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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2000
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or
[ ] 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.
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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, Fort Lauderdale, Florida 33317-7424
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 473-1001
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Securities registered under Section 12(b) of the Act: NONE
Securities registered under Section 12(g) of the Act:
Common Stock, $.001 Par Value
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(Title of class)
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
Indicate by check mark if disclosure of delinquent filers in response
to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant's knowledge ,
in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant computed using $1.19 per share, the closing price of the
registrant's common stock on the Nasdaq National Market on March 16, 2001, was
$22,940,783.
As of March 16, 2001, 21,038,725 shares of the registrant's common
stock were issued and outstanding.
Documents Incorporated by Reference: NONE
PART I
ITEM 1. OUR BUSINESS
ProxyMed, Inc. 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. We maintain an open electronic network for electronic transactions
with no equity ownership in businesses engaged in the front-end (i.e., physician
practice management software system vendors and other physician desk top
vendors), or in the back-end (i.e., payers, laboratories and pharmacies), unlike
our competitors. Our business strategy is to leverage our leadership position in
financial and clinical electronic data interchange ("EDI") in order to establish
ProxyMed as the premier provider of physician connectivity to payers, clinical
laboratories and pharmacies. With our neutral position, we believe that we can
better attract both front-end and back-end partners who may be more comfortable
doing business with a non-competitive partner.
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
connectivity to one of the industry's largest group of insurance companies and
managed care payers, the largest group of clinical laboratories, and the largest
group of chain and independent pharmacies. Our products and services are
provided from our three operational facilities located in Fort Lauderdale,
Florida; New Albany, Indiana; and Santa Ana, California.
The healthcare marketplace was over a $1.3 trillion industry in 2000,
with 600,000 physicians controlling 80% of the spending. The healthcare industry
generates over 30 billion financial and clinical transactions each year,
including new prescription orders, refill authorizations, laboratory orders and
results, medical insurance claims, insurance eligibility inquiries, encounter
notifications, and referral requests and authorizations. We believe that the
healthcare industry lags behind many other transaction-intensive industries,
with the vast majority of these healthcare transactions being performed manually
and on paper. For physicians, payers, laboratories and pharmacies to meet the
financial and clinical demands of an evolving managed care system, we believe
that participants in the healthcare system will need to process many of these
types of transactions electronically. Due to the number of participants, lack of
standards and complexity of establishing reliable and secure communication
networks, the healthcare industry needs companies such as ProxyMed with its
secure, proprietary systems to facilitate the processing of these transactions.
Sale of Network Engineering and Drug Dispensing Divisions
On March 31, 2000, we completed the sale of our network integration
division and our prescription drug dispensing subsidiary, ProxyCare, Inc., in
separate transactions valued at approximately $3.7 million.
* * *
Our corporate offices are located at 2555 Davie Road, Suite 110, Fort
Lauderdale, Florida 33317-7424, and our telephone number is (954) 473-1001.
Overview of ProxyMed. Where Healthcare Connects(TM)
Our focus is connecting physicians with their contracted financial and
clinical partners so that they can conduct transactions electronically. We are
organized into two business segments: electronic healthcare transaction
processing and laboratory communication devices and services. Electronic
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healthcare transaction processing includes transaction and value-added services
principally between physicians and insurance companies (Payer Services) and
physicians and pharmacies/pharmacy benefit managers (Prescription Services); and
laboratory communication devices and services includes the sale, leasing and
services of communication devices principally to laboratories and the contract
manufacturing of printed circuit boards (Laboratory Services). This organization
of our activities creates sharper focus for providing services and transactions
to a defined set of back-end partners within each group, and creates
accountability for achieving our revenue goals of $42.5 million and $3.0 million
in earnings before interest, taxes, depreciation and amortization (EBITDA) for
fiscal 2001 as set forth in our Form 8-K filed with the SEC on December 11,
2000.
We are well positioned today as one of the largest financial EDI
healthcare clearinghouses, the largest provider of lab results reporting
devices, and the largest provider of retail pharmacy connectivity. In 2000, we
processed approximately 60 million electronic transactions among physicians,
payers, laboratories and pharmacies. We leverage our back-end transaction
network, ProxyNet, and continue to add partners by developing new value added
products and services, additional payer transaction types, improved eligibility
and claim status reports, and expanding our transaction offerings such as
claims, lab orders, lab results reporting and prescription refills through our
Internet portal, proxyMed.com. We are an attractive, neutral partner to
front-end eHealth companies who are focused on physician office services, as we
remain the only national and independent transaction clearinghouse that does not
compete with them for the physicians desktops and who can connect their
physicians on the back-end to carry on electronic transactions between them and
their payers, laboratories and pharmacies.
Our business is driven by the healthcare community's need to more efficiently
process information
The major drivers of our business are those physicians who wish to
adopt secure electronic solutions that improve the quality of their patient care
while reducing costs and administration time. We believe that it is just a
matter of time before the majority of physicians, payers, laboratories and
pharmacies will embrace the electronic transmission and processing of virtually
all of a patient's medical transactions. Our efforts concentrate on innovative
design of our products and services that make these electronic transactions easy
to use, fast, reliable and secure. ProxyNet, our secure, proprietary national
on-line healthcare information network, and proxyMed.com are our key enablers
that make this possible. We are a leader in solving these back-end connections
and provide a host of transaction services to physicians which we believe will
reduce costs by increasing efficiency, minimize transcription errors, and enable
physicians to make more informed decisions at the point of care.
Connectivity and existing relationships are key strengths
Our advantage lies in two critical areas. First, our existing
connectivity to payers positions us among the largest medical claims
clearinghouses in the industry, with over 60 million transactions annually, 92%
of which are sent directly to the designated payer rather than being routed
through other clearinghouses. We are the largest provider of laboratory results
reporting devices and the largest provider of retail pharmacy connectivity. Our
electronic transaction processing services support a broad range of financial
transactions (such as claims, claims status reports, eligibility verification,
explanations of benefits, and electronic remittance advices) and clinical
transactions (such as laboratory results, new prescription orders and
prescription refills). These connections allow information to reliably move back
and forth from the physician's office to the supplier (payer, laboratory and
pharmacy), facilitating diagnosis, treatment and payment. We have licensing and
connectivity agreements with many national and regional companies, such as
practice management system vendors, billing services, and eHealth companies, and
physicians who are using our connectivity to provide these services. Our second
advantage is our customer relationships. We have more than 25,000 physicians
directly using at least one of our existing solutions and tens of thousands more
using our services through other intermediaries.
3
We have built a comprehensive back-end model which would be difficult and
time-consuming to replicate
We were an early entrant into the healthcare electronic transaction
model, having developed, as a result of our own efforts and through
acquisitions, our back-end connectivity for both financial and clinical
transactions. We believe that the development and maintenance of our connections
from both a technical and relationship perspective were costly, complex and
time-consuming, and represent a barrier to entry for would-be competitors.
Having accomplished much of this task, there is an opportunity for us to
leverage our existing connectivity and existing relationships, especially since
we believe we are the only connectivity company that is, in fact, processing new
prescriptions, refill prescriptions and laboratory test results reports.
Marketing
We have a direct sales force and customer support staff that serves
physicians, payers, laboratories and pharmacies. In addition, since we do not
compete for the physician desktop and allow for private branding of our
value-added products and services, we are able to leverage the marketing and
sales efforts of our partners by giving them even greater added value to drive
our revenues and transactions.
We utilize the following distribution channels for our products and
services to maximize connectivity between physicians, payers, laboratories and
pharmacies and other healthcare providers:
Channel Focus
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Direct We have a direct sales force, account
managers and customer support that serve
our physicians, payers, laboratories and
pharmacies. We license access to our
proprietary network, ProxyNet, and
provide lab results reporting devices
for communications between physicians
and labs.
Partners We work with the vendors of physician
and pharmacy office management systems
so that they may enable their existing
applications to process transactions
through ProxyNet between physicians and
payers, laboratories and pharmacies. We
also license these customers to offer
our products and services under their
own private label. We also connect other
electronic transaction processing
networks to ProxyNet so that the
participants on both networks can
communicate with each other in National
Council of Pharmacy Drug Program (NCPDP)
standard, HIPAA approved formats, and
the HL-7 standard format for
laboratories.
Internet We are a provider of financial and
clinical electronic transaction
processing services through our web
portal, proxyMed.com, which may be
easily accessed by any physician with an
Internet connection.
Product and services development
We continue to broaden our offerings to include Internet-based
financial and clinical electronic transaction processing services to be embedded
in a web-based suite of applications. Laboratory test
4
results reporting, claims submission, eligibility transactions and prescription
refills are available today on proxyMed.com, and all applications have a common
user interface and are easily accessed via the Internet through proxyMed.com.
Additional services over the Internet will include other clinical transactions
such as new prescription orders, formulary messaging; financial transactions
such as encounters, referrals, and electronic remittance advices; and office
applications such as appointment reminders.
The total amount capitalized for purchased technology, capitalized
software and other intangible assets as of December 31, 2000, was approximately
$3,942,000, net of amortization. Research and development expense was
approximately $3,130,000 in 2000, $2,898,000 in 1999 and $2,978,000 in 1998. See
Note 1 of Notes to Consolidated Financial Statements.
Competition
We face competition from many healthcare clearinghouses and other
healthcare companies. Unlike us, many of our competitors also have eHealth
businesses providing front-end physician office and/or patient benefit
management services. In addition, many of our competitors are significantly
larger and have greater financial resources than we do. The healthcare
electronic transaction processing industry has been targeted for growth by many
companies, including WebMD Corporation, National Data Corporation, and other
healthcare related entities such as MedUnite and RxHub LLC, who have announced
that they intend to develop technologies utilizing a private network and/or
Internet-based systems.
Healthcare and privacy related legislation
The federal Health Insurance Portability and Accountability Act of
1996, known as HIPAA for short, mandates the use of standard transactions,
standard identifiers, security and other standards and requirements for the
transmission of certain electronic health information. HIPAA specifically
designates clearinghouses as the compliance facilitators for healthcare
providers and payers. On August 17, 2000, the U.S. Department of Health and
Human Services ("HHS") published final regulations to govern eight of the most
common electronic transactions involving health information, which require
compliance by October 16, 2002. On February 13, 2000, HHS published final
regulations establishing standards for the privacy of individually identifiable
health information, which, if not further delayed, will become effective April
14, 2001, and require compliance by April 14, 2003. These new regulations
continue to be the subject of much debate, and are lengthy, complex, and often
subject to a variety of technical and legal interpretations which we expect will
become clearer as further guidance from HHS and the healthcare industry becomes
available.
System security safeguards and patient identifiable data
confidentiality are of paramount importance to us. Depending on the type of
transaction and the route of data through ProxyNet and proxyMed.com, and in
addition to internal administrative security systems, we have in place an
intrusion detection system, a firewall system, a VPN system, a web enabled
security system, and a Secure Sockets Layer encryption system, which is the same
technology used to protect sensitive information in the financial and banking
industries. We believe we are in substantial compliance with many of the HIPAA
regulations, and we are committed to be in compliance with all HIPAA regulations
by the required compliance dates or sooner. We expect, but have no assurances,
that those business associates of ours who are also covered by these regulations
will also be in full compliance by these dates. There is a possibility that due
to these standardization, over time it will be easier for competitors to develop
electronic transaction processing technology similar to ours, which would make
our competitive strength of accepting financial transactions in multiple formats
less of a differentiating factor for some of our customers.
5
Intellectual Property
In large part our success is dependent on our proprietary information
and technology. We rely on a combination of contract terms, copyright, trademark
and trade secret laws, and other measures to protect our proprietary information
and technology. We have federal trademark registrations for ProxyMed, ProxyNet
and other trade and service marks, and have filed trademark applications for
"Where Healthcare Connects" and "Empowering Physicians with eSolutions", which
are currently pending approval. We have no patents. As part of our
confidentiality procedures, we generally enter into nondisclosure agreements
with our employees, partners and customers which seek to preserve the
confidentiality of our trade secrets, and limit access to and distribution of
our products and services and related documentation and other proprietary
information. Although we believe our products, services and technology do not
infringe on any proprietary rights of others, as the number of products and
services available in the market increase and the functions of those
applications further overlap, technology companies like us may become
increasingly subject to infringement claims.
Employees
As of March 16, 2001, we employed 241 full-time employees, and 12
part-time employees. We are not and never have been a party to a collective
bargaining agreement. We consider our relationship with our employees to be
good.
ITEM 2. PROPERTIES
Our offices are in Fort Lauderdale, Florida, where our Prescription
Services business unit and Corporate Headquarters are located; in New Albany,
Indiana, where our Laboratory Services business unit is located; and in Santa
Ana California, the site of our Payer Services business unit. Our leases
generally contain renewal options and require us to pay base rent, plus property
taxes, maintenance and insurance. We consider our present facilities adequate
for our operations.
ITEM 3. LEGAL PROCEEDINGS
We do not have any legal proceedings pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 2000.
6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCK MATTERS
Our common stock trades on the National Market tier of The Nasdaq Stock
Market under the symbol "PILL". The following table sets forth the high and low
sale prices of the common stock for the periods indicated.
High Low
1999:
First Quarter............................. $14.50 $ 8.50
Second Quarter............................ 21.25 11.25
Third Quarter............................. 16.44 10.75
Fourth Quarter............................ 15.88 8.75
2000:
First Quarter............................. $11.25 $ 8.00
Second Quarter............................ 8.44 1.19
Third Quarter............................. 1.94 1.03
Fourth Quarter............................ 1.69 0.75
2001:
First Quarter............................. $1.56 $ 0.94
(through March 16, 2001)
On March 16, 2001, the last reported sale price of the common stock was
$1.19 per share. As of March 16, 2001, there were 290 holders of record of the
common stock. We believe that many of these holders of record are in "street
name" and that the number of individual shareholders is greater than 2,500.
We have not paid any dividends on our common stock; however, we have
paid dividends on our Series B and Series C Preferred Stock in cash and/or in
shares of our common stock pursuant to the terms of the Articles of
Incorporation, as amended. We intend to retain any earnings for use in our
operations and the expansion of our business, and do not anticipate paying any
dividends on the common stock in the foreseeable future. The payment of
dividends on our common stock is within the discretion of our Board of
Directors, subject to our Articles of Incorporation, as amended. Any future
decision with respect to dividends on common stock will depend on future
earnings, future capital needs and our operating and financial condition, among
other factors.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information for ProxyMed as of and for each of the five years in the period
ended December 31, 2000, and has been derived from our audited consolidated
financial statements. Since March 1995, our business focus changed from
primarily the sale of prescription drugs to providing connectivity services and
related value-add products to physicians, payers, medical laboratories,
pharmacies and other healthcare providers. Accordingly, financial information
relating to our prescription drug dispensing and network integration segments
has been reclassified as discontinued operations. The data set forth below
should be read in conjunction with
7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our Consolidated Financial Statements and related notes.
Year Ended December 31,
-----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Revenues $ 33,441,100 $ 29,023,100 $ 22,249,300 $ 1,817,100 $ 1,886,000
Operating loss $(23,460,100) $(20,018,900) $(11,087,000) $(14,860,200) $ (4,341,400)
Loss from continuing
operations $(26,926,500) $(20,119,800) $(11,193,700) $(14,593,000) $ (2,889,500)
Income (loss) from
discontinued
operations $ 241,400 $ (1,714,400) $ (594,500) $ (3,924,100) $ 35,800
Net loss applicable to
common shareholders $(48,051,700) $(21,856,400) $(11,788,200) $(18,517,100) $ (2,949,500)
PER SHARE DATA:
Basic and diluted net loss per
share of common stock:
Loss from continuing
operations $ (2.47) $ (1.12) $ (0.71) $ (1.38) $ (0.39)
Income (loss) from
discontinued operations $ 0.01 $ (0.09) $ (0.04) $ (0.37) $ --
Net loss $ (2.46) $ (1.21) $ (0.75) $ (1.75) $ (0.39)
Weighted average common shares
outstanding 19,565,125 18,032,042 15,653,374 10,589,333 7,660,383
DIVIDEND DATA:
Dividends on common
stock $ -- $ -- $ -- $ -- $ --
Dividends on cumulative
preferred stock $ 1,274,500 $ 22,200 $ -- $ -- $ 95,800
Year Ended December 31,
-----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Working capital $ 12,155,500 $ 12,579,700 $ 7,564,500 $ 1,966,400 $ 12,426,200
Long-term obligations $ 729,100 $ 583,100 $ 1,367,200 $ 1,049,600 $ --
Total assets $ 27,666,400 $ 44,772,900 $ 46,902,700 $ 18,348,500 $ 15,651,900
Net assets of discontinued
operations $ -- $ 3,022,100 $ 4,039,700 $ 2,477,800 $ 888,300
Stockholders' equity $ 22,377,100 $ 37,755,600 $ 40,279,100 $ 13,151,800 $ 14,915,300
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
In 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
8
broad range of both financial and clinical transactions. To facilitate these
services, we operate ProxyNet, 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 provided from our three
operating facilities located in Fort Lauderdale, Florida; New Albany, Indiana;
and Santa Ana, California.
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
then 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 $21,383,000. 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 5 and 6 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, and our former
chief executive officer was appointed interim chief executive officer. In August
2000, he resigned as interim chief executive officer and became vice-chairman of
the board of directors, and a consultant to us through December 2000. We hired a
new chairman/chief executive officer in July 2000. Until this time, 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 under
our new management team, our new strategy is now more tightly focused on
leveraging our leading position as a neutral, independent back-end connectivity
provider rather than developing software products and applications for the
physician's desktop. In order to move towards overall company profitability, we
have continued to make additional operational expense reductions in the fourth
quarter of 2000 and the first quarter of 2001.
Results of Operations
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Revenues. Consolidated net revenues for 2000 increased by
$4,418,000, or 15%, to $33,441,000 from consolidated net revenues of $29,023,000
for 1999. This net increase is primarily due to volume increases in lab results
reporting device sales, servicing events and contract manufacturing in our
Laboratory Services business unit (increase of $4,600,000) and electronic
prescription transaction
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volume and average per unit revenue increases in our Prescription Services
business unit (increase of $555,300) plus one-time revenue of $500,000 for the
termination of a previously executed multi-year services agreement. These
increases were offset by average per unit revenue decreases in our Payer
Services business unit as a result of the change in mix of our services sold
(decrease in revenue of $812,100) and a one-time source code license sale in the
1999 period (decrease of $425,000) in our Prescription Services business unit.
In terms of transaction volume processed through ProxyNet, for 2000, we
processed 2.6 million recurring electronic prescription and other clinical
transactions, an increase of 29% over 1999 levels, and 56.6 million electronic
financial claim transactions in 2000, an increase of 1.4% over 1999 levels.
Cost of Sales and Gross Profit Margin. Cost of services and license
fees includes third-party electronic transaction processing costs, certain
telecommunication costs, revenue sharing and rebate arrangements with our
business partners, third-party database 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 2000 was 63% compared to 69% for
1999. This decrease was primarily due to the higher percentage of overall
revenues generated from our lab services business unit which are at lower profit
margins due to the general tangible nature of the goods sold.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for 2000 increased by $159,000, or less than
1%, to $27,097,000 from consolidated SG&A expenses of $26,938,000 for 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 2000 ($1,643,000);
(ii) increases in professional fees for legal and consulting projects
($566,000); (iii) a contingency for software licensing deficiencies ($200,000),
offset by (iv) decreases in net payroll, outside labor and related expenses net
of capitalization for software development primarily for proxyMed.com (decrease
of $1,454,000); (v) charges related to activities associated with our terminated
engagement of Salomon Smith Barney to help us evaluate our strategic
alternatives in 1999 (decrease of $492,000); and (vi) net decreases in other
general expenses (decrease of $304,000). Although the consolidated increase is
minimal, our expense structure had undergone significant decreases in the second
six months of the 2000 year as a result of our restructuring in May 2000 and the
refocus of our business strategy that was set in place after a new management
team was established. During the first six months of 2000, we continued to incur
significant expenses in additional personnel costs, advertising and promotion,
and development costs for our web portal. As a result of our expense reduction
plan enacted in the second quarter of 2000, we eliminated approximately $800,000
per month in expenses by the end of 2000. We have continued to make additional
expense reductions in order to achieve profitability in 2001. As a result of
these factors, consolidated SG&A expenses as a percentage of consolidated net
sales decreased to 81% in 2000 from 93% in 1999.
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. We recorded a charge of
$1,330,000 in 2000 primarily for separation payments and marketing contracts
that were canceled. As a result of this plan and further expense reductions in
the fourth quarter of 2000 and first quarter of 2001, including the elimination
of additional employees, annualized expenses have been reduced by approximately
$9.5 million.
Depreciation and Amortization. Consolidated depreciation and
amortization expense increased $311,000, or 2%, to $13,375,000 for 2000 from
$13,064,000 for 1999. This net increase was primarily due to the (i)
commencement of the amortization of our proxyMed.com development projects in
June 2000 ($462,000); (ii) additional computer hardware and peripherals
purchased for our various production
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and administrative computer networks and new manufacturing equipment at our
Laboratory Services business unit ($77,000); (iii) amortization of a non-compete
agreement with our former president/chief operating officer ($117,000); offset
by (iv) an adjustment to amortization expense related to the final debt payment
paid in April 2000 for the acquisition of Clinical MicroSystems, Inc., 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 $250,000).
Write-off of Obsolete and Impaired Assets. As a result of our change in
business strategy, in December 2000, we wrote off $2,850,000 in obsolete fixed
assets, primarily computer hardware, and previously capitalized software
projects, including our costs to develop our Internet portal, proxyMed.com.
These write-offs are expected to lower our depreciation and amortization charges
by approximately $335,000 per quarter in future periods.
Interest, net. We incurred net interest expense of $4,133,000 for 2000
compared to $101,000 for 1999. The 2000 amount reflects (i) charges of
$1,270,000 related to the amortization of costs from our private placement of
convertible debt securities completed in June 2000; (ii) $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 (iii) $441,000 in additional interest income earned on
higher cash balances invested and the reduction of interest expense related to
our line of credit terminated in June 2000.
Income from litigation settlement, net. In 2000, we settled a matter
out-of-court which resulted in income of $667,000, net of legal and other costs.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $26,927,000 for 2000 compared to a loss from
continuing operations of $20,120,000 for 1999.
Discontinued Operations. As a result of selling both the network
integration and prescription drug dispensing segments in March 2000 for total
proceeds of approximately $3,653,000, we recorded a net gain of $545,000. The
loss from the operations of our discontinued network integration and
prescription drug dispensing segments was $304,000 in 2000 compared to
$1,195,000 in 1999. Revenues from the network integration segment were
$2,372,000 in 2000 compared to $11,107,000 in 1999. The net loss for this
segment was $328,000 in 2000 compared to $1,045,000 in 1999. Revenues from the
prescription drug dispensing segment were $575,000 in 2000 compared to
$2,200,000 in 1999. Net income for this segment was $24,000 in 2000 compared to
a net loss of $150,000 in 1999.
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
$14,614,000 in 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 ($3,051,000); (iii) the repricing of existing warrants
($610,000); (iv) the issuance of new warrants ($715,000); and (v) professional
and other fees ($476,000). Additionally, in 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 in August 2000 ($500,000) and in December 2000, we recorded a
catch-up accounting charge of $4,978,000 relating to the beneficial conversion
of the original Series B preferred shares issued in December 1999. For 2000, we
paid dividends totaling $227,000 to the holders of the Series B Preferred stock
by issuing 31,844 shares of our common stock and with cash payments of
11
$3,000, and paid dividends totaling $1,047,000 to the holders of the Series C
Preferred stock by issuing 881,310 shares of our common stock, of which 445,245
shares were issued in January 2001.
Net Loss Applicable to Common Shareholders. As a result of the
foregoing, we recorded a net loss applicable to common shareholders of
$48,052,000 for 2000 compared to $21,856,000 for 1999.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Revenues. Consolidated net revenues for 1999 increased by
$6,774,000, or 30%, to $29,023,000 from consolidated net revenues of $22,249,000
for 1998. This increase was primarily due to the net effect of: (i) our
acquisitions of Key Communications Service, Inc., Specialized Medical
Management, Inc. and WPJ, Inc. d/b/a Integrated Medical Systems ($11,525,000),
which were all consummated during or subsequent to the 1998 period, partially
offset by (ii) decreases from the sales of non-exclusive source code licenses
for our prescription and laboratory software products, which were sold in the
1998 period ($4,751,000), for which there were no comparable transactions in
1999.
Cost of Sales and Gross Profit Margin. Cost of services and license
fees includes third-party electronic transaction processing costs, revenue
sharing and rebate arrangements with our business partners, certain
telecommunication costs, third-party database 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 1999 was 69% compared to 78% in
1998. This decrease was primarily due to the favorable impact in the 1998 period
from higher sales of non-exclusive prescription and laboratory source code
software licenses.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for 1999 increased by $7,173,000, or 36%, to
$26,938,000 from consolidated SG&A expenses of $19,765,000 for 1998. This
increase is primarily due to the net effect of (i) increases in SG&A expenses
from our acquisitions of Key Communications, Specialized Medical Management and
Integrated Medical Systems, all of which were acquired during or subsequent to
the 1998 period, including costs associated with the integration of previously
separate processing networks for financial transactions ($5,391,000); (ii)
development expenses related to proxyMed.com ($1,411,000); (iii) estimated
credit loss due to the declaration of bankruptcy by one customer ($306,000);
(iv) charges related to activities associated with our terminated engagement of
Salomon Smith Barney to help us evaluate our strategic alternatives ($492,000);
partially offset by (v) expenses associated with our merger with Key
Communications incurred in 1998 ($427,000). As a result of these factors,
consolidated SG&A expenses as a percentage of consolidated net sales increased
to 93% in 1999 from 89% in 1998.
Depreciation and Amortization. Consolidated depreciation and
amortization expense increased $4,418,000, or 51%, to $13,064,000 for 1999 from
$8,646,000 for 1998. This increase was primarily due to amortization charges for
goodwill and other intangible assets associated with our acquisitions of
Specialized Medical Management in 1999 and Integrated Medical Systems in 1998.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $20,120,000 in 1999 compared to a loss from
continuing operations of $11,194,000 in 1998.
Discontinued Operations. The loss from the discontinued operations of
our network integration and prescription drug dispensing segments increased by
$601,000, to a loss of $1,195,000 in 1999 from a loss of $594,000 in 1998. For
1999, we had estimated a loss on the disposal of the prescription drug
dispensing segment of $519,000 including estimated operating losses through the
disposal date and other exit costs.
12
Revenues from the network integration segment were $11,107,000 in 1999
compared to $13,855,000 in 1998. In 1999, in connection with our then new
initiative to develop proxyMed.com, management decided to adopt Microsoft
technology for email, and abandoned the Krypton Internet Messaging Server
in-process research and development technology acquired in its acquisition of
Hayes Computer Systems. Accordingly, the 1999 contingent payment made to the
former owner of Hayes Computer Systems was recorded as goodwill, and was being
amortized through April 30, 2000. Amortization expense included in 1999 was
$667,000, compared to no amortization expense in 1998. Additionally, as a result
of the 1998 contingent payment, we recorded a charge of $743,000 in 1998 related
to the expensing of in-process research and development technology. As a result
of the foregoing, primarily as a result of decreased sales, the net loss for
this segment was $1,045,000 in 1999 compared to $539,000 in 1998.
Revenues from the prescription drug dispensing segment were $2,200,000
in 1999 compared to $1,663,000 in 1998. The net loss for this segment was
$150,000 in 1999 compared to $56,000 in 1998.
Dividends. As a result of the issuance of preferred stock December
1999, we accrued $22,000 in dividends for 1999.
Net Loss Applicable to Common Shareholders. As a result of the
foregoing, we recorded a net loss applicable to common shareholders of
$21,856,000 for 1999 compared to a net loss of $11,788,000 for 1998.
Liquidity and Capital Resources
In 2000, cash used in operating activities totaled $7,077,000. 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, the write-off of obsolete and impaired fixed
assets and previously capitalized software projects, 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 2000, we paid
approximately $15,748,000 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 Business Credit Corp. of $3,000,000, spent
$2,808,000 for fixed assets and capitalized software development costs, paid
dividends totaling $227,000 to the holders of Series B Preferred Stock by
issuing 31,844 shares of our common stock and cash payments of $4,000, and paid
dividends totaling $1,047,000 to the holders of our Series C Preferred stock by
issuing 881,310 shares of our common stock, of which 445,245 shares were issued
in January 2001. These activities were financed through the private placements
in June and August 2000 of $25,310,000 in convertible securities (resulting in
net proceeds to us of $22,383,000), the collection of notes receivables from our
sale of discontinued operations ($1,649,000), the collection of a litigation
settlement ($667,000, 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 $8,841,000 as of December 31, 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
$1,649,000 through December 31, 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
13
in cash and 33,708 shares of common stock; and (iii) $500,000 in June 2000 to
the former owner of our PreScribe 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, and our former chief
executive officer was appointed interim chief executive officer. We estimated
that our annual expenses would be reduced by approximately $8.0 million under
this plan, and with additional personnel and other expense reductions in the
fourth quarter of 2000 and the first quarter of 2001, we have exceeded the
expense reduction goal. Our previous chairman/interim chief executive officer
has become our vice-chairman. We have since appointed a new chairman/chief
executive officer and a new chief operating officer.
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 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.
In June 2000, we paid in full and terminated our accounts
receivable-based revolving line of credit that had an outstanding balance of
$3,000,000. We have not entered into any other line of credit arrangement at
this time.
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.
As we have continued to reduce our expenses subsequent to December 2000
in order to achieve our goal of operational cash flow break-even, 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 business units continue to generate positive cash flows, our
Prescription Services business unit has not generated positive cash flow to
date. In addition, 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.
14
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 may adversely impact our
ability to successfully execute our business plan and may put us at a
competitive disadvantage.
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which provides guidance on applying generally accepted accounting
principles for recognizing revenue. SAB 101 is effective for fiscal years
beginning after December 15, 1999. The adoption of SAB 101 did not have a
material effect on our consolidated financial statements.
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; 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 urged 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.
The following are additional factors to those appearing in this document
affecting our business and operations. You should carefully read these together
with this document and our other SEC filings before considering investing in our
Company
We have important business relationships with other companies to market and sell
some of our clinical products and services which have not resulted in
significant sales yet and if these companies are unsuccessful, we will need to
add this emphasis internally, which may divert our efforts and resources from
others projects.
For the marketing and sale of some of our clinical products and
services, we entered into important business relationships
15
with physician office management information system vendors and electronic
medical record vendors and through other agreements. These important business
relationships, which have required and may continue to require significant
commitments of effort and resources, have yet to generate substantial recurring
revenue, and we cannot assure that they will ever generate substantial recurring
revenue. Most of these relationships are on a non-exclusive basis, and we cannot
assure that our electronic commerce partners and other strategic partners, most
of whom have significantly greater financial and marketing resources than we do,
will not develop and market products and services in competition with us in the
future or will not otherwise discontinue their relationship with us. Also, our
arrangements with some of our partners involve negotiated payments to the
partners based on percentages of revenues generated by the partners. If the
payments prove to be too high, we may be unable to realize acceptable margins,
but if the payments prove to be too low, the partners may not be motivated to
produce a sufficient volume of revenues. The success of our important business
relationships will depend in part upon our partners' own competitive, marketing
and strategic considerations, including the relative advantages of alternative
products being developed and marketed by such partners. If any such partners are
unsuccessful in marketing our products, we will need to place added emphasis on
these aspects of our business internally, which may divert our planned efforts
and resources from other projects.
Our laboratory communication devices may be replaced with web-based technology
for lab results delivery, and we may not be successful in converting our
customers to our own Internet portal, proxyMed.com, which would adversely impact
our revenues.
