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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
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, 1997
or
[ ] TRANSACTION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 000-22052
PROXYMED, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0202059
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2501 DAVIE ROAD, SUITE 230, FORT LAUDERDALE, FLORIDA 33317-7424
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (954) 473-1001
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
(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 if
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 there is no disclosure of delinquent filers
in response to Item 405 of Regulation S-K (/section/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 $7.56 per share, the closing price of the
Common Stock on February 27, 1998, was $55,843,883.
As of February 27, 1998, 12,281,872 shares of the registrant's common
stock were issued and outstanding.
Documents Incorporated By Reference: NONE
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PART I
ITEM 1
DESCRIPTION OF BUSINESS
THE COMPANY
ProxyMed, Inc. (together with its subsidiaries, the "Company"), is a
healthcare information systems ("HCIS") company providing clinical and financial
electronic data interchange ("EDI") transaction processing services to
physicians and other healthcare providers.
The Company is physician centered; that is, it seeks to satisfy the
connectivity needs of physicians and other healthcare providers by providing
"one-stop" shopping for EDI transactions through ProxyNet(TM), its secured
proprietary national healthcare information network. To provide these services,
the Company has established and is continuing to develop and upgrade its
physical network infrastructure and data center principally located at the
Company's Fort Lauderdale, Florida headquarters.
The Company believes that most physicians, in order to efficiently and
economically access and utilize needed clinical and financial information,
eventually will subscribe to just one online content service providing access to
all required data. The Company believes that a significant part of its future
revenues will be generated by recurring fees from its clinical and financial
transaction processing, through ProxyNet, and by sales of subscriptions of its
clinical databases and software programs and services. A majority of the
Company's current revenues are generated by its network integration services.
The Company has commenced a significant acquisition program. In March
and April 1997, the Company completed acquisitions of substantially all of the
assets of Clinical MicroSystems, Inc. ("CMS"), a laboratory software company,
and Hayes Computer Systems, Inc. ("HCS"), a network integration company,
respectively. In June 1997, the Company acquired from Walgreen Co., owner of the
Walgreen's pharmacy chain ("Walgreen's"), the proprietary electronic
prescription software known as PRE-SCRIBE(R) ("PreScribe"). In November 1997,
the Company acquired substantially all of the assets of U.S. HealthData
Interchange, Inc. ("USHDI"), a provider of financial electronic data interchange
("EDI") services to the healthcare marketplace.
The Company was incorporated in the State of Florida in 1989. The
Company's executive offices are located at 2501 Davie Road, Suite 230, Fort
Lauderdale, Florida 33317-7424, and its telephone number is (954) 473-1001. The
Company's Internet address is http://www.proxymed.com.
INDUSTRY OVERVIEW
The healthcare industry generates billions of clinical and financial
transactions each year, including, but not limited to, prescriptions, refill
authorizations, lab orders and results, radiology orders and results, medical
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claims, eligibility inquiries, encounters and referrals. The Company believes
that the healthcare industry lags behind many other transaction intensive
industries, such as travel, securities and banking in the number of transactions
processed electronically. Further, legacy systems inherited through previous
information system acquisitions and installations are generally not integrated
with each other and are commonly monolithic in design and lack uniformity of
standards. For physicians to meet the clinical and financial demands of managed
care, the Company believes that moving patient-centered clinical and financial
data all along the continuum of care electronically will become a business
requirement. For this to be accomplished, physicians, labs, pharmacies,
hospitals, managed care organizations ("MCOs"), correctional institutions,
long-term care facilities, home health providers and payors such as insurance
companies must establish EDI connectivity to each other's information systems.
The Company's EDI business is connecting physicians to pharmacies,
labs, payors and managed care organizations. The Company believes it is unique
in the HCIS industry in that, in addition to financial transactions, it also
offers the most diverse set of clinical transactions as compared to its
competitors. Physicians control most healthcare decisions and so, in this role,
are a center point for numerous patient-related clinical and financial
transactions that are generated each year. As noted, the Company believes that
most physicians, in order to efficiently and economically access and utilize
needed clinical and financial information, eventually will subscribe to one EDI
content service providing access to all required data. The Company believes that
most physicians will choose not to enter into long-term licenses with multiple
online content services. This is due to perceived logistical inefficiencies in
multiple online connections, administrative reliance on multiple customer
service organizations, and format and translation problems associated with
multiple vendors.
