,195,300 in the three months ended June 30, 2001 primarily as
a result of (i) non-cash accounting charges from the exchange of 4,075,496
warrants into 3,282,423 shares of common stock by our Series B preferred
stockholders in April 2001 ($1,854,600) and (ii) quarterly dividends paid to our
Series C preferred shareholders through issuance of 440,595 shares of common
stock in July 2001 ($339,100). In the three months ended June 30, 2000, 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 total charges of $14,412,100 consisting of the following: (i) the
unamortized beneficial conversion feature of the debt upon the conversion to the
new Series C preferred stock ($9,762,800); (ii) the premiums paid on the
redemption of the Series B preferred shares ($2,873,000); (iii) the repricing of
existing warrants ($610,100); (iv) the issuance of new warrants ($715,000); and
(v) professional and other fees ($451,200).
Net Loss Applicable to Common Shareholders. As a result of the foregoing,
we recorded a net loss applicable to common shareholders of $4,088,800 for the
three months ended June 30, 2001 compared to $24,887,300 for the three months
ended June 30, 2000.
Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000
Net Revenues. Consolidated net revenues for the six months ended June 30,
2001 increased by $2,944,400, or 19%, to $18,606,200 from consolidated net
revenues of $15,661,800 for the six months ended June 30, 2000. This net
increase is primarily due to (i) a 31% increase in the volume of electronic
clinical and financial healthcare transactions (including patient statement and
claims transaction volume from MDP) offset by decreases in implementation and
other fees in our prescription services division.
14
(net increase of $2,016,800); and (ii) a 9% revenue increase in our laboratory
services division primarily as a result of increased sales of communication
device units (increase of $927,600).
Cost of Sales. Cost of transaction fees, 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
cost of sales for the six months ended June 30, 2001 increased as a percentage
of revenues compared to the six months ended June 30, 2000 primarily due to (i)
direct costs at MDP for our statement processing services (which have a higher
direct cost than our other payer services transactions currently offered); and
(ii) a shift in the revenue mix in our laboratory services division from lower
cost leases to higher cost communication device units.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the six months ended June 30, 2001
decreased by $3,929,100, or 27%, to $10,687,700 from consolidated SG&A expenses
of $14,616,800 for the six months ended June 30, 2000. This decrease is
representative of our goal to closely monitor our expenses and is primarily due
to (i) decreases in payroll, outside labor and related expenses (net of
capitalization for software development primarily for proxyMed.com in the 2000
period) 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 first
quarter of 2001, and includes issuance of stock options in lieu of temporary
salary reductions in the 2001 period (decrease of $2,610,900); (ii) decreases in
selling and marketing expenses for our products and services (decrease of
$937,500); (iii) decrease in bad debt expense as a result of improved collection
efforts (decrease of $254,600); and (iv) decreases in other general expenses
(net decrease of $106,100). As a result of these factors, consolidated SG&A
expenses as a percentage of consolidated net sales decreased to 57% in the 2001
period from 93% in the 2000 period.
Restructuring Charges. In May 2000, we had 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 six months ended June 30, 2000 primarily
for severance payments and marketing and termination fees due under
telecommunication contracts that were canceled.
Depreciation and Amortization. Depreciation and amortization for the six
months ended June 30, 2001 decreased by $1,233,400 to $5,302,200 from
depreciation and amortization of $6,535,600 for the six months ended June 30,
2000. This decrease is primarily the result of (i) the concluding of goodwill
and purchased technology amortization associated with the 1997 and 1998
acquisitions of IMS and USHDI in the 2001 period (decrease of $1,271,700); (ii)
the termination of the exclusivity period related to our 1997 acquisition of
PreScribe(R) in June 2000 (decrease of $250,000); (iii) the write-off of
15
obsolete and impaired fixed assets and previously capitalized software in
December 2000 (decrease of $183,800); offset by (iv) the commencement of
goodwill amortization from our May 2001 acquisition of MDP (increase of
$538,100).
Interest, Net. We earned net interest income of $70,500 for the six months
ended June 30, 2001 whereas we incurred net interest expense of $3,912,400 for
the six months ended June 30, 2000. The 2001 period amount includes interest
expense of $81,900 related to the note payable for our acquisition of MDP while
the 2000 period 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.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $5,360,600 for the six months ended June 30, 2001
compared to $16,404,500 for the six months ended June 30, 2000.