A key element of our Laboratory Services business strategy is to market
our laboratory results reporting devices and related services, and our web-based
solutions, directly to independent and hospital-based medical laboratories. As
the Internet becomes a more acceptable method of transmitting laboratory orders
and reporting results because of the efficiencies and savings believed to be
available, we are leveraging our 20-plus years of goodwill and reputation for
quality of products and superior service to migrate our customers over to our
own Internet portal, proxyMed.com. We expect others to develop similar web-based
solutions and compete aggressively in an attempt to capture our large customer
base. We have no assurances that we will be able to retain or continue to grow
our customer base. Further, even as to the continuing sales of our laboratory
communication devices, we are unable to control many of the factors that
influence our customers' buying decisions, including our customers' budgets and
procedures for approving expenditures, and the changing political, economic and
regulatory influences which affect the purchasing practices and operation of
healthcare organizations.
The acceptance of electronic transaction processing in the healthcare industry
is still in its early stages; thus, the future of our business is uncertain.
Our strategy anticipates that electronic processing of healthcare
transactions, including transactions involving clinical as well as financial
information, will become more widespread and that providers and third-party
payers increasingly will use electronic transaction processing networks for the
processing and transmission of data. Electronic transmission of healthcare
transactions (and, in particular, the use of the Internet to transmit them) is
still developing, and complexities in the nature and types of transactions which
must be processed have hindered, to some degree, the development and acceptance
of electronic transaction processing in this industry. We cannot assure that
continued conversion from paper-based transaction processing to electronic
transaction processing in the healthcare industry, using proprietary physician
management systems or the Internet, will occur.
Our clinical transaction products and services have yet to be tested on a large
scale and could fail under a heavy customer load.
The quality of our clinical transaction products and services is
important to our business. Although we have completed the development of most of
our electronic transaction processing network, which we believe efficiently
performs the principal functions for which it has been designed, our clinical
transaction products and services and the network are currently being utilized
only by a limited number of customers for these transactions. We cannot assure
that, upon widespread commercial use of our clinical transaction products and
services, they will satisfactorily perform all of the functions for which we
have designed them or that unanticipated technical or other errors will not
occur which would result in increased costs or material delays. Any of these
errors could delay our plans, result in harmful publicity or cause us to incur
substantial remedial costs.
Since an error by any party in the process of prescribing drugs and filling
prescriptions could result in substantial injury to a patient, our liability
insurance may not be adequate in a catastrophic situation.
Our business exposes us to potential liability risks that are
unavoidably part of being in the healthcare electronic transaction processing
industry. Many of our products and services relate to prescribing and refilling
of drugs and the transmission of medical laboratory results, an error by any
party in the process could result in substantial injury to a patient. As a
result, our liability risks are significant.
16
We cannot assure that our insurance will be sufficient to cover potential claims
arising out of our current or proposed operations, or that our present level of
coverage will be available in the future at a reasonable cost. A partially or
completely uninsured claim against us, if successful and of sufficient
magnitude, would have significant adverse financial consequences. Our inability
to obtain insurance of the type and in the amounts we require could generally
impair our ability to market our products and services.
We depend on connections to insurance companies and other payers, and if we lose
these connections, our service offerings would be limited and less desirable to
healthcare participants.
Our business is enhanced by the substantial number of payers, such as
insurance companies, Medicare and Medicaid agencies to which we have electronic
connections. These connections may either be made directly or through a
clearinghouse. We have attempted to enter into suitable contractual
relationships to ensure long-term payer connectivity; however, we cannot assure
that we will be able to maintain our links with all these payers. In addition,
we cannot assure that we will be able to develop new connections, either
directly or through clearinghouses, on satisfactory terms. Lastly, some
third-party payers provide systems directly to healthcare providers, bypassing
us and other third-party processors. Our failure to maintain existing
connections with payers and clearinghouses or to develop new connections as
circumstances warrant, or to increase the utilization of direct links between
providers and payers, could cause our electronic transaction processing system
to be less desirable to healthcare participants, which would slow down or reduce
the number of transactions that we process and for which we are paid.
If electronic transaction processing penetrates the healthcare industry, we may
face pressure to reduce our prices which potentially may cause us to no longer
be competitive.
If electronic transaction processing extensively penetrates the
healthcare market or becomes highly standardized, it is possible that
competition among electronic transaction processors will focus increasingly on
pricing. This competition may put intense pressure on us to reduce our pricing
in order to retain market share. If we are unable to reduce our costs
sufficiently to offset declines in our prices, or if we are unable to introduce
new, innovative service offerings with higher prices, we may not be competitive.
Computer network systems like ours could suffer security and privacy breaches
that could harm our customers and us.
We currently operate servers and maintain connectivity from multiple
facilities. Despite our implementation of network security measures, such as
limiting physical and network access to routers, our infrastructure may be
vulnerable to computer viruses, break-ins and similar disruptive problems caused
by customers or other users. Computer viruses, break-ins or other security
problems could lead to interruption, delays or cessation in service to our
customers. These problems could also potentially jeopardize the security of
confidential information stored in the computer systems of our customers, which
may deter potential customers from doing business with us and give rise to
possible liability to users whose security or privacy has been infringed. The
security and privacy concerns of existing and potential customers may inhibit
the growth of the healthcare information services industry in general, and our
customer base and business in particular. A significant security breach could
result in loss of customers, damage to our reputation, direct damages, costs of
repair and detection and other unplanned expenses.
17
We depend on uninterrupted computer access for our customers; any prolonged
interruptions in our operations could cause our customers to seek alternative
providers of our services.
Our success is dependent on our ability to deliver high-quality,
uninterrupted computer networking and hosting, requiring us to protect our
computer equipment and the information stored in servers against damage by fire,
natural disaster, power loss, telecommunications failures, unauthorized
intrusion and other catastrophic events. We plan to develop additional back-up
site capability and a program to manage technology to reduce risks in the event
of a disaster, including periodic "back-ups" of our computer programs and data.
Any damage or failure resulting in prolonged interruptions in our operations,
such as the current California rolling blackouts, could cause our customers to
seek alternative providers of our services. In particular, a system failure, if
prolonged, could result in reduced revenues, loss of customers and damage to our
reputation, any of which could cause our business to suffer. While we carry
property and business interruption insurance to cover operations, the coverage
may not be adequate to compensate us for losses that may occur.
We may not be able to retain key personnel or replace them if they leave.
Our success is largely dependent on the personal efforts of Michael K.
Hoover, our Chairman of the Board and Chief Executive Officer. Although we have
entered into employment agreements with Mr. Hoover and other senior executives,
the loss of any of their services could cause our business to suffer. Our
success is also dependent upon our ability to hire and retain qualified
operations, development and other personnel. Competition for qualified personnel
in the healthcare information services industry is intense, and we cannot assure
that we will be able to hire or retain the personnel necessary for our planned
operations.
We may issue additional shares which could adversely affect the market price of
our Common Stock.
Certain events over which you have no control could result in the
issuance of additional shares of our Common Stock or preferred stock, which
would dilute your ownership percentage in ProxyMed and could adversely affect
the market price of our Common Stock. We may issue additional shares of Common
Stock or preferred stock for many reasons including:
o to raise additional capital or finance acquisitions;
o upon the exercise or conversion or an exchange of
outstanding options, warrants and shares of convertible
preferred stock; or
o in lieu of cash payment of dividends.
In addition, the number of shares of Common Stock that we are required
to issue upon conversion or exercise, as the case may be, of Series B Preferred
Stock, Series C Preferred Stock and many of our outstanding options and warrants
may increase if certain anti-dilution events occur (such as, certain issuances
of Common Stock, options and convertible securities).
ITEM 7A. QUALTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and schedule are included beginning at Page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
We have not had any change in or disagreement with our accountants on
accounting and financial disclosures during our two most recent fiscal years or
any later interim period.
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our directors and executive officers are as follows:
Name Age Position
- ---- --- --------
Harold S. Blue 39 Vice-Chairman of the Board
Edwin M. Cooperman (2) 57 Director
Gerald B. Cramer (2) 70 Director
Donald G. Drapkin (1)(2) 53 Director
Michael S. Falk 39 Director
John Paul Guinan 40 Executive Vice President-Prescription Services
Nancy J. Ham 39 Chief Operating Officer and Executive Vice President
Lonnie W. Hardin 46 Senior Vice President - Payer Services
A. Thomas Hardy 47 Senior Vice President-Laboratory
Services and President-Key
Communications Service, Inc.
Thomas E. Hodapp 41 Director
Michael K. Hoover 45 Chairman of the Board and Chief Executive Officer
Bertram J. Polan (1) 49 Director
Frank M. Puthoff 55 Chief Legal Officer, Executive Vice President and Secretary
Judson E. Schmid 39 Chief Financial Officer, Executive
Vice President and Treasurer
Eugene R. Terry (1) 62 Director
Timothy J. Tolan 42 Senior Vice President - Business Development
- --------------------------
(1) Member of the Audit Committee, the Chairman of which is Mr. Drapkin.
(2) Member of the Compensation Committee, the Chairman of which is Mr. Drapkin.
Harold S. Blue joined ProxyMed in 1993 and currently serves as
Vice-Chairman of the Board. From 1990 to 1993, Mr. Blue was the CEO of Health
Services Inc., a physician practice management company, which was sold to
InPhyNet Medical Management, Inc. Mr. Blue also served as a director of
20
iMall, Inc., which was purchased in 1999 by Excite@Home. From 1984-1988, Mr.
Blue was the founder of Best Generics, a generic distributor. Mr. Blue sold Best
Generics to IVAX Corp. and became a Board Member of IVAX to 1990. From 1979 to
1984, Mr. Blue was the founder and CEO of Budget Drugs, a pharmacy chain in
South Florida. Mr. Blue is also a director of Healthwatch, Inc. and
MonsterDaata, Inc.
Edwin M. Cooperman has served as a director of ProxyMed since July
2000. He is Chairman of the Board of Tutor Time Learning Systems, Inc., a
privately-held company engaged in pre-school education and child care. He is
also a principal of T.C. Solutions, a privately-held investment and financial
services consulting firm. Previously, Mr. Cooperman was Chairman of the
Travelers Bank Group and Executive Vice President, Travelers Group, where he was
responsible for strategic marketing, the integration of Travelers brands and
products, joint and cross marketing efforts and corporate identity strategies,
as well as expanding the Travelers Bank Group's credit card run in portfolios.
After joining Travelers in 1991, Mr. Cooperman became Chairman and CEO of
Primerica Financial Services Group, which comprises Primerica Financial
Services, Benefit Life Insurance Company and Primerica Financial Services
Canada. Previous to this, Mr. Cooperman served at American Express where he
became Chairman and Co-Chief Executive of Travel Related Services, North
America. Mr. Cooperman is also a director of drKoop.com, Inc., US Wireless Data,
Inc. and Grannum Value Mutual Fund.
Gerald B. Cramer has served as a director of ProxyMed since July 2000.
He co-founded of the investment firm of Cramer, Rosenthal & McGlynn, LLC in
1973, and currently serves as Chairman. Prior to that, Mr. Cramer was a senior
partner at Oppenheimer & Company. He earned a BS from Syracuse University and
attended the University of Pennsylvania Wharton School of Finance. He serves on
the Board of Trustees at Syracuse University and on its Investment Committee.
Donald G. Drapkin has served as a director of ProxyMed since July 2000.
Mr. Drapkin has been a Director and Vice-Chairman of MacAndrews & Forbes
Holdings Inc. and various of its affiliates since March 1987. Prior to joining
MacAndrews & Forbes, he was a Partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom in New York for more than five years. Mr. Drapkin is also a
director in the following corporations filing reports pursuant to the Securities
Exchange Act of 1934: Anthracite Capital, Inc., Black Rock Asset Investors, The
Molson Companies Limited, Panavision, Inc., Playboy.com, Inc., Playboy
Enterprises, Inc., Revlon Consumer Products Corporation, Revlon, Inc., The
Warnaco Group, Inc. and Weider Nutrition International, Inc.
Michael S. Falk has served as a director of ProxyMed since July 2000.
Mr. Falk co-founded Commonwealth Associates L.P.in 1988, and in 1995 he became
Chairman, Chief Executive Officer, and President. He is also a director of
eB2B.com, Inc., FutureLink, Inc., Intelispan, Inc., and US Tec, Inc. and US
Wireless Data, Inc. Mr. Falk is a graduate of the Stanford University Executive
Program for Smaller Companies, and holds a Bachelor's degree with honors in
Economics from Queens College.
John Paul Guinan joined ProxyMed in June 1995 and currently serves as
Executive Vice President-Prescription Services. Mr. Guinan served as President
and a director of ProxyMed between June 1995 and December 1999. He was also its
Chief Operating Officer from August 1996 to January 1998. He was an Executive
Vice President of ProxyMed from July 1993 until June 1995. From March 1993 to
June 1993, Mr. Guinan was the Chief Executive Officer and co-founder of
ProxyScript, Inc., which ProxyMed acquired in June 1993. From 1989 until April
1993, Mr. Guinan founded and developed two companies: The Desktop Professionals,
Inc., a company which supplied automation systems to South Florida professional
offices; and POSitive Thinking, Inc., a software development company which
specialized in point-of-sale systems.
21
Nancy J. Ham serves as Executive Vice President and Chief Operating
Officer. Prior to joining ProxyMed in October 2000, Ms. Ham served as General
Manager, Institutional and Connectivity Services of Healtheon/WebMD Corporation
from June 1999 to March 2000. She originally joined Healtheon in May 1998 with
its acquisition of ActaMed Corporation, where she had served with Mr. Hoover as
Chief Financial Officer and Senior Vice President, Business Development. Upon
the merger with Healtheon, she was named Vice President, Lab/Pharma, and upon
Healtheon's merger with WebMD Corporation, became General Manager. Before
joining ActaMed in 1993, Ms. Ham was a Director, Corporate Finance at Equifax,
Inc. from 1992-1993, and prior to that spent five years with GE Capital's
Corporate Finance Group. Ms. Ham has a B.A. from Duke University and a Masters
in International Business Studies from the University of South Carolina.
Lonnie W. Hardin joined ProxyMed in November 1997 in connection with
its acquisition of US Healthdata Interchange, Inc., and since October 2000 has
been serving as Senior Vice President of Payer Services and from November 1997
to October 2000 as the Senior Vice President of Field Claims Operation. Prior to
joining ProxyMed, Mr. Hardin was the General Manager for USHDI, which was
acquired by ProxyMed in 1997. Mr. Hardin was employed by USHDI from 1991 through
1997, during which time he held the positions of Vice President, Sales/Marketing
and General Manager.
A. Thomas Hardy joined ProxyMed in December 1998 in conjunction with
ProxyMed's acquisition of Key Communications Service, Inc. where since 1995 he
served as Key Communications' Executive Vice President and Chief Financial
Officer. Since January 2000, he has served as Key Communications' President and
Chief Operating Officer, and since October 2000 also as Senior Vice President of
Laboratory Services of ProxyMed. Mr. Hardy is a certified public accountant and
has a BBA in Business from Georgia College & State University and a MBA degree
from the University of Arkansas.
Thomas E. Hodapp has served as a director of ProxyMed since July 2000.
In 1999, Mr. Hodapp founded Access Capital Management, a private banking and
management firm dedicated to providing financial and strategic advisory services
to select, early stage private healthcare and information technology companies.
From 1992 to 1998, Mr. Hodapp was a Managing Director for Robertson Stephens &
Company, LLC, a leading international investment banking firm, overseeing the
firm's Healthcare Managed Care Research Group, with a focus on the managed care,
practice management and healthcare information services industries. From 1988 to
1992, he was with Montgomery Medical Ventures, a venture firm focused on the
biotechnology, medical device and healthcare service fields. MMV I and II
actively managed long-term investments in over 40 early stage companies, many of
which the firm was involved in co-founding. Prior to that, Mr. Hodapp researched
the healthcare industry as an industry analyst with Goldman, Sachs & Company,
S.G. Warburg Securities and Volpe & Covington. Additionally, Mr. Hodapp has been
published in a number of major financial and healthcare industry journals and
publications, was a two-time selection to the Wall Street Journal Research
Analyst All-Star Team, and is a frequent speaker at national healthcare
investment and strategy forums.
Michael K. Hoover was appointed Chairman of the Board and Chief
Executive Officer of ProxyMed in July 2000. He served as President and Director
of Healtheon/WebMD Corporation after Healtheon acquired ActaMed Corporation, an
eHealth information systems and transaction company similar to ProxyMed in May
1998. Mr. Hoover co-founded ActaMed in May 1992 and served as its President from
its inception to May 1998, and as its President and Chief Executive Officer from
December 1995 to May 1998. From 1989 to 1992, Mr. Hoover served as the Executive
Director of Financial Services of the MicroBilt Division of First Financial
Management Corporation. Prior to that, he founded FormMaker Software
Corporation, a producer of electronic forms automation systems, and served as
its Chief Executive Officer from 1982 to 1988.
22
Bertram J. Polan has been a director of ProxyMed since August 1995. Mr.
Polan is the founder and President of Gemini Bio-Products, Inc., a
California-based supplier of biological products used in medical schools,
private medicine research institutes and the bio-technology industry, which he
founded in 1985. From 1973 to 1985, Mr. Polan was employed in various executive
capacities, most recently as vice president of sales and marketing, with
Northern American Biologicals, Inc., one of the world's largest independent
providers of human plasma products.
Frank M. Puthoff was appointed Executive Vice President, Chief Legal
Officer and Secretary of ProxyMed in August 1996. From July 1994 to August 1996,
he was Vice President, General Counsel and Secretary for Miami Subs Corporation.
Between July 1990 and July 1994, he served as Senior Vice President, General
Counsel and Secretary of Ground Round Restaurants, Inc., an affiliate of Hanson
PLC. Prior thereto, he served as Division Counsel for PepsiCo, Inc. and held
various executive positions with Pizza Hut, Inc. and Marriott Corporation, and
was in private practice. He is a licensed attorney in the District of Columbia,
Florida and Ohio.
Judson E. Schmid currently serves as Executive Vice President, Chief
Financial Officer and Treasurer of ProxyMed. From April 1996 to October 2000, he
was ProxyMed's Vice President - Corporate Finance and Corporate Controller. From
August 1994 to September 1995, Mr. Schmid was the Corporate Controller for
CardioLife Corporation, a privately-held medical provider of transtelephonic
cardiac monitoring services. From September 1990 to August 1994, he was the
Corporate Controller of Sports-Tech International, Inc., a publicly-held
developer and supplier of computer controlled video editing systems for the
sports industry. From September 1985 to September 1990, he worked as an Audit
Supervisor for two public accounting firms, including KPMG. Mr. Schmid is a
certified public accountant.
Eugene R. Terry has been a director of ProxyMed since August 1995. He
is a pharmacist and the founder and Chairman of Bloodline, Inc., a New
Jersey-based company engaged in the blood services business, which he founded in
1980. In 1971, Mr. Terry founded Home Nutritional Support, Inc. ("HNSI"), one of
the first companies established in the home infusion industry. In 1984, HNSI was
sold to Healthdyne, Inc. HNSI was later sold to the W.R. Grace Group. From 1975
to 1984, Mr. Terry was also founder and Chief Executive Officer of Paramedical
Specialties, Inc., a respiratory and durable medical equipment company, which
was also sold to Healthdyne, Inc.
Timothy J. Tolan was appointed Senior Vice President of Business
Development in January 2001. Before joining ProxyMed, Mr. Tolan was Vice
President of Sales for ePhysician, Inc from May 2000 until his appointment at
ProxyMed. He was Vice President of Sales - Lab/PBM for Healtheon/WebMD
Corporation from August 1998 through May 2000. Prior to Healtheon/WebMD, Mr.
Tolan also held the position of Vice President of Sales - Eastern Region for
CITATION Computer Systems, a laboratory information system company. Prior to
CITATION, Mr. Tolan spent twelve years in the physician practice management
market.
Audit Committee - Our Audit Committee consists of three non-employee,
independent directors: Donald G. Drapkin (Chair), Bertram J. Polan and Eugene R.
Terry. The Audit Committee is responsible for meeting with representatives of
our independent accountants and with representatives of senior management to
review the general scope of our annual audit, matters relating to internal audit
control systems and the fee charged by the independent accountants. In addition,
the Audit Committee is responsible for reviewing and monitoring the performance
of non-audit services by our independent accountants and for recommending the
engagement or discharge of our independent accountants.
Compensation Committee - Our Compensation Committee consists of three
non-employee, independent directors: Donald G. Drapkin (Chair), Edwin M.
Cooperman and Gerald B. Cramer. The
23
Compensation Committee is responsible for approving and reporting to the Board
on the annual compensation for all officers, including salary, stock options and
other consideration, if any. The Committee is also responsible for granting
stock options to be made under our existing plans.
Directors are elected annually at our annual meeting of shareholders.
Each director serves until his successor is elected and qualified or until the
earlier death, resignation, removal or disqualification of the director. The
officers are appointed annually by the directors.
We have a "key person" life insurance policy for our benefit on the
life of Mr. Hoover in the amount of $1,000,000.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 (the "Exchange
Act") requires our officers and directors, and persons who own more than 10% of
the registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish us with copies of all Section 16(a) forms they file.
Based on our review of the copies of such forms received by us, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, we believe that during our fiscal year ended
December 31, 2000, all filing requirements applicable to our officers and
directors and greater than 10% beneficial owners were complied with, except that
Messrs. Cooperman, Cramer, Drapkin, Hodapp, Polan and Terry failed to timely
file Form 5s relating to the grant of stock options to each of them in September
2000, but they have since filed.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the past
three fiscal years to our Chief Executive Officers and our other four most
highly compensated executive officers during year 2000 with annual compensation
over $100,000 for such years (the "named executive officers"), plus two
additional individuals for whom disclosure would have been provided but for the
fact that the individuals were not serving as executive officers at the end of
the last completed fiscal year:
24
Summary Compensation Table
-----------------------------------
Long-Term Compensation
------------------------------------- ----------------------------------- ------------
Annual Compensation Awards Payouts
- ------------------------- ------ ------------------------------------- ------------------------ ---------- ------------
Other Restricted Securities All
Name and Annual Stock Underlying LTIP Other
Principal Salary Bonus Comp. Award(s) Options/ Payouts Compen-
Position Year ($) ($) ($) ($) SARs (#) ($) Sation ($)
- ------------------------- ------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
Michael K. Hoover
Chairman and CEO 2000 56,553(1) -- 285,000(1) -- 5,000,000 -- --
John B. Okkerse, Jr.
CEO 2000 85,392 50,000 -- -- -- -- --
1999 16,154 -- -- -- 133,334(2) -- 128,179(2)
Harold S. Blue
Chairman and CEO(3) 2000 136,340 -- -- -- 400,000 -- 176,677(3)
1999 202,198 -- -- -- 50,000 -- --
1998 145,033 -- -- -- -- -- --
John Paul Guinan
EVP, Prescription
Services 2000 188,059 -- -- -- 400,000 -- --
1999 180,609 5,000 -- -- 35,000 -- --
1998 163,943 15,063 -- -- -- -- --
Lonnie W. Hardin
SVP, Payer Services 2000 137,800 8,750(4) -- -- 200,000 -- --
1999 116,817 -- 39,693(5) -- -- -- --
1998 97,167 50 -- -- -- -- --
A. Thomas Hardy
SVP, Lab Services 2000 230,602 20,000(4) -- -- 300,000 -- --
1999 238,457 100,000 -- -- 142,000 -- --
Frank M. Puthoff
EVP & CLO 2000 157,988 10,000(4) -- -- 150,000 -- --
1999 144,835 15,000 -- -- -- -- --
1998 130,530 20,050 -- -- -- -- --
- ------------------------- ------ ------------ ----------- ------------ ----------- ------------ ---------- ------------
- ------------------
(1) Mr. Hoover joined us on July 28, 2000. As part of his employment
agreement dated July 28, 2000, Mr. Hoover was awarded 200,000 shares of
common stock valued at $285,000.
(2) Consists of separation payments made pursuant to an agreement dated May
19, 2000. In addition, the separation agreement allowed for the
accelerated vesting of one third of the stock options granted to Dr.
Okkerse at the time of hire in November 1999.
(3) Mr. Blue was appointed Interim Chief Executive Officer on May 19, 2000
and held that position until the appointment of Michael K. Hoover on
July 28, 2000. Other compensation consists of fees earned pursuant to a
consulting agreement dated July 7, 2000, which terminated on December
31, 2000.
(4) Earned in 2000 but not paid until January 2001.
(5) Consists of reimbursement of relocation expenses.
25
The following table provides information on stock option grants during
fiscal year 2000 to each of the named executive officers:
Option/SAR Grants in Last Fiscal Year
______________________________________________________________________________________________________________________
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term*
- ------------------------- ---------------- ---------------- ------------- -------------- --------------- -------------
% of Total
# of Securities Options/SARs
Underlying Granted To
Options/ Employee In Exercise or Expiration
Name SARs Granted Fiscal Year Base Price Date 5% 10%
- ------------------------- ---------------- ---------------- ------------- -------------- --------------- -------------
Michael K. Hoover 5,000,000 50% $1.50 7/28/10 $4,716,710 $5,298,458
- ------------------------- ---------------- ---------------- ------------- -------------- --------------- -------------
Harold S. Blue 400,000 4% $1.53 7/11/10 $ 384,884 $ 432,354
- ------------------------- ---------------- ---------------- ------------- -------------- --------------- -------------
John Paul Guinan 400,000 4% $1.53 7/11/10 $ 384,884 $ 432,354
- ------------------------- ---------------- ---------------- ------------- -------------- --------------- -------------
Lonnie W. Hardin 200,000 2% $1.53 7/11/10 $ 192,442 $ 216,177
- ------------------------- ---------------- ---------------- ------------- -------------- --------------- -------------
A. Thomas Hardy 300,000 3% $1.53 7/11/10 $ 288,663 $ 324,266
- ------------------------- ---------------- ---------------- ------------- -------------- --------------- -------------
Frank M. Puthoff 150,000 1% $1.53 7/11/10 $ 144,311 $ 162,133
- ------------------------- ---------------- ---------------- ------------- -------------- --------------- -------------
*The assumed annual rates of stock price appreciation are required disclosures,
and are not intended to forecast future stock appreciation.
The following table sets forth certain information concerning
unexercised options held by each of the named executive officers:
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Options/SAR Values
______________________________________________________________________________________________________________________
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SARs at FY-End (#) Options/SARs at FY-End ($)**
- ----------------------- -------------- ------------- -------------------------------- --------------------------------
# of Shares
Acquired on $ Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------------- -------------- ------------- --------------- ---------------- ---------------- ---------------
Michael K. Hoover -- -- -- 5,000,000 -- --
- ----------------------- -------------- ------------- --------------- ---------------- ---------------- ---------------
John B. Okkerse, Jr. -- -- 133,334 -- -- --
- ----------------------- -------------- ------------- --------------- ---------------- ---------------- ---------------
Harold S. Blue -- -- 516,667 83,333 -- --
- ----------------------- -------------- ------------- --------------- ---------------- ---------------- ---------------
John Paul Guinan 40,000 $244,383 176,667 423,333 -- --
- ----------------------- -------------- ------------- --------------- ---------------- ---------------- ---------------
Lonnie W. Hardin -- -- 7,168 214,332 -- --
- ----------------------- -------------- ------------- --------------- ---------------- ---------------- ---------------
A. Thomas Hardy -- -- 76,667 365,333 -- --
- ----------------------- -------------- ------------- --------------- ---------------- ---------------- ---------------
Frank M. Puthoff -- -- 37,169 159,999 -- --
- ----------------------- -------------- ------------- --------------- ---------------- ---------------- ---------------
**Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the fiscal year-end market
value of the common stock, which was $1.25 on December 31, 2000.
There were no awards made to named executive officers in the last
completed fiscal year under any long-term incentive plan for performance to
occur over a period longer than one fiscal year. We do not have any defined
benefit or actuarial plans for our employees. Certain stock options for
executive management and directors were amended in 2000 to allow for extensions
of exercise periods (typically one to three years) after termination of
employment.
Compensation of Directors
Our employee directors are not compensated for their services as
directors. In September 2000, all outside directors, except for Mr. Falk and Mr.
Blue, received a stock option for 200,000 shares of our stock vesting over three
years at a price of $1.22 per share. Mr. Drapkin, as Chairman of the Audit and
26
Compensation Committees, also received in September 2000 an option for an
additional 200,000 shares on the same terms. All directors are reimbursed for
reasonable expenses incurred in attending board meetings. In addition,
non-employee directors receive stock options under the 1995 Outside Plan upon
the directors' initial election or appointment to the Board of Directors.
Messrs. Polan and Terry, upon joining the Board, were each granted options to
purchase 75,000 shares of common stock at an exercise price of $3.17. These
options are now fully vested.
Employment Agreements with the Named Executive Officers
In July 2000, we entered into an employment agreement with Mr. Hoover.
The agreement is for a three-year term and automatically extends from year to
year thereafter unless terminated by us upon 90 days' written notice or by the
employee upon 30 days' written notice prior to the end of the initial term or
any extension. Mr. Hoover receives an annual base salary of $150,000 and is
entitled to such bonuses as may be awarded from time to time and to participate
in any stock option plans which we may now have or in the future develop. He may
be terminated for "cause" as defined in his agreement. If terminated for cause,
he will be entitled to base salary earned, and he will retain all vested stock
options. If, upon 90 days' prior written notice, he is terminated "without
cause", he will be entitled to receive an amount equal to his base salary plus
bonus, if any, and continuation of health insurance for nine months following
termination, plus any unvested options shall vest. In addition, the agreement
contains confidentiality and non-competition covenants.
In November 1999, Dr. Okkerse became Chief Executive Officer of the
Company. His employment was for a three-year term. He received an annual base
salary of $200,000 and was entitled to bonuses as may be awarded from time to
time. He resigned in May 2000 and received twelve months' separation pay, a cash
bonus of $50,000, and the vesting of 133,334 options at $10.25. Dr. Okkerse is
also bound by a confidentiality and post-term non-competition agreement.
In April 1996, we entered into an employment agreement with Mr. Blue
for a period of three years, which was automatically extended from year to year
unless terminated by either party upon 60 days' written notice. Mr. Blue
received an annual base salary of $180,000. On July 10, 2000, Mr. Blue resigned
as Chief Executive Officer, terminated his employment agreement and entered into
a twelve-month consulting agreement wherein he would be paid $15,330 per month.
On December 29, 2000, in consideration of Mr. Blue accepting $105,000, his
consulting agreement was terminated. Mr. Blue is also bound by a confidentiality
and post-term non-competition agreement.
In December 1995, we entered into an employment agreement with Mr.
Guinan, which is automatically extended from year to year unless terminated by
either party upon 60 days' written notice. Mr. Guinan receives an annual base
salary of $180,000 and is entitled to such bonuses as may be awarded from time
to time by the Board of Directors and to participate in any stock option plans
which we may now have or in the future develop. Mr. Guinan may be terminated for
"cause" as defined in the agreement. If he is terminated for cause, he will be
entitled to base salary earned, and he will retain all vested stock options. If
he is terminated "without cause", then he will be entitled to receive an amount
equal to his base salary and bonus, if any, and continuation of health insurance
for six months following termination, plus any unvested options shall vest. In
addition, the agreement contains confidentiality and non-competition covenants.
In December 1998, upon acquiring Key Communications, we entered into a
three-year employment agreement with Mr. Hardy. Mr. Hardy receives an annual
base salary of $225,000 and may receive an annual bonus up to $40,000 as may be
awarded by the Board of Directors. He may be
27
terminated for "cause" as defined in his agreement. If so terminated, he will be
entitled to base salary earned, and he will retain all vested stock options. If
he is terminated "without cause", then he will be entitled to receive an amount
equal to his base salary plus bonus, if any, and continuation of health
insurance for nine months following termination, plus any unvested options shall
vest. The agreement contains confidentiality and non-competition covenants.
In November 1996, we entered into an employment agreement with Mr.
Puthoff. The agreement is for a three-year term and automatically extends from
year to year thereafter unless terminated by us upon 90 days' written notice or
by the employee upon 30 days' written notice prior to the end of the initial
term or any extension. He receives an annual base salary of $155,750, and is
entitled to such bonuses as may be awarded from time to time and to participate
in any stock option or bonus plans which we may now have or in the future
develop. He may be terminated for "cause" as defined in his Agreement. If
terminated for cause, he will be entitled to base salary earned, and he will
retain all vested stock options. If, upon 90 days' prior written notice, he is
terminated "without cause", he will be entitled to receive an amount equal to
his base salary plus bonus, if any, and continuation of health insurance for
nine months following termination, plus any unvested options shall vest. In
addition, the agreement contains confidentiality and non-competition covenants.
Liability and Indemnification of Our Directors and Officers
The Florida Business Corporation Act provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duty as directors, except for liability (i) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (ii) for any unlawful payment of a dividend or unlawful stock
repurchase or redemption, as provided in Section 607.0834 of the Florida
Business Corporation Act, (iii) for any transaction from which the director
derived an improper personal benefit, or (iv) for a violation of criminal law.
Our Restated Articles of Incorporation and Bylaws also provide that we shall
indemnify our directors and officers to the fullest extent permitted by Section
607.0831 of the Florida Business Corporation Act, including circumstances in
which indemnification is otherwise discretionary. We have procured and maintain
insurance under which our directors and officers are insured, subject to the
limits of the policy, against certain losses arising from claims made against
such directors and officers. We have entered into indemnification agreements
with most of our directors and executive officers limiting their personal
liability for monetary damages and reasonable attorney fees, except for
liability that cannot be eliminated under the Florida Business Corporation Act.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information to our knowledge or as
reported to us regarding the beneficial ownership of our common stock as of
March 16, 2001, with respect to (i) each person known to us to be the beneficial
owner of more than 5% of our common stock, including convertible preferred stock
and exercisable options and warrants; (ii) each director; (iii) each executive
officer named in the Summary Compensation Table; and (iv) all of our directors
and officers as a group:
Name and Address (1) # of Shares (2) % of Class
----------------- --------------- ----------
Harold S. Blue (3)(29) 602,217 2.8%
Edwin M. Cooperman (29) 0 0
28
Name and Address (1) # of Shares (2) % of Class
----------------- --------------- ----------
Gerald B. Cramer (4)(29) 1,311,444 6.0%
Donald G. Drapkin (5)(29) 153,518 *
Michael S. Falk (6)(29) 2,476,004 10.6%
John Paul Guinan (7)(29) 188,765 *
Nancy J. Ham (8) 43,940 *
Lonnie W. Hardin (9)(29) 7,168 *
A. Thomas Hardy (10)(29) 847,536 3.9%
Thomas E. Hodapp (29) 0 0
Michael K. Hoover (11)(29) 1,985,569 8.8%
John B. Okkerse, Jr., Ph.D. (12) 133,334 *
Bertram J. Polan (13)(29) 92,500 *
Frank M. Puthoff (14)(29) 130,183 *
Judson E. Schmid (15)(29) 41,558 *
Eugene R. Terry (16)(29) 80,000 *
Timothy J. Tolan (17)(29) 15,000 *
Capital Ventures International (18) 2,149,266 9.3%
425 California Street, Suite 1100
San Francisco, CA 94104
Commonwealth Associates, LP (19) 5,879,831 22.0%
830 Third Avenue
New York, NY 10022
CRM Family of Mutual Funds (20) 3,349,468 13.8%
707 Westchester Avenue
White Plains, NY 10604
E&M RP Trust (dated 10/3/85) (21) 1,535,190 6.8%
655 Brea Canyon Road
Walnut, CA 91789
HFTP Investments LLP (22) 1,285,377 6.3%
750 Lexington Avenue, 22nd Floor
New York, NY 10022
29
Name and Address (1) # of Shares (2) % of Class
----------------- --------------- ----------
Leonardo, LP (23) 1,567,500 6.9%
245 Park Avenue, 26th Floor
New York, NY 10167
Perg Proxy LLC (24) 1,420,050 6.3%
450 Park Avenue, Suite 1203
New York, NY 10022
RMC Capital LLC (25) 3,837,978 15.5%
3291 N. Buffalo Drive, Suite 8
Las Vegas, NV 89129
Royal Bank of Canada (26) 1,253,997 5.6%
One Liberty Plaza, 165 Broadway
New York, NY 10006
Siam Partners (27) 1,535,190 6.8%
655 Brea Canyon Road
Walnut, CA 91789
Tahoe Partnership (27) 1,535,190 6.8%
655 Brea Canyon Road
Walnut, CA 91789
ZWD Investments (27) 1,535,190 6.8%
One State Plaza
New York, NY 10004
All directors and officers 8,182,854 29.2%
as a group (21 persons) (28)
===================
*Less than 1%
(1) The address for each person, unless otherwise noted, is 2555 Davie
Road, Suite 110, Fort Lauderdale, Florida 33317-7424.
(2) In accordance with Rule 13d-3 of the Exchange Act, shares that are not
outstanding, but that are subject to options, warrants, rights or
conversion privileges exercisable within 60 days from March 16, 2001,
have been deemed to be outstanding for the purpose of computing the
percentage of outstanding shares owned by the individual having such
right, but have not been deemed outstanding for the purpose of
computing the percentage for any other person.
(3) Includes 35,550 shares held of record and 566,667 shares issuable upon
the exercise of currently exercisable stock options.
(4) Includes 383,110 shares held of record directly by Mr. Cramer and
various related parties (including family members and trusts
established by Mr. Cramer), 600,000 shares underlying Series C
Preferred stock held by such related parties, and 328,334 shares
issuable upon the exercise of currently exercisable warrants held by
such related parties.
(5) Includes 3,518 shares held of record, 100,000 shares underlying Series
C Preferred stock held, and 50,000 shares issuable upon the exercise of
currently exercisable warrants.
30
(6) Includes 66,018 shares held of record, 100,000 shares underlying Series
C Preferred stock, and 2,309,986 shares issuable upon the exercise of
currently exercisable warrants.
(7) Includes 1,000 shares held of record and 176,667 shares issuable upon
exercise of currently exercisable stock options.
(8) Includes 35,000 shares held of record and 8,940 shares issuable upon
exercise of currently exercisable stock options.
(9) Includes 7,168 shares issuable upon exercise of currently exercisable
stock options.
(10) Includes 251,506 shares held of record by Mr. Hardy, 300,000 shares
underlying Series C Preferred stock held by Hardy Family Partnership
LP, and 296,030 shares issuable upon exercise of currently exercisable
stock options and warrants held by Mr. Hardy and Hardy Family
Partnership, LP.
(11) Includes 394,010 shares held of record, 1,000,000 shares underlying
Series C Preferred stock, and 591,559 shares issuable upon exercise of
currently exercisable stock options and warrants.
(12) Includes 133,334 shares issuable upon exercise of currently exercisable
stock options.
(13) Includes 12,500 shares held of record and 80,000 shares issuable upon
exercise of currently exercisable stock options.
(14) Includes 5,000 shares held of record and 125,183 shares issuable upon
exercise of currently exercisable stock options.
(15) Includes 8,290 shares held of record and 33,268 shares issuable upon
exercise of currently exercisable stock options.
(16) Includes 80,000 shares issuable upon exercise of currently exercisable
stock options.
(17) Includes 15,000 shares held of record.
(18) Includes 49,266 shares held of record, 1,400,000 shares underlying
Series C Preferred stock, and 700,000 shares issuable upon exercise of
currently exercisable warrants.
(19) Includes 131,944 shares held of record, 150,000 shares underlying
Series C preferred stock, and 5,597,887 shares issuable upon exercise
of currently exercisable warrants held by Commonwealth Associates LP
and ComVest Capital Partners LLC.
(20) Includes 75,302 shares held of record, 2,140,000 shares underlying
Series C Preferred stock, and 1,134,166 shares issuable upon exercise
of currently exercisable warrants held by various mutual funds managed
by Cramer, Rosenthal & McGlynn.
(21) Includes 35,190 shares held of record, 1,000,000 shares underlying
Series C Preferred stock, and 500,000 shares issuable upon exercise of
currently exercisable warrants.
(22) Includes 121,002 shares underlying Series B preferred stock and
1,285,377 shares issuable upon exercise of currently exercisable
warrants.
(23) Includes 1,567,500 shares issuable upon exercise of currently
exercisable warrants.
(24) Includes 32,550 shares held of record, 925,000 shares underlying Series
C Preferred stock and 462,500 shares issuable upon exercise of
currently exercisable warrants.
(25) Includes 87,978 shares held of record, 2,500,000 shares underlying
Series C Preferred stock, and 1,250,000 shares issuable upon exercise
of currently exercisable warrants.
(26) Includes 1,253,997 shares issuable upon exercise of currently
exercisable warrants.
(27) Includes 35,190 shares held of record, 1,000,000 shares underlying
Series C Preferred stock, and 500,000 shares issuable upon exercise of
currently exercisable warrants.
(28) Includes 1,210,502 shares held of record by the named officers and
directors and their related parties, 2,100,000 shares underlying Series
C Preferred stock, and 4,872,352 shares issuable upon exercise of
currently exercisable stock options and warrants.
(29) All shares held of record and beneficially owned are subject to a
lock-up through September 2001. This lock-up may be extended for a
period of 12 months at the discretion of Commonwealth Associates.
31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 30, 1997, we loaned a total of $350,000 to Mr. Blue. The funds
were advanced pursuant to two demand promissory notes with recourse in the
principal amounts of $290,000 and $60,000, respectively, each bearing interest
at a rate of 7-3/4% per year. Mr. Blue had collateralized the notes with shares
of our common stock. On June 30, 2000, both notes were amended to cease accruing
interest after July 1, 2000, and to provide for a balloon payment on January 1,
2002 of the full principal and interest due. The notes are collateralized by his
stock option for 400,000 shares of the Company's stock at a price of $1.53 per
share. As of December 31, 1999 these loans were included in other assets on the
balance sheet; as of December 31, 2000, all amounts owed under these loans have
been reclassified to stockholders' equity.
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
Page
----
(a) (1) The following financial statements are included in
Part II, Item 8:
Consolidated Financial Statements:
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - December 31, 2000 and 1999 F-3
Consolidated Statements of Operations - Years Ended
December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows - Years Ended
December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 - F-31
(2) The following schedule for the years 2000 and 1999 is submitted
herewith:
Schedule II - Valuation and Qualifying Accounts - F-32
Years Ended December 31, 2000 and 1999
(3) Exhibits required to be filed by Item 601 of Regulation S-K
as exhibits to this Report are listed in the Exhibit Index
appearing on pages 31 through 33.
(b) Reports on Form 8-K:
During the quarter ended December 31, 2000, a Form 8-K report
was filed by ProxyMed with the Securities and Exchange
Commission on December 11, 2000, regarding projected revenue
and EBITDA pursuant to Regulation FD.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 26, 2001 PROXYMED, INC.
By: /s/ Michael K. Hoover
-------------------------------
Michael K. Hoover
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Michael K. Hoover Chairman of the Board and Chief Executive March 26, 2001
- -----------------------------
Michael K. Hoover officer (principal executive officer)
/s/ Harold S. Blue Vice-Chairman of the Board March 26, 2001
- -----------------------------
Harold S. Blue
/s/Judson E. Schmid Executive Vice President and Chief Financial March 26, 2001
- -----------------------------
Judson E. Schmid Officer (principal financial and accounting
officer)
/s/ Edwin M. Cooperman Director March 26, 2001
- -----------------------------
Edwin M. Cooperman
/s/ Gerald B. Cramer Director March 26, 2001
- -----------------------------
Gerald B. Cramer
/s/ Donald G. Drapkin Director March 26, 2001
- -----------------------------
Donald G. Drapkin
/s/ Michael S. Falk Director March 26, 2001
- -----------------------------
Michael S. Falk
/s/ Thomas E. Hodapp Director March 26, 2001
- -----------------------------
Thomas E. Hodapp
/s/ Bertram J. Polan Director March 26, 2001
- -----------------------------
Bertram J. Polan
/s/ Eugene R. Terry Director March 26, 2001
- -----------------------------
Eugene R. Terry
34
EXHIBIT INDEX
-------------
Exhibit No. Description
- ---------- -----------
3.1 Articles of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Registration Statement
on Form SB-2, File No. 333-2678).
3.2 Bylaws, as amended (incorporated by reference to Exhibit
3.1 of the Registration Statement on Form SB-2, File No.
333-2678).
10.2 Strategic Marketing Agreement among ProxyMed, IntePlex,
Inc. and Bergen Brunswig Drug Company dated February 1,
1996 (incorporated by reference to Exhibit 1 of Form
8-K, File No. 000-22052, reporting an event dated
February 1, 1996).
10.3 Agreement for Acquisition of Stock between ProxyMed and
National Health Care Affiliates, Inc. dated September 6,
1995 (incorporated by reference to Exhibit 1 of Form
8-K, File No. 000-22052, reporting an event dated August
28, 1996).
10.4 Asset Purchase Agreement between ProxyMed and Eckerd
Corporation (incorporated by reference to Exhibit 1 to
the Form 8-K, File No. 000-22052, reporting an event
dated February 7, 1995).
10.6 *Employment Agreement between ProxyMed and John Paul
Guinan (incorporated by reference to Exhibit 3.1 of the
Registration Statement on Form SB-2, File No. 333-2678).
10.8 Asset Purchase Agreement between ProxyMed and Clinical
Microsystems, Inc. and Glenn Gilchrist (incorporated by
reference to Exhibit 1 of Form 8-K, File No. 000-22052,
reporting an event dated March 14, 1997).
10.9 *Employment Agreement between ProxyMed and Frank M.
Puthoff dated November 11, 1996 (incorporated by
reference to Exhibit 10.7 of the Form 10-KSB for the
period ending December 31, 1996).
10.10 *Amended 1993 Stock Option Plan (incorporated by
reference to Exhibit A of ProxyMed's Proxy Statement for
its 1994 Annual Meeting of Shareholders).
10.11 *1995 Stock Option Plan (incorporated by reference to
Exhibit 3.1 of the Registration Statement on Form SB-2,
File No. 333-2678).
10.12 *1995 Outside Director Stock Option Plan (incorporated
by reference to Exhibit 3.1 of the Registration
Statement on Form SB-2, File No. 333-2678).
10.14 Form of Indemnification Agreement for All Officers and
Directors (incorporated by reference to Exhibit 10.3 of
the 10-QSB for the period ending September 30, 1996).
10.15 Stock Purchase Agreement between ProxyMed and WPJ, Inc.
and Robert Weinberger and Mark Pehl (incorporated by
reference to Exhibit 2.1 of Form 8-K, File No.
000-22052, reporting an event dated May 19, 1998).
35
Exhibit No. Description
- ---------- -----------
10.16 Asset Purchase Agreement between ProxyMed and Hayes
Computer Systems, Inc. and Danny Hayes (incorporated by
reference to Exhibit 1 of From 8-K, File No. 000-22052,
reporting an event dated April 30, 1997).
10.17 Asset Purchase Agreement between ProxyMed and US
HealthData Interchange, Inc. (incorporated by reference
to Exhibit 2.1 of Form 8-K, File No. 000-22052,
reporting an event dated November 19, 1997).
10.18 *1997 Stock Option Plan (incorporated by reference to
Exhibit A of ProxyMed's Proxy Statement for its 1997
Annual Meeting of Shareholders).
10.20 Agreement and Plan of Merger between ProxyMed
Acquisition Corp., Key Communications Service, Inc.,
Jeff K. Carpenter, A. Thomas Hardy and Carl W. Garmon
(incorporated by reference to Exhibit 2.1 of Form 8-K,
File #000-22052, reporting an event dated December 31,
1998).
10.22 Asset Purchase Agreement between ProxyMed and
Specialized Medical Management, Inc. and its parent,
Texas Health Management Services, Inc., dated January
12, 1999 (incorporated by reference to Exhibit 10.22 of
the 10-K for the period ending December 31, 1998).
10.23 *Form of Employee Non-Qualified Stock Option Agreement
(incorporated by reference to Exhibit 10.23 of the
Registration Statement on Form S-8, File No. 333-92905).
10.25 Securities Purchase Agreement dated as of December 23,
1999, by and among ProxyMed and the Series B Preferred
investors listed on the Schedule of Buyers attached
thereto (incorporated by reference to Exhibit 10.24 of
Form 8-K, File No. 000-22052, reporting an event on
December 23, 1999).
10.26 Prospectus dated as of December 28, 2000, relating to
the sale of Series C Preferred to the selling
shareholders listed therein (incorporated by reference
to the Registration Statement on Form S-3, File No.
333-51856).
10.27 *Employment Agreement between ProxyMed and Michael K.
Hoover dated July 28, 2000 (incorporated by Reference to
Exhibit 99.1 of Form 10-Q for the period ending
September 30, 2000).
10.28 *Employment Agreement between ProxyMed and Judson E.
Schmid dated September 29, 2000 (incorporated by
Reference to Exhibit 99.2 of Form 10-Q for the period
ending September 30, 2000).
10.29 *Employment Agreement between ProxyMed and Nancy J. Ham
dated October 2, 2000 (incorporated by Reference to
Exhibit 99.3 of Form 10-Q for the period ending
September 30, 2000).
10.30 *Employment Agreement between ProxyMed and Timothy J.
Tolan dated January 23, 2001.
36
Exhibit No. Description
- ---------- -----------
10.31 *2000 Stock Option Plan (incorporated by reference to
Exhibit B of the Proxy Statement filed on July 7, 2000).
10.32 *2000-1/2 Stock Option Plan (incorporated by reference
to Exhibit C of the Proxy Statement filed on July 7,
2000).
21 Subsidiaries of ProxyMed, Inc.
23 Consent of PricewaterhouseCoopers LLP.
- ------------------------
*Denotes employment agreement or compensatory plan.
37
PROXYMED, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements and Schedule
PAGE
----
Consolidated Financial Statements
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets - December 31, 2000 and 1999 F-3
Consolidated Statements of Operations -
Years Ended December 31, 2000, 1999 and 1998 F-4
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 2000, 1999 and 1998 F-5
Consolidated Statements of Cash Flows -
Years Ended December 31, 2000, 1999 and 1998 F-6
Notes to Consolidated Financial Statements F-7 - F-31
Schedule II - Valuation and Qualifying Accounts -
Years Ended December 31, 2000, 1999 and 1998 F-32
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of ProxyMed, Inc.:
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the financial position of ProxyMed, Inc. and
its subsidiaries (the "Company") at December 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
February 9, 2001
F-2
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 and 1999
Assets 2000 1999
------ ------------- -------------
Current assets:
Cash and cash equivalents $ 8,841,100 $ 11,487,900
Accounts receivable - trade, net of allowance for
doubtful accounts of $691,300 and $662,800 respectively 4,174,700 3,298,300
Other receivables 198,400 246,400
Inventory 2,640,700 1,842,100
Other current assets 860,800 419,400
Net current assets of discontinued operations -- 1,719,800
------------- -------------
Total current assets 16,715,700 19,013,900
Property and equipment, net 3,905,000 4,321,900
Goodwill, net 3,038,600 9,629,100
Purchased technology, capitalized software and
other intangible assets, net 3,942,400 10,027,900
Other assets 64,700 477,800
Net long-term assets of discontinued operations -- 1,302,300
------------- -------------
Total assets $ 27,666,400 $ 44,772,900
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Borrowings under revolving credit facility $ -- $ 1,000,000
Current portion of long-term debt -- 735,800
Accounts payable and accrued expenses 4,246,400 4,263,000
Deferred revenue 313,800 435,400
------------- -------------
Total current liabilities 4,560,200 6,434,200
Long-term deferred revenue and other long-term liabilities 729,100 583,100
------------- -------------
Total liabilities 5,289,300 7,017,300
------------- -------------
Commitments and contingencies
Stockholders' equity:
Series B 6% Convertible preferred stock - $.01 par value
Authorized and issued 15,000 shares; outstanding 110 shares;
liquidation preference $110,000 -- 200
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 --
Common stock - $.001 par value. Authorized 100,000,000 shares;
issued and outstanding 20,593,480 (after deducting 225,913
shares in treasury) and 18,327,402 shares, respectively 20,600 18,300
Additional paid-in capital 113,215,300 101,477,400
Accumulated deficit (90,425,400) (63,740,300)
Note receivable from stockholder (435,900) --
------------- -------------
Total stockholders' equity 22,377,100 37,755,600
------------- -------------
Total liabilities and stockholders' equity $ 27,666,400 $ 44,772,900
============= =============
See accompanying notes.
F-3
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
Revenues:
Services and license fees $ 18,439,900 $ 18,195,000 $ 16,279,800
Communication devices, computer systems
and other tangible goods 15,001,200 10,828,100 5,969,500
------------ ------------ ------------
33,441,100 29,023,100 22,249,300
------------ ------------ ------------
Costs and expenses:
Cost of services and license fees 1,886,200 1,577,200 1,359,800
Cost of tangible goods 10,362,800 7,379,900 3,565,600
Selling, general and administrative expenses 27,097,200 26,937,800 19,764,600
Depreciation and amortization 13,374,900 13,064,200 8,646,300
Restructuring charges 1,330,000 -- --
Write-off of impaired and obsolete assets 2,850,100 82,900 --
------------ ------------ ------------
56,901,200 49,042,000 33,336,300
------------ ------------ ------------
Operating loss (23,460,100) (20,018,900) (11,087,000)
Income from litigation settlement, net 666,600 -- --
Interest expense, net (4,133,000) (100,900) (106,700)
------------ ------------ ------------
Loss from continuing operations (26,926,500) (20,119,800) (11,193,700)
Discontinued operations (Note 3):
Loss from discontinued operations (303,900) (1,195,100) (594,500)
Gain (loss) on disposal of discontinued operations 545,300 (519,300) --
------------ ------------ ------------
241,400 (1,714,400) (594,500)
------------ ------------ ------------
Net loss (26,685,100) (21,834,200) (11,788,200)
Deemed dividends and other charges 21,366,600 22,200 --
------------ ------------ ------------
Net loss applicable to
common shareholders $(48,051,700) $(21,856,400) $(11,788,200)
============ ============ ============
Weighted average common shares outstanding 19,565,125 18,032,042 15,653,374
============ ============ ============
Basic and diluted net loss per share of common stock:
Loss from continuing operations $ (2.47) $ (1.12) $ (.71)
Gain (loss) from discontinued operations .01 (.09) (.04)
------------ ------------ ------------
Net loss $ (2.46) $ (1.21) $ (.75)
============ ============ ============
See accompanying notes.
F-4
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2000, 1999 and 1998
Series B Series C
Preferred stock Preferred stock Common stock
------------------- --------------------- ----------------------
Number Par Number Par Number Par Additional
of shares value of shares value of shares value paid-in capital
---------- ------ --------- ---------- ----------- -------- -----------------
Balances, January 1, 1998 -- $ -- -- $ -- 11,781,872 $ 11,800 $ 42,695,400
Sales of common stock, net
of expenses of $1,091,400 -- -- -- -- 3,013,416 3,000 29,115,500
Exercise of stock options and warrants -- -- -- -- 422,639 400 1,711,100
Common stock issued for pooled
and acquired businesses -- -- -- -- 2,590,245 2,600 5,287,900
Retirement of debt for
pooled company -- -- -- -- -- -- 3,015,500
Tax distributions for
pooled company -- -- -- -- -- -- (515,500)
Reclassification of retained
earnings of pooled
company upon termin-
ation of S Corporation
tax status -- -- -- -- -- -- 1,117,400
Net loss -- -- -- -- -- -- --
---------- ------ --------- ---------- ----------- -------- -----------------
Balances, December 31, 1998 -- -- -- -- 17,808,172 17,800 82,427,300
Sale of common stock, net
of expenses of $67,700 -- -- -- -- 250,000 300 2,932,000
Sale of preferred stock, net
of expenses of $840,000 15,000 200 -- -- -- -- 14,159,800
Exercise of stock options and warrants -- -- -- -- 207,384 200 1,037,500
Common stock issued for
acquired businesses -- -- -- -- 51,846 -- 750,000
Compensatory stock and
stock options -- -- -- -- 10,000 -- 193,000
Repayment of stockholder note -- -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- -- -- (22,200)
Net loss -- -- -- -- -- -- --
---------- ------ --------- ---------- ----------- -------- -----------------
Balances, December 31, 1999 15,000 200 -- -- 18,327,402 18,300 101,477,400
Sale of Series C preferred stock -- -- 10,000 100 -- -- 999,900
Exercise of stock options and warrants -- -- -- -- 168,438 200 426,600
Treasury stock received for sales
of discontinued businesses -- -- -- -- (225,913) (200) (1,929,600)
Common stock issued
for acquired businesses -- -- -- -- 33,708 -- 67,400
Common stock issued for
stock compensation award -- -- -- -- 200,000 200 284,800
Conversions of Series B
Preferred stock (1,890) -- -- -- 1,621,936 1,600 (1,600)
Redemptions of Series B
Preferred stock (13,000) (200) -- -- -- -- (15,729,500)
Warrants issued to placement agent
under advisory agreement -- -- -- -- -- -- 1,300,000
Warrants issued to placement agent
pursuant to Convertible Debt offering -- -- -- -- -- -- 10,875,900
Reclassification of unaccreted
value of Put Warrants -- -- -- -- -- -- 12,084,600
Amortization of beneficial
conversion of Convertible Debt -- -- -- -- -- -- 3,202,900
Conversion of Convertible
Debt into Series C
preferred stock, net of costs -- -- 243,265 2,400 -- -- (332,300)
Compensatory stock options -- -- -- -- -- -- 491,500
Dividends on preferred stock -- -- -- -- 467,909 500 (4,100)
Reclassification of stockholder note -- -- -- -- -- -- --
Other, net -- -- -- -- -- -- 1,400
Net loss -- -- -- -- -- -- --
---------- ------ --------- ---------- ----------- -------- -----------------
Balances, December 31, 2000 110 $ -- 253,265 $ 2,500 20,593,480 $ 20,600 $ 113,215,300
========== ====== ========= ========== =========== ======== =================
Note
receivable
Accumulated from
deficit stockholder Total
------------- ------------- ------------
Balances, January 1, 1998 $ (29,555,400) $ -- $ 13,151,800
Sales of common stock, net
of expenses of $1,091,400 -- -- 29,118,500
Exercise of stock options and warrants -- (259,800) 1,451,700
Common stock issued for pooled
and acquired businesses 554,800 -- 5,845,300
Retirement of debt for
pooled company -- -- 3,015,500
Tax distributions for
pooled company -- -- (515,500)
Reclassification of retained
earnings of pooled
company upon termin-
ation of S Corporation
tax status (1,117,400) -- --
Net loss (11,788,200) -- (11,788,200)
------------- ------------- ------------
Balances, December 31, 1998 (41,906,200) (259,800) 40,279,100
Sale of common stock, net
of expenses of $67,700 -- -- 2,932,300
Sale of preferred stock, net
of expenses of $840,000 -- -- 14,160,000
Exercise of stock options and warrants -- -- 1,037,700
Common stock issued for
acquired businesses -- -- 750,000
Compensatory stock and
stock options -- -- 193,000
Repayment of stockholder note -- 259,800 259,800
Dividends on preferred stock -- -- (22,200)
Net loss (21,834,100) -- (21,834,100)
------------- ------------- ------------
Balances, December 31, 1999 (63,740,300) -- 37,755,600
Sale of Series C preferred stock -- -- 1,000,000
Exercise of stock options and warrants -- -- 426,800
Treasury stock received for sales
of discontinued businesses -- -- (1,929,800)
Common stock issued
for acquired businesses -- -- 67,400
Common stock issued for
stock compensation award -- -- 285,000
Conversions of Series B
Preferred stock -- -- --
Redemptions of Series B
Preferred stock -- -- (15,729,700)
Warrants issued to placement agent
under advisory agreement -- -- 1,300,000
Warrants issued to placement agent
pursuant to Convertible Debt offering -- -- 10,875,900
Reclassification of unaccreted
value of Put Warrants -- -- 12,084,600
Amortization of beneficial
conversion of Convertible Debt -- -- 3,202,900
Conversion of Convertible
Debt into Series C
preferred stock, net of costs -- -- (329,900)
Compensatory stock options -- -- 491,500
Dividends on preferred stock -- -- (3,600)
Reclassification of stockholder note -- (435,900) (435,900)
Other, net -- -- 1,400
Net loss (26,685,100) -- (26,685,100)
------------- ------------- ------------
Balances, December 31, 2000 $ (90,425,400) $ (435,900) $ 22,377,100
============= ============= ============
See accompanying notes.
F-5
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net loss $(26,685,100) $(21,834,200) $(11,788,200)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 13,705,500 14,213,200 8,977,100
Amortization of private placement related costs 4,472,700 -- --
Restructuring charges 1,330,000 -- 742,600
Provision for doubtful accounts 425,400 639,600 355,800
Reserve for (recovery of) obsolete inventory (25,500) 350,000 --
Compensatory stock options and warrants
and stock compensation awards issued 1,643,200 11,500 --
Payment for non-compete agreement (200,000) -- --
Write-off of obsolete and impaired assets 2,850,100 82,900 --
Net gain on sales of discontinued operations (545,300) -- --
Changes in net current assets of discontinued operations (734,600) 809,600 (1,291,300)
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts and other receivables (1,209,700) (180,200) 129,700
Inventory (773,200) 81,000 (393,800)
Accounts payable and accrued expenses (1,015,700) (957,300) (1,847,700)
Deferred revenue (321,500) (128,200) 559,100
Other, net 7,100 305,000 161,000
------------ ------------ ------------
Net cash used in operating activities (7,076,600) (6,607,100) (4,395,700)
------------ ------------ ------------
Cash flows from investing activities:
Capital expenditures (967,000) (1,787,400) (1,207,300)
Capital expenditures of discontinued operations (230,100) (357,700) (318,700)
Capitalized software (1,610,700) (1,438,900) (510,200)
Acquisition of businesses, net of cash acquired -- (1,000,000) (19,933,900)
Payment of acquisition contingency of discontinued operations -- (500,000) (500,000)
Payments for acquisition-related costs (18,000) (573,500) (558,000)
------------ ------------ ------------
Net cash used in investing activities (2,825,800) (5,657,500) (23,028,100)
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of convertible debt securities 21,383,200 -- --
Net proceeds from sale of convertible preferred stock 1,000,000 14,160,000 --
Net proceeds from sale of common stock -- 2,932,300 29,118,500
Redemption of convertible preferred stock (15,748,400) -- --
Dividends on preferred stock (3,600) -- --
Proceeds from exercise of stock options and warrants 426,800 1,037,700 1,451,700
Collection of notes receivable 1,648,800 259,800 --
Draw on line of credit 2,000,000 4,930,000 --
Repayment of line of credit (3,000,000) (3,930,000) --
Payment of notes payable, long-term debt and capital leases (451,200) (263,900) (1,156,600)
------------ ------------ ------------
Net cash provided by financing activities 7,255,600 19,125,900 29,413,600
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (2,646,800) 6,861,300 1,989,800
Cash and cash equivalents at beginning of year 11,487,900 4,626,600 2,636,800
------------ ------------ ------------
Cash and cash equivalents at end of year $ 8,841,100 $ 11,487,900 $ 4,626,600
============ ============ ============
See accompanying notes.
F-6
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Business and Summary of Significant Accounting Policies
(a) Business of ProxyMed - ProxyMed, Inc. ("ProxyMed" or "the Company") 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. ProxyMed's products and services are provided
from its operating facilities located in Fort Lauderdale, Florida; New
Albany, Indiana; and Santa Ana, California.
In March 2000, the Company sold its non-core network integration and
prescription drug dispensing segments. These two segments are shown as
discontinued operations in the consolidated financial statements.
(b) Principles of Consolidation - The consolidated financial statements
include the accounts of ProxyMed and its wholly-owned subsidiaries.
All significant intercompany transactions have been eliminated in
consolidation.
(c) Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(d) 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 are 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.
(e) Cash and Cash Equivalents - ProxyMed considers all highly liquid
investments with original maturities of three months or less to be
cash equivalents. Cash balances in excess of immediate needs are
invested in bank certificates of deposit, money market accounts and
commercial paper. At times, such amounts may be in excess of FDIC
insurance limits. ProxyMed has not experienced any loss to date on
these investments.
F-7
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(f) Inventory - Inventory consisting of component parts, materials,
supplies and finished goods (including direct labor and overhead) used
to manufacture laboratory communication devices is stated at the lower
of cost (first-in, first-out method) or market. Reserves for obsolete,
damaged and slow-moving inventory are maintained and are periodically
reviewed by management.
(g) Property and Equipment - Property and equipment is stated at cost and
includes revenue earning equipment. Depreciation of property and
equipment is calculated on the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the lease term or the
estimated useful lives of the assets.
Upon sale or retirement of property and equipment, the cost and
related accumulated depreciation are eliminated from the accounts and
any resulting gains or losses are reflected in other income for the
period; upon sale or retirement of revenue earning equipment, the
gross proceeds are included in net revenues and the undepreciated cost
of the equipment sold is included in cost of sales. Maintenance and
repair of property and equipment are charged to expense as incurred.
Renewals and betterments are capitalized and depreciated. Examination
for obsolete, damaged and impaired fixed assets are periodically
reviewed by management.
(h) Intangible Assets
Goodwill - Goodwill, representing the excess of cost over the
estimated fair value of net assets acquired, is amortized on the
straight-line basis over 3 to 15 years.
Other Intangibles - Other acquired intangible assets, consisting
primarily of customer contracts and covenants-not-to-compete, are
being amortized on a straight-line basis over their estimated useful
lives of 5 to 12 years.
ProxyMed regularly reviews the recoverability of goodwill, other
intangible assets and other long-lived assets for indications that the
carrying value may be impaired or that the useful lives assigned may
be excessive. In performing such review, goodwill associated with
acquisition of the intangible assets is included in the analysis of
the impairment of such intangible assets. When indications exist that
impairment may have occurred, the carrying values are assessed based
upon an analysis of estimated future cash flows on an undiscounted
basis and before interest charges, or useful lives are changed
prospectively.
F-8
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Purchased Technology and Capitalized Software - ProxyMed has recorded
amounts related to various software and technology that it has
purchased or capitalized both for external sale to its customers or
for its own internal systems use. Certain computer software costs for
external sale are capitalized and are reported at the lower of
unamortized cost or net realizable value. Such costs are capitalized
when they are related to a product that has achieved technological
feasibility or that has an alternative future use, and cease to be
capitalized when the product is available for general release to
customers. The costs are amortized on a product-by-product basis using
the straight-line method over their estimated useful lives, generally
over 3 years, and costs of maintenance and support are charged to
expense. Costs for computer software used for ProxyMed's own internal
systems are capitalized during the application development stage and
are periodically evaluated by ProxyMed for indications that the
carrying value may be impaired or that the useful lives assigned may
be excessive. Such software is being amortized on a straight-line
basis over its estimated useful life of 3 years.
Management believes that future revenues related to these projects
will be sufficient to realize the amounts capitalized at December 31,
2000, and as such these amounts will be recovered over the lives of
the related projects. It is reasonably possible, however, that those
estimates of future revenues could be adversely impacted if these
projects are not released timely or if the market acceptance of the
related technology is not what is anticipated by management. As a
result, the recoveries of these capitalized costs through future
revenues could be reduced materially.
(i) Research and Development - Software development costs incurred prior
to achieving technological feasibility are charged to research and
development expense when incurred. Research and development expense
was approximately $3,130,000 in 2000, $2,898,000 in 1999, and
$2,978,000 in 1998, respectively.
(j) Income Taxes - Deferred income taxes are determined based upon
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
Deferred tax assets are also established for the future tax benefits
of loss and credit carryovers. Valuation allowances are established
for deferred tax assets when, based on the weight of available
evidence, it is deemed more likely than not that such amounts will not
be realized.
F-9
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(k) 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 36,751,945 shares, 4,530,431
shares, and 2,553,488 shares for the three years ended December 31,
2000, 1999 and 1998, respectively, as well as common shares issuable
on conversion of Series B and Series C preferred stock (25,447,502 and
1,654,260 shares if converted on December 31, 2000 and 1999,
respectively) were excluded from the calculation of diluted per share
results because their effect was antidilutive.
(l) New Accounting Pronouncements - In December 1999, the Securities and
Exchange Commission issued Staff Accounting Bulletin 101 ("SAB 101"),
"Revenue Recognition in Financial Statements," which provides guidance
on applying generally accepted accounting principles for recognizing
revenue. SAB 101 is effective for fiscal years beginning after
December 15, 1999. The adoption of SAB 101 did not have a material
effect on the Company's consolidated financial statements.
(m) Reclassifications - Certain prior year amounts have been reclassified
to conform to the current year presentation.
(2) Acquisitions of Businesses
(a) Specialized Medical Management - In January 1999, ProxyMed acquired
the electronic transaction processing business and assets of
Specialized Medical Management, Inc., a provider of healthcare
financial electronic transaction processing services primarily in the
Southwestern United States, for $1,000,000 in cash. Additionally,
costs of $174,000 associated with the acquisition were incurred, and
10,000 shares of unregistered common stock and warrants to purchase
20,000 shares of ProxyMed's common stock at $11.44 (together valued at
$181,600 and included in the calculation of goodwill) were issued to
an unrelated third-party as a finder's fee for this transaction. The
value of the shares was computed based on the fair market value of the
common stock, and the value of the warrant was computed using the
Black-Scholes method subject to, in both cases, a discount due to
restrictions on marketability of the securities for one year from the
date of issuance. The acquisition was accounted for as a purchase, and
the purchase price was allocated as follows: net working capital
($206,400), property and equipment ($38,500) and other intangible
assets ($111,000). The excess of the consideration paid over the
estimated fair value of the net assets acquired in the amount of
$999,600 was recorded as goodwill.
F-10
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(b) Key Communications - On December 31, 1998, ProxyMed merged with Key
Communications Service, Inc., a privately-owned company based in New
Albany, Indiana. Key Communications is a designer, manufacturer,
distributor and servicing company for laboratory results reporting
communication products for national, regional and hospital-based
laboratories. ProxyMed issued 2,078,106 shares of common stock in
exchange for all of Key Communications' capital stock. The transaction
was accounted for as a pooling of interests. Because of a leveraged
buyout transaction consummated on April 30, 1998 by the former
stockholders of Key Communications, the accounts of Key Communications
were combined with those of ProxyMed commencing May 1, 1998. For the
period May 1, 1998 to December 31, 1998, Key Communications had net
revenues of $10,439,300 and net income of $1,117,400. Merger related
expenses of $427,000 have been included in selling, general and
administrative expenses for 1998. In connection with the merger,
certain debt guaranteed by Key Communications' assets was retired, and
as a result, $3,015,500 was credited to additional paid-in capital. In
addition, distributions of $515,500 were recorded, representing S
Corporation income tax obligations arising from Key Communications'
operations prior to the merger.
(c) Integrated Medical Systems - In May 1998, ProxyMed acquired all of the
capital stock of WPJ, Inc., d/b/a Integrated Medical Systems, a
privately-owned company based in Santa Ana, California. Integrated
Medical Systems provides financial electronic transaction processing
services including medical claims, encounters and other financial
transactions. The purchase price consisted of $20,620,000 in cash,
481,836 unregistered shares of ProxyMed's common stock which the
sellers agreed not to dispose of until one year after the closing
(valued at $5,345,300 after discounting for a block of restricted
stock with a one-year holding period), and acquisition-related costs
of $328,400. No registration rights for the shares were granted to the
sellers. The cash portion of the purchase price was funded through the
private placement sale of common stock. The acquisition was accounted
for as a purchase, and the purchase price was allocated as follows:
net working capital ($497,900); property, equipment and other assets
($373,300); purchased technology ($11,000,000); and long-term
liabilities ($227,200). The excess of the consideration paid over the
estimated fair value of the net assets acquired in the amount of
$14,649,700 was recorded as goodwill.
F-11
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(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, based on 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 $608,400. As of December 31, 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, based on 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 years ended December 31, 2000, 1999 and 1998:
2000 1999 1998
------------ ------------ ------------
Net revenues:
Network integration $ 2,371,700 $ 11,106,600 $ 13,855,500
Prescription drug dispensing 574,700 2,200,300 1,662,900
------------ ------------ ------------
$ 2,946,400 $ 13,306,900 $ 15,518,400
============ ============ ============
Net income (loss):
Network integration $ (327,700) $ (1,045,300) $ (538,900)
Prescription drug dispensing 23,800 (149,800) (55,600)
------------ ------------ ------------
$ (303,900) $ (1,195,100) $ (594,500)
============ ============ ============
F-12
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) 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 $1,330,000 in the year ended December 31, 2000 primarily for
separation payments and marketing contracts that were canceled in connection
with the implementation of the reorganization plan. As of December 31, 2000,
$1,073,000 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.
(5) Issuances of Securities
(a) Sales of Common Stock - In 1999, ProxyMed sold 250,000 shares of
common stock at $12.00 per share in a private placement, resulting in
net proceeds of $2,932,300 after costs of $67,700. As part of the
sale, ProxyMed issued five-year warrants to the investors for the
purchase of an aggregate of 120,000 shares of common stock for $10.00
per share and issued a five-year warrant to the placement agent for
the purchase of 35,000 shares of common stock at $13.31 per share.
(b) Series B Preferred Stock - In December 1999, ProxyMed sold 15,000
shares of 6% Series B non-voting, non-redeemable convertible preferred
stock (the "Series B Preferred") in a private placement to
institutional investors resulting in net proceeds of $14,160,000 after
costs of $840,000. ProxyMed, in whole or in part during the first
year, could call for conversion at 93% of the then current market
price of its common stock, or redemption at 107% of the face value
plus accrued dividends, with full conversion or redemption (at
ProxyMed's election) of all of the preferred stock within two years.
ProxyMed was required to convert 30% of the preferred shares by June
23, 2000, and another 30% of the preferred shares by September 23,
2000. After the first year, the preferred shares are convertible at
the option of the investors. Dividends are cumulative and are payable
quarterly in cash or common stock. During 2000, dividends valued at
$227,100 were paid by issuing 31,844 shares of common stock and cash
payments of $3,600. As part of this sale, warrants to purchase 800,000
shares of common stock were issued at an exercise price of $12.05 per
share. As a result of a Redemption and Exchange Agreement executed in
May 2000, 693,333 of these warrants were repriced (See Note 6).
F-13
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(c) Convertible Debt and Series C Preferred Stock - 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 $21,383,000. 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 year ending December 31, 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 18). 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, 2000, the date shareholder approval
was obtained, at which time the unaccreted value of $12,084,600 was
reclassified from debt to equity. Charges of approximately $740,000
associated with accreting the put warrants up to their redemption
value was recorded as interest expense in the year ending December 31,
2000.
F-14
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 2000 valued at $1,047,400 were
paid with 881,310 shares of common stock, of which 445,245 shares were
issued in January 2001. Additionally, upon the conversion of the Notes
to Series C Preferred, the unamortized balance of the beneficial
conversion feature of $9,762,700 was taken as a charge included in the
net loss applicable to common stockholders in the year ending December
31, 2000.
Commonwealth Associates, L.P. ("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 were capitalized and
were amortized through the original maturity date of the Notes. Of
this amount, $268,000 was 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 $12,704,600, were reclassified to equity.
F-15
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
As required, the Company registered the underlying common shares with
the Securities and Exchange Commission on December 14, 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 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 year ended December
31, 2000.
(d) Other Warrants - At December 31, 2000, there are 795,337 warrants
exercisable at prices ranging from $3.50 to $12.05 at various times
through June 2007 issued in connection with the prior equity and other
business transactions consummated by ProxyMed.
(e) Other - ProxyMed has remaining 1,746,625 authorized but unissued
shares of preferred stock, par value $.01 per share, which are
entitled to rights and preferences to be determined at the discretion
of the Board of Directors.
The value of any stock options and warrants issued in connection with
the sales of common stock and convertible preferred stock are netted
against the proceeds within stockholders' equity, and have no impact
on earnings.
F-16
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Redemption and Exchange Agreement
As described in Note 5, 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 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 5), 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 year ended December 31, 2000.
F-17
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 in the
year ended December 31, 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. As a result, in February 2001, the Exchanged Warrants were converted into
3,425,494 warrants with an exercise price of $1.26 per share. 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 year ended December 31, 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 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.
F-18
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Segment Information
ProxyMed operates in two reportable segments which are separately
managed: 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.
Year Ending December 31,
----------------------------------------------
2000 1999 1998
------------ ------------ ------------
Net revenues:
Electronic healthcare transaction processing $ 10,103,400 $ 10,285,300 $ 8,668,500
Laboratory communication devices and services 23,337,700 18,737,800 13,580,800
------------ ------------ ------------
$ 33,441,100 $ 29,023,100 $ 22,249,300
============ ============ ============
Operating income (loss):
Electronic healthcare transaction processing $(18,949,800) $(14,909,900) $ (8,732,600)
Laboratory communication devices and services 3,724,200 990,400 1,516,400
Corporate and consolidating (6,904,500) (6,099,400) (3,870,800)
Restructuring charges (1,330,000) -- --
------------ ------------ ------------
$(23,460,100) $(20,018,900) $(11,087,000)
============ ============ ============
Depreciation and amortization:
Electronic healthcare transaction processing $ 12,146,900 $ 11,815,100 $ 7,812,300
Laboratory communication devices and services 722,300 908,400 557,300
Corporate and consolidating 505,700 340,700 276,700
------------ ------------ ------------
$ 13,374,900 $ 13,064,200 $ 8,646,300
============ ============ ============
Capital expenditures and capitalized software:
Electronic healthcare transaction processing $ 2,125,800 $ 2,464,200 $ 744,000
Laboratory communication devices and services 358,300 448,000 408,400
Corporate and consolidating 93,600 314,100 565,100
------------ ------------ ------------
$ 2,577,700 $ 3,226,300 $ 1,717,500
============ ============ ============
December 31,
-----------------------------
Total assets: 2000 1999
------------ ------------
Electronic healthcare transaction processing $ 9,958,700 $ 22,207,400
Laboratory communication devices and services 8,070,800 6,720,000
Corporate and consolidating 9,636,900 12,823,400
Discontinued operations -- 3,022,100
------------ ------------
$ 27,666,400 $ 44,772,900
============ ============
F-19
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Inventory
Inventory consists of the following at December 31, 2000 and 1999:
2000 1999
---------- ----------
Materials, supplies and component parts $1,777,700 $1,025,400
Work in process 203,600 352,900
Finished goods 659,400 463,800
---------- ----------
$2,640,700 $1,842,100
========== ==========
(9) Property and Equipment
Property and equipment consists of the following at December 31, 2000
and 1999:
Estimated
2000 1999 useful lives
---------- ---------- -------------
Furniture, fixtures and equipment $1,665,200 $1,452,200 5 to 7 years
Computer hardware and software 3,204,900 3,799,600 3 to 5 years
Service vehicles 267,400 223,200 5 years
Leasehold improvements 610,700 606,100 Life of lease
Revenue earning equipment 703,300 556,700 5 years
---------- ----------
6,451,500 6,637,800
Less accumulated depreciation 2,546,500 2,315,900
---------- ----------
Property and equipment, net $3,905,000 $4,321,900
========== ==========
Depreciation expense was $1,515,000 in 2000 and $1,146,000 in 1999, and
$759,000 in 1998. In addition, as a result of ProxyMed's periodic review for
impairment, ProxyMed wrote off $364,000 in obsolete and damaged fixed assets in
2000.
F-20
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(10) Intangible Assets
Intangible assets consist of the following at December 31, 2000 and
1999:
2000 1999
----------- -----------
Goodwill $19,391,100 $20,232,200
Less accumulated amortization 16,352,500 10,603,100
----------- -----------
Goodwill, net $ 3,038,600 $ 9,629,100
=========== ===========
Purchased technology $11,000,000 $11,000,000
Capitalized software 641,100 3,467,700
Other intangible assets 3,584,400 3,677,900
----------- -----------
15,225,500 18,145,600
Less accumulated amortization 11,283,100 8,117,700
----------- -----------
Purchased technology, capitalized software
and other intangible assets, net $ 3,942,400 $10,027,900
=========== ===========
Amortization of goodwill was $6,299,000 in 2000, $6,561,000 in 1999, and
$4,030,000 in 1998.
Amortization of purchased technology, capitalized software and other
intangible assets was $5,194,000 in 2000, $4,857,000 in 1999, and $3,358,000 in
1998. In addition, as a result of ProxyMed's periodic review for impairment,
ProxyMed wrote off previously capitalized software costs of $2,486,000 in 2000
and $83,000 in 1999 due to project cancellations and changes in technologies
relating to its web development and certain products for resale.
F-21
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consists of the following at
December 31, 2000 and 1999:
2000 1999
---------- ----------
Accounts payable $1,729,600 $1,554,500
Accrued payroll and related costs 1,163,400 939,300
Accrued expenses related to acquisitions 10,300 618,300
Restructuring charges 257,000 --
Other accrued expenses 1,086,100 1,150,900
---------- ----------
Total accounts payable and accrued expenses $4,246,400 $4,263,000
========== ==========
Accrued expenses related to acquisitions consists of unpaid amounts for
professional fees (legal, accounting and investment banking costs), employee
relocation costs, travel costs incurred during the acquisition process,
contractual lease obligations for duplicate facilities closed as a result of the
acquisitions, and similar direct costs of consummating the acquisitions
discussed in Note 2. Differences between amounts accrued and amounts
subsequently paid have not been significant. Other accrued expenses include the
current portion of capital leases payable, customer deposits, and estimated
property and other taxes. Additionally, at December 31, 2000, other accrued
expenses include $200,000 for a software licensing deficiency contingency (See
Note 18).
(12) Debt Obligations
(a) Revolving line of credit - In July 1999, ProxyMed entered into an
accounts receivable-based revolving line of credit agreement of up to
$5,000,000. In June 2000, ProxyMed terminated this line of credit and
repaid all outstanding balances.
F-22
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(b) Acquisition-related obligation - As a result of its acquisition of
Clinical MicroSystems, Inc. in March 1997, ProxyMed was obligated to
pay $500,000 and $750,000 in April 1999 and 2000, respectively, to the
former owner of Clinical MicroSystems. These obligations were recorded
net of interest imputed at the rate of 10.31% per annum and are to be
repaid at least 50% in cash, with the remaining balance, if any, paid
in shares of unregistered common stock. In April 1999, ProxyMed
elected to make its $500,000 payment with $250,000 in cash and 50% in
25,000 shares of common stock. In April 2000, the Company paid the
third and final debt payment. 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 $212,200) and recorded the excess as a
reduction of amortization expense ($95,400) in the year ended December
31, 2000.
(13) Income Taxes
The significant components of the deferred tax asset account is as
follows at December 31, 2000 and 1999:
2000 1999
------------ ------------
Net operating losses - Federal $ 21,748,000 $ 16,089,000
Net operating losses - State 3,497,000 2,467,000
Depreciation and amortization 7,538,000 5,014,000
In-process research and development technology 1,740,000 2,945,000
Other - net 1,369,000 913,000
------------ ------------
Total deferred tax assets 35,892,000 27,428,000
Less valuation allowance (35,892,000) (27,428,000)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
Based on the weight of available evidence, a valuation allowance has
been provided to offset the entire deferred tax asset amount. Net operating loss
carryforwards, which amount to $63,960,000 as of December 31, 2000, begin to
expire in 2008.
F-23
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The benefit for income taxes differs from the amount computed by
applying the statutory federal income tax rate to the net loss reflected on the
Consolidated Statements of Operations in the three years ended December 31, 2000
due to the following:
2000 1999 1998
------- -------- -------
Federal income tax benefit at statutory rate 34.0 % 35.0 % 35.0 %
State income tax benefit 3.1 3.5 3.5
Non-deductible items (5.4) -- --
Increase in valuation allowance (31.7) (38.5) (38.5)
------- -------- -------
-- % -- % -- %
======= ======== =======
(14) Stock Options
ProxyMed has various stock option plans for employees, directors and
outside consultants, under which both incentive stock options and non-qualified
options may be issued. Under such plans, options to purchase up to 5,190,250
shares of common stock may be granted. Options may be granted at prices equal to
the fair market value at the date of grant, except that incentive stock options
granted to persons owning more than 10% of the outstanding voting power must be
granted at 110% of the fair market value at the date of grant. In addition, as
of December 31, 2000, options for the purchase of 6,148,551 shares were granted
to newly-hired employees. Stock options issued by ProxyMed generally vest within
three years, and expire up to ten years from the date granted. Stock option
activity was as follows for the three years ended December 31, 2000:
Options Weighted average
available Options exercise price
for grant outstanding of options
----------- ----------- ----------------
Balance, January 1, 1998 170,081 1,628,118 $ 4.59
Options authorized 184,500 -- --
Options granted (389,000) 389,000 $ 7.80
Options exercised -- (319,166) $ 4.08
Options expired/forfeited 57,083 (123,583) $ 9.50
----------- -----------
Balance, December 31, 1998 22,664 1,574,369 $ 5.79
Options authorized 1,373,500 -- --
Options granted (1,455,250) 1,455,250 $11.52
Options exercised -- (154,859) $ 5.22
Options expired/forfeited 223,833 (269,057) $ 9.15
----------- -----------
Balance, December 31, 1999 164,747 2,605,703 $ 8.68
Options authorized 9,704,682 -- --
Options granted (10,007,752) 10,007,752 $ 1.48
Options exercised -- (78,117) $ 5.46
Options expired/forfeited 592,100 (1,310,400) $ 8.53
----------- -----------
Balance, December 31, 2000 453,777 11,224,938 $ 2.30
=========== ===========
F-24
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following table summarizes information regarding outstanding and
exercisable options as of December 31, 2000:
Options outstanding Options exercisable
--------------------------------------------------------- ----------------------------
Range of exercise Number Weighted average remaining Weighted average Number Weighted average
prices outstanding contractual life (years) exercise price exercisable exercise price
- --------------------- ------------- -------------------------- ---------------- ----------- ----------------
$0.81 - 3.16 9,862,351 9.5 $ 1.45 817,000 $ 1.74
$3.17 - 7.00 546,000 2.9 $ 4.62 542,000 $ 4.61
$7.01 - 8.75 128,168 6.6 $ 7.45 107,920 $ 7.42
$8.76 - 14.50 688,419 3.4 $ 11.60 409,603 $11.27
---------- ---------
11,224,938 1,876,523
========== =========
The following table summarizes information regarding options
exercisable as of December 31:
2000 1999 1998
--------- --------- ---------
Number exercisable 1,876,523 1,200,913 1,159,146
Weighted average exercise price $4.97 $6.07 $5.03
ProxyMed applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans for options
issued to employees. Had compensation cost for such options been recorded based
upon the fair value at the grant date consistent with the methodology prescribed
in SFAS No. 123, "Accounting for Stock-Based Compensation," ProxyMed's net loss
and net loss per share would have been $(29,868,700) and $(1.53) for 2000,
$(23,331,300) and $(1.30) for 1999, and $(12,760,600) and $(0.82) for 1998,
respectively. The weighted average grant date fair value of options granted
($1.11 in 2000, $4.65 in 1999, and $3.26 in 1998) was estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
2000 1999 1998
---------- --------- ---------
Risk-free interest rate 6.00% 5.74% 5.19%
Expected life 10.0 years 7.3 years 8.4 years
Expected volatility 80.9% 74.5% 73.9%
Expected dividend yield 0.0% 0.0% 0.0%
F-25
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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, 466,668 have been issued
under existing stock option plans previously approved by the Company's
shareholders and will vest after one year. The remaining 933,332 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 may
be subject to a charge against earnings for the increase in the value of the
933,332 options, based on the stock price of ProxyMed's common stock in relation
to the exercise price of $1.22 when such grants are approved under a new plan at
its next annual meeting of shareholders. For 2000, the Company did not record
any compensatory charge for these options. Additionally, certain stock options
for executive management and directors were amended in 2000 to allow for
extensions of exercise periods (typically one to three years) after termination
of employment. In all cases, the market price of ProxyMed's common stock was
below the exercise price of these options at the time of amendment.
F-26
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(15) Supplemental Disclosure of Cash Flow Information
Year Ending December 31,
----------------------------------------------
2000 1999 1998
----------- ----------- ------------
Cash paid for interest $ 184,100 $ 208,500 $ 267,500
=========== =========== ============
Common stock issued for payment of preferred stock dividends $ 1,270,900 $ -- $ --
=========== =========== ============
Common stock issued for payment of long-term debt $ 375,000 $ 250,000 $ --
=========== =========== ============
Acquisition of businesses:
Contingent common stock issued for prior year acquisition $ -- $ 500,000 $ 500,000
=========== =========== ============
Acquisition of businesses:
Common stock issued for businesses acquired $ -- $ 181,600 $ 5,345,300
Debt issued for businesses acquired -- -- --
Other acquisition costs accrued -- 174,000 328,400
Details of acquisitions:
Working capital components, other than cash -- (206,400) (1,378,800)
Property and equipment -- (38,500) (1,432,300)
Goodwill -- (999,600) (15,226,400)
Purchased technology, capitalized software
and other intangibles -- (111,100) (11,000,000)
Notes and loans payable -- -- 3,429,900
----------- ----------- ------------
Net cash used in acquisitions $ -- $(1,000,000) $(19,933,900)
=========== =========== ============
Disposition of businesses:
Common stock received $(1,929,800) $ -- $ --
Notes and other receivables received (1,723,100) -- --
Net gain recognized 545,300
Details of dispositions:
Working capital components, other than cash 1,905,900 -- --
Property and equipment 1,070,900 -- --
Goodwill 109,700 -- --
Other assets 21,100 -- --
----------- ----------- ------------
Net cash provided by dispositions $ -- $ -- $ --
=========== =========== ============
During 2000, the Company acquired $504,700 of equipment through the
execution of capital leases.
F-27
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(16) Concentration of Credit Risk
Substantially all of ProxyMed's accounts receivable are due from physicians
and various healthcare suppliers (payers, laboratories and pharmacies).
Collateral is not required. Approximately 11% of the 1999 revenues were from one
customer for the sale, lease and service of communication devices and
approximately 17% of the 1998 revenues were from one customer for the sale of
two non-exclusive source code licenses and related services. There were no sales
to any one customer in excess of 10% of consolidated revenues in 2000.
(17) Employee Benefit Plans
Through November 30, 2000, ProxyMed had two 401(k) retirement plans,
including one plan that was acquired in its merger with Key Communications, for
substantially all employees who met certain minimum lengths of employment and
minimum age requirements. As of December 1, 2000, these two plans have been
combined. Contributions are made by employees based on up to 15% of their annual
compensation. For the plan acquired from Key Communications, ProxyMed made
matching contributions of up to 5% of participant's salary or $1,000, whichever
was greater, prorated through April 30, 2000. Matching contributions under the
combined plan were made in January 2001 and covered eligible wages paid to Key
Communications participants from May 1, 2000 through December 31, 2000 and
annual eligible wages paid to ProxyMed employees for the full 2000 year. These
matching contributions were based on 1% of eligible wages up to $1,000 and
limited by the employee's actual contribution into the plan. No prior matching
contributions had been made under the original ProxyMed plan.
Matching contributions under the original Key Communications plan vested
after 5 years of employment. Matching contributions under the combined plan vest
under a five-year schedule, based on completed full years of service, as
follows: 20% after one year; 40% after two years; 60% after three years; 80%
after four years; and 100% after five years. For all Key Communications
employees still employed after December 1, 2000, all matching contributions were
grandfathered in under the five-year vesting schedule. Matching contributions
totaling $105,000 and $131,000 for the years ended December 31, 2000 and 1999,
respectively, and $100,000 for the period May 1, 1998 to December 31, 1998 have
been expensed.
F-28
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(18) Commitments, Contingencies and Other
(a) Leases - ProxyMed leases certain equipment used in its contract
manufacturing business that have been classified as capital leases and
also leases premises, operating and office equipment, and vehicles
under operating leases which expire on various dates through 2005. The
leases for the premises contain renewal options, and require ProxyMed
to pay such costs as property taxes, maintenance and insurance. At
December 31, 2000, the present value of the capital leases and the
future minimum lease payments under non-cancelable operating leases
with initial or remaining lease terms in excess of one year (net of
payments to be received under subleases) are as follows:
Capital Operating
Leases Leases
-------- ----------
2001 $143,000 $1,067,000
2002 143,000 1,018,000
2003 147,000 695,000
2004 114,000 430,000
2005 88,000 176,000
-------- ----------
Total minimum lease payments 635,000 $3,386,000
==========
Less amount representing interest 101,000
--------
Present value of
minimum lease payments $534,000
========
Total rent expense for all operating leases amounted to $1,157,000 in
2000, $1,116,000 in 1999, and $857,000 in 1998. The current portion of
capital leases is included in accounts payable and other accrued
expenses and the long-term portion of capital leases is included in
other long-term liabilities in the balance sheet at December 31, 1999
and 2000.
(b) 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. On June 30, 2000, the Company amended the terms of these notes
whereby interest on the notes ceased to accrue subsequent to July 1,
2000 and the loan plus accrued interest, totaling $435,900 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 Mr. Blue under the Company's stock option
plans. As of December 31, 1999 these loans were included in other
assets; as of December 31, 2000, all amounts owed under these loans
have been reclassified to stockholders' equity.
F-29
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
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 would provide consulting services to the Company for a period
of one year and would receive consulting fees 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 agreements. During December 2000, the Company terminated
this agreement in consideration for a lump sum payment of $105,000.
(c) Employment Agreements - During 2000, the Company 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 recorded in the year ended December
31, 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) Financial Advisory Agreement - On May 8, 2000, ProxyMed entered into
an advisory agreement with 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 $1.50 per share (valued at
$1,300,000). These costs are being amortized over a one-year period
through April 2001.
(e) Settlement of Litigation - In September 2000, the Company received an
out-of-court settlement for a matter of approximately $667,000, net of
legal and other costs. This settlement has been recorded as other
income in the accompanying statement of operations in the year ended
December 31, 2000.
(f) Contingency - As of December 31, 2000, the Company has accrued a
$200,000 contingency for a deficiency in its licensing of software
used in its internal computers systems.
F-30
PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(g) 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 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.
F-31
PROXYMED, INC. AND SUBSIDIARIES
SCHEDULE II - Valuation and Qualifying Accounts
Allowance for Doubtful Accounts
---------------------------------------------------------------------------------------------------
Additions
----------------------------------------------
Year ended Balance at Charged to Charged to Balance at
December 31, beginning of year costs and expenses other accounts (1)(2) Deductions (3) end of year
------------ ----------------- ------------------ ---------------------- -------------- ------------
2000 $ 662,800 420,400 244,700 636,600 $ 691,300
========== ========= ========= ========= ===========
1999 $ 521,300 553,400 2,200 414,100 $ 662,800
========== ========= ========= ========= ===========
1998 $ 204,900 314,300 333,600 331,500 $ 521,300
========== ========= ========= ========= ===========
(1) Includes amounts charged to revenue adjustments in 1998 and 2000
(2) Includes amounts acquired through acquisitions in 1998 and 1999
(3) Primarily write-off of bad debts
F-32
EXHIBIT INDEX
-------------
Exhibit No. Description
- ---------- -----------
10.30 * Employment Agreement between ProxyMed and Timothy J.
Tolan dated January 23, 2001.
21 Subsidiaries of ProxyMed, Inc.
23 Consent of PricewaterhouseCoopers LLP.
- ------------------------
* Denotes employment agreement or compensatory plan.