The healthcare industry seeks to reduce administrative costs while not
compromising quality of care. Thus, the pharmacies, labs, payors and MCOs are
eager to enhance EDI technology. For example, pharmacies can reduce the costs of
filling prescriptions by receiving legible prescriptions electronically rather
than paper, and payors save on costs by processing medical claims
electronically. The Company's goal is to replace costly paper clinical and
financial transactions between the various participants in the healthcare system
with EDI transactions. The Company believes that the combination of the size of
the HCIS market, the amount of change currently taking place and the relative
lack of automation in such market creates significant business opportunities for
EDI vendors such as the Company.
PRODUCTS AND SERVICES
/bullet/ CLINICAL TRANSACTIONS
/bullet/ PRESCRIPTIONS. There were more than 2.5 billion
prescriptions filled in the United States in 1997. This large and growing volume
magnifies the inefficiencies of the current paper-intensive system; however, it
provides a business opportunity for the Company. A large percentage of a
pharmacy's labor cost is spent on processing new prescription orders and
obtaining authorizations from physicians for additional refills. New
prescription orders
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are usually handwritten and frequently illegible or incomplete, requiring
extensive labor in processing each order. The refill authorization process
typically has been performed completely via telephone calls between pharmacy and
physician, resulting in additional labor expense and lost time by both
pharmacies and physicians' offices.
The Company's pharmacy transaction service replaces
both the paper prescription and the phone calls with a quick and efficient
online transaction between the physician's clinical management system and the
pharmacy. This transaction service saves both time and labor from the ordering
process, as well as providing more accurate and informative orders. The Company
currently has approximately 1,900 physicians using its prescription EDI
products, who generate approximately 1,400,000 transactions annually.
The Company has been providing this service for
approximately four years and, because of this experience, has been able to
establish a number of value-added services which differentiate the Company from
competing services. These additional services include a directory service
allowing efficient routing of transactions and quick notification of new
participants on the network, translation services which allow a physician's
system using one message format and identifier scheme to communicate with a
pharmacy using a different message format and identifier scheme, and
communication protocol translation allowing a physician using a communication
protocol (a rule that governs the format and control procedures of transmitted
data), such as TCP/IP, to communicate with a pharmacy using a different
communication protocol, such as X.25.
/bullet/ LABORATORY ORDERS AND RESULTS. A large part of a
medical lab's day-to-day operation is made up of receiving and processing
paper-based orders from physicians and then distributing paper-based reporting
of the test results performed back to the physician. These test results play a
large role in the physician's decisions on current treatment options. As such,
the more data rich and timely a result can be delivered, the sooner and better
informed a medical decision can be made. The Company's online lab software
products allow labs to receive orders online and to distribute test results
online back to the ordering physician, saving significant labor costs and
providing better service to the labs, the patients and the physicians. The
Company currently offers its lab ordering and results reporting products as an
intranet solution and has plans to offer these services as EDI transactions
through ProxyNet.
The Company's principal lab product is "ClinScan",
the nation's leading physician desktop lab ordering and results reporting
software with approximately 3,000 physician users at approximately 1,800 sites
in 26 states. CMS is also one of the nation's leading providers of online
connectivity to regional commercial labs and hospital-based labs with over 100
lab customers receiving online orders from and transmitting results to physician
offices. CMS has achieved system integration with direct interfaces already
developed for 23 of the 25 top lab information systems in the country. CMS also
interfaces to physician office management information system ("POMIS") vendors,
including "The Medical Manager", the most widely used physician office
management and clinical record system. CMS customers are primarily hospitals and
regional commercial labs who typically purchase a number of software licenses
for "ClinScan" and distribute the system at no charge to physicians who are high
volume customers of the lab.
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As a result, the efficiency of the ordering and results communication process is
increased for both the physicians and the lab. The Company believes that
ProxyNet represents an existing infrastructure through which it can achieve its
goal of providing an intranet offering of its services to hospitals and
integrated delivery networks and that this acquisition is consistent with its
overall strategy designed to enable the Company to become the nation's leading
provider of online transaction sets.
/bullet/ FINANCIAL TRANSACTIONS
The Company's financial EDI clients currently include more
than 3,800 physicians, payors and software development vendors located in 25
states. Its EDI services include all payor claims/encounter processing and
patient statements, which currently account for more than 7,500,000 transactions
a year. The Company believes that the inclusion of financial EDI services, along
with its portfolio of clinical EDI services and clinical systems, further
enhances the Company's ProxyNet healthcare information network and follows its
overall business strategy of becoming a leading provider of EDI clinical and
financial transactions. The Company may seek to acquire other financial
healthcare EDI service companies, but as of the date of this Report, there are
no agreements for such acquisitions.
/bullet/ VALUE ADDED PRODUCTS AND SERVICES
The Company offers various valued added clinical products that
it believes differentiates itself from its competitors and are designed to
increase physician usage. These products are licensed in the form of proprietary
databases which are available to the physicians on their desktop computers in
DOS, UNIX or Windows versions. These databases are: (i) a drug database
developed by the Company containing approximately 8,000 drugs, which is updated
periodically and provides automatic generic equivalent substitution
notifications; (ii) a set of clinical drug utilization review databases which
provide valuable information relating to allergies, drug interactions and
duplicate therapies, developed and updated periodically by several unaffiliated
companies, and offered by the Company pursuant to sublicenses; and (iii)
databases containing certain managed care organizations' formularies and
preferred drug lists published by the Company. In addition, in response to
HCFA's recently increased enforcement of laboratory fraud and abuse regulations
regarding the medical necessity of certain tests, ClinScan has medical necessity
functionality that, when used with the applicable governmental medical necessity
databases, enables labs to determine electronically that lab tests ordered by
physicians are covered for the medical condition being treated.
/bullet/ NETWORK INTEGRATION SERVICES
The Company provides client server software development
services, systems integration hardware products and services, Internet access
services and commercial software packages to public and private sector
organizations. For the year ended December 31, 1997, approximately 65% of the
Company's consolidated revenues were from agencies and departments of the State
of Florida.
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The Company's client server software group provides software
development services using a variety of information architectures and
development tools. The Company also sells and supports a variety of systems
integration products and services from leading edge manufacturers in a variety
of technological niches, including hubs, routers, ATM switches, remote access
devices, RISC and Intel servers, storage devices and network operating systems.
The Company's Internet access division provides a wide range of Internet related
products and services. The Company is a full service Internet access provider
with points of presence in Tallahassee, Tampa and Fort Myers, Florida. The
Company's Internet access products include Web servers, e-mail systems,
firewalls and gateways.
The Company purchases computer hardware products for resale from a
variety of suppliers and is not dependent upon any one supplier.
/bullet/ INSTITUTIONAL PHARMACY BUSINESS
The Company's wholly-owned subsidiary, ProxyCare, Inc., is a
pharmacy business operated by the Company since 1994 in South Florida that
dispenses and delivers unit dose oral prescription drugs to patients residing in
long term care facilities, primarily in assisted care living facilities in Dade,
Broward and Palm Beach counties. Prescriptions are delivered monthly to such
facilities utilizing a variety of packaging systems, including a unique
packaging system called "Medicine-On-Time", which is licensed from an
unaffiliated third party.
SEGMENT INFORMATION
See Note 14 of Notes to Consolidated Financial Statements for financial
information regarding the Company's reportable segments.
MARKETING AND SALES
The Company markets products and services to (i) healthcare providers,
including hospitals, emergency room facilities, POMIS vendors and individual
physician practices; (ii) healthcare payors, including MCOs (primarily health
maintenance organizations ("HMOs") and their affiliated physicians) and
traditional insurance companies; (iii) chain and independent pharmacies; (iv)
medical practice and pharmacy management software companies that would like to
offer electronic prescription transmittal as part of their software packages;
(v) online transaction processing companies that would like to offer a
prescription software product in connection with their transaction processing
services; and (vi) pharmacy benefit management ("PBM") companies that do not
have the capability to provide doctors with electronic prescription transmittal.
The Company markets its EDI services principally through its proprietary
software applications and through its strategic relationships with its
electronic commerce partners ("ECPs").
The Company has developed various software products which are designed
to facilitate connectivity to and use of its transaction services through
ProxyNet, the Company's healthcare information network. Customers are able to
access ProxyNet and utilize the Company's network services either through the
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Company's own products, or those of its ECP vendors' software products described
below.
Clinical transaction software products include (i) ProxyScript(R),
which provides pharmacy management at the point of care, the prescribing
physician's office, and automates the generation, processing and management of
prescriptions; (ii) as noted above, PreScribe(TM), which facilitates the
ordering of new prescriptions and the authorization of refills through the
ProxyNet network; and (iii) ClinScan(TM), which allows physicians to place lab
orders online and to receive online test results back from the laboratory. The
Company has also recently developed and introduced ProxyCare(TM), a prescription
management and formulary compliance system for use in assisted care living
facilities, nursing homes and correctional facilities.
Financial transaction software products include (i) EZ-Claims(TM), a
front-end EDI software that runs on various operating platforms such as DOS,
Microsoft Windows and certain UNIX systems, and interfaces with most practice
management systems to provide an efficient means to submit claims and encounters
to payors; and (ii) EZ-Response Wizard(TM), which allows collections personnel
to track claim status messages for each claim submitted. EZ-Claims and
EZ-Response Wizard were included in the assets of USHDI that were recently
acquired by the Company.
The Company markets these HCIS products and services primarily through
direct sales by the Company's sales and marketing staff, including its regional
account executives. The Company also exhibits at national and regional trade
shows and advertises in several key trade publications.
The Company has developed many strategic relationships with providers
of information systems to physicians under its electronic commerce partner
("ECP") program through which the Company partners with leading POMIS vendors to
develop software interfaces and provide other services that facilitate seamless
online connectivity to ProxyNet from the systems already in use by the vast
majority of physicians in the United States.
POMIS vendors have already established a presence in the physician's
office through this installed base of practice management systems. Instead of
competing with existing vendor relationships, the Company offers an ECP program
to these vendors which gives their software systems access to ProxyNet directly
from their existing applications in the physician's office without having to
integrate another stand-alone device. This "open architecture" approach allows
the Company to market its products, as well as hardware and support services,
through these established POMIS vendors and leverage their large existing
customer bases. As of February 27, 1998, the Company has arrangements with 25
POMIS vendors with potential access to approximately 265,000 OR 48% of the
nation's approximately 550,000 prescribing physicians. Among the principal ECP
strategic relationships are Medical Manager Corp., The Reynolds and Reynolds
Company, Eclipsys Corporation and IDX Systems Corporation. While the Company is
working diligently with its POMIS vendors to interface the Company's products
and services into the existing products that the POMIS vendors offer to their
customers and physician clients, the Company believes that the development,
testing, marketing, training and installation thereof will take time. Therefore,
the Company does not expect to derive substantial revenues
7
from these strategic relationships until sometime in 1999 or beyond; however,
the Company believes that these strategic relationships will also provide it
access to immediately market its other products and services to the POMIS
vendors and their customers and physician clients.
The Company also has strategic relationships with pharmacy chains,
independent pharmacy owners and pharmacy information system vendors to receive
prescriptions which are electronically transmitted to their pharmacies from
physician providers. As of February 27, 1998, the Company has agreements with
pharmacy providers which represent access to more than 31,000 of the approximate
50,000 pharmacies in the United States. In addition, the Company has integrated
its services with 23 of the 25 leading laboratory system vendors. The Company
intends to extend its laboratory relationships to develop and provide for EDI
connectivity through ProxyNet.
The development, marketing and sales of HCIS products and services is
an emerging business and, as such, is subject to uncertainty as to demand and
market acceptance for newly introduced products and services such as the
Company's. Achieving market acceptance for the Company's products and services
requires significant marketing efforts and expenditure of significant funds to
create awareness and demand by pharmacies, physician groups, MCOs and other
potential customers. Under certain of these agreements, the Company may share
transaction revenues with these POMIS and pharmacy software vendors and national
chain pharmacies, and believes these revenue sharing incentives will result in a
steady increase in the volume of EDI transactions. To date, the Company has not
generated any material revenue from these strategic relationships.
ACQUISITIONS
On March 14, 1997, the Company acquired the assets and business of CMS,
based in Babylon, New York, for a total of $6,000,000 payable in cash and
unregistered common stock. CMS, founded in 1987, is the developer of ClinScan.
On April 30, 1997, the Company acquired substantially all of the assets
of HCS, a privately-held corporation based in Tallahassee, Florida. HCS was
founded in 1986. Pursuant to the HCS acquisition agreement, the Company paid HCS
at closing $3,200,000 in cash and issued 388,215 unregistered shares of Common
Stock, which may not be sold for two years following the acquisition. The
agreement also requires the Company to pay HCS $1,000,000 in cash and/or Common
Stock within 60 days after April 30, 1998 and 1999; provided that certain
defined operating criteria are achieved. Each of these future payments, if
required, must be composed of at least 50% cash, with the balance, if any, paid
in the form of unregistered Common Stock valued at the then trading price.
In June 1997, the Company acquired from Walgreen's all right, title and
interest in all copyrights and trademarks related to the technology underlying
Walgreen's proprietary software known as PreScribe. PreScribe enables the
filling of prescriptions through the ProxyNet network. Walgreen's also entered
into a network services agreement pursuant to which Walgreen's will pay fees to
the Company for 12 years (the first three of which are on an exclusive basis)
for transactions received through ProxyNet. Pursuant to the agreements with
8
Walgreen's, the Company paid Walgreen's $2,000,000 at closing, issued a 10-year
warrant to purchase 200,000 shares of Common Stock at $9.96 per share,
exercisable beginning in June 2001, and agreed to pay $500,000 in each of June
1998, 1999 and 2000.
On November 19, 1997, the Company acquired substantially all of the
assets of USHDI, a subsidiary of Avatex Corporation, a New York Stock
Exchange-listed company, for a purchase price of $4,000,000 in cash. USHDI was
founded in 1985.
PRODUCT DEVELOPMENT
The Company believes that its future success will depend in large part
on its ability to enhance its current line of EDI products and services, develop
new EDI products and services, maintain technological competitiveness and
satisfy an evolving range of customers' requirements. The Company intends to
expand its products and services through acquisition and internal development.
The Company's product development group is responsible for improving and
upgrading existing products and services, exploring applications of core
technologies and incorporating new technologies into the Company's products and
services.
The basic development of ProxyNet, ProxyScript and RxReceive occurred
as part of the Company's former drug dispensing operations, which were sold to
Eckerd Corporation in March 1995. The bulk of the development costs for those
products and services was accounted for as direct expenses of those operations,
as those products were provided to customers at no charge. Beginning in March
1995, the cost of modifying these products for sale to end users has been
capitalized. Also since 1995, the Company engaged in significant product
development activity to ensure that it remains competitive in the healthcare
information technology market. Further, in June 1997 the Company purchased the
PreScribe technology from Walgreen's. The total amount capitalized for purchased
and internally-developed software as of December 31, 1997, is $4,730,268, net of
amortization. Research and development expense was approximately $1,908,000 in
1997, $177,000 in 1996 and was not material in 1995. See Note 1(i) of Notes to
Consolidated Financial Statements.
COMPETITION
The Company faces competition from other HCIS companies and other
specialty technology companies. Many of the Company's competitors are
significantly larger and have greater financial resources than the Company. The
area of healthcare EDI transaction networks has been targeted by many companies,
including, but not limited to, Envoy Corporation, National Data Corporation and
others. The Company is also aware that other EDI transaction processing
companies have targeted this industry as a growth market, which could in the
future utilize their networks to process electronic healthcare EDI transactions.
Certain of these companies have announced pilot programs. The Company believes
that the competition it faces and will face in the foreseeable future will be
based primarily on product/service quality, customer support and marketing. The
Company believes that its products and services are more advanced than the
competing products and services currently available because the Company's
clinical EDI products and services have been developed and enhanced through
actual utilization by physicians, pharmacies
9
and labs over the past four years. The Company believes that its ability to
compete successfully in the HCIS market will depend upon its ability to offer a
variety of integrated products and services and to implement sales and marketing
strategies which brings its products and services to the attention of its
potential customer base.
The Company's ECP agreements for distribution of its products and
services, described above in "Marketing and Sales", are primarily non-exclusive.
The Company believes that the key to its competitive success will be its ability
to win the "race" with its competitors to control physicians' desktops by
offering a wider variety of EDI healthcare clinical and financial products and
services. Once large numbers of physicians are connected to and satisfied with
ProxyNet and its comprehensive array of services, the Company believes that it
will be difficult for competitors to dislodge the Company from these physician
customers, notwithstanding the non-exclusivity of the marketing arrangements
with the ECPs.
GOVERNMENT REGULATION
The Company's products and services are not directly subject to
governmental regulations; however, the user base is subject to extensive and
frequently changing federal and state laws and regulations. A primary feature of
the Company's products and services is the ability to electronically transmit
(either by computer-to-facsimile or computer-to-computer) prescriptions from a
doctor's office to a pharmacy. The ability of a pharmacist to fill an
electronically transmitted prescription is governed by federal and state law.
The United States Drug Enforcement Agency ("DEA") oversees the handling of
certain classes of drugs called "controlled substances." The United States
Congress has approved the dispensing of prescriptions transmitted via facsimile
of original, signed prescriptions for controlled substances other than for
Schedule II drugs (narcotics). Neither Congress nor the DEA has specifically
addressed electronic transmission of computer-generated prescriptions for
controlled substances. No assurance can be given that Congress or the DEA will
accept this method of transmitting prescriptions for controlled substances in
the future.
State boards of pharmacy oversee the handling of all classes of drugs
within their states. A majority of the states have approved the dispensing of
prescriptions transmitted via facsimile, and many of the states have pharmacy
laws and regulations that permit the electronic dispensing of prescriptions.
Nonetheless, in a limited number of states where electronic transmission of
computer-generated prescriptions is not specifically addressed, the state boards
have generally taken the position that these prescriptions are permissible.
Other state laws which