Deemed Dividends and Other Charges. We incurred total deemed dividend and
other charges of $4,656,400 in the six months ended June 30, 2001 primarily as a
result of (i) non-cash accounting charges from the anti-dilution reset in number
and price of certain warrants issued to our Series B preferred stockholders in
February 2001 ($1,968,000); (ii) non-cash accounting charges from the exchange
of 4,075,496 warrants into 3,282,423 shares of common stock by our Series B
preferred stockholders in April 2001 ($1,854,600); and (iii) dividends paid to
our Series C preferred shareholders through issuance of 877,435 shares of common
stock in 2001 ($830,500). In the six months ended June 30, 2000, 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 $14,412,100 consisting of the following: (i) the unamortized
beneficial conversion feature of the debt upon the conversion to the new
Series C preferred stock ($9,762,800); (ii) the premiums paid on the redemption
of the Series B preferred shares ($2,873,000); (iii) the repricing of existing
warrants ($610,100); (iv) the issuance of new warrants ($715,000); and (v)
professional and other fees ($451,200). Additionally, in the six months ended
June 30, 2000, we paid dividends to the holders of our Series B preferred stock
by issuing 29,278 shares of our common stock in April 2000 ($223,770).
Net Loss Applicable to Common Shareholders. As a result of the foregoing,
we recorded a net loss applicable to common shareholders of $10,017,000 for the
six months ended June 30, 2001 compared to $30,833,100 for the six months ended
June 30, 2000.
Liquidity and Capital Resources
-------------------------------
In the six month period ended June 30, 2001, cash used in operating
activities totaled $310,600. 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 paid $3,000,000 as our initial
payment for our acquisition of MDP in May
16
2001; paid $396,400 for fixed assets; paid $100,900 against our capital leases,
including the payoff of a note payable assumed as a result of our acquisition of
MDP; paid dividends to the holders of Series B preferred stock with cash
payments of $1,600; and paid dividends totaling $830,500 to the holders of our
Series C preferred stock by issuing 877,435 shares of our common stock. These
activities were principally financed through available cash resources. After
these activities, we had cash and cash equivalents totaling $5,033,900 as of
June 30, 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. We paid $3 million at closing and executed a $7 million promissory
note payable in May 2002. The acquisition of MDP has been and is expected to
continue 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 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 June 30, 2001, we have spent
approximately $128,000 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 successfully increased revenues and reduced our expenses
subsequent to December 2000, we achieved our goal of positive operational cash
flows in the second quarter of 2001; however, we must be able to maintain and
increase our revenues and keep our expenses in check to sustain this positive
momentum. We believe that we can continue to make progress in our business
strategy and achieve net income profitability in
17
early 2002. While our payer services and laboratory services divisions continue
to generate positive cash flows, our prescription services division has not
generated positive cash flows 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. 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 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.
New Accounting Pronouncements
-----------------------------
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 eliminates the pooling-of-interest method for business
combinations and requires application of the purchase method. SFAS No. 142
changes the accounting for goodwill from an amortization approach to a non-
amortization (impairment) approach. SFAS No. 142 requires amortization of
goodwill recorded in connection with previous business combinations to cease
upon adoption of the SFAS No. 142 by calendar year companies on January 1, 2002.
We are currently studying the impact of these statements on our financial
position, results of operations and cash flows.
18
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; the successful exchange of our Series C
related warrants into common stock; 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.
19
PART II - OTHER INFORMATION
---------------------------
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 4. - Submission of Matters to a Vote of Security Holders
Subsequent to the quarter ended June 30, 2001, at the Company's annual
meeting held on July 25, 2001, the shareholders approved the following
resolutions:
- Election of Directors. The following persons were elected to serve on
the Board of Directors until the next annual meeting of the shareholders or
until the election and qualification of their respective successors: Michael K.
Hoover, Harold S. Blue, Edwin M. Cooperman, Gerald B. Cramer, Donald G Drapkin,
Michael S. Falk, Thomas E. Hodapp, Bertram J. Polan, and Eugene R. Terry. The
total number of votes cast for directors was 27,267,568, and each director
received between 26,323,206 and 26,565,045 votes in favor and between 702,523
and 944,362 votes withheld (including broker non-votes).
- Adoption of the 2001 Stock Option Plan. The total number of votes cast
for this proposal, which provides for the issuance of up to 5,000,000 shares of
common stock upon the exercise of options by our employees, officers and
directors effective July 25, 2001, was 14,477,762. Of these votes, 12,362,174
were in favor, 1,927,371 were against and 188,217 abstained.
- Adoption of the amendment of the Company's restated Articles of
Incorporation to increase the number of authorized shares of common stock from
100,000,000 to 200,000,000. The total number of votes cast for this proposal,
which approves an additional 100,000,000 authorized shares of Common Stock, par
value $.001, was 27,267,568. Of these votes, 25,373,669 were in favor,
1,799,615 were against and 94,284 abstained.
20
Item 6. - Exhibits and Reports on Form 8-K.
(a) Exhibits:
- None
(b) Reports on Form 8-K:
- April 24, 2001 - Report on exchange agreement reached with
ProxyMed's Series B Preferred warrantholders.
- May 1, 2001 - Report on the acquisition of the assets of MDP
Corporation.
- June 15, 2001 - Report on exchange offer to ProxyMed's Series
C Preferred warrantholders.
21
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)
August 6, 2001 /s/ Judson E. Schmid
-------------- --------------------
(Date) Judson E. Schmid
Executive Vice-President and
Chief Financial Officer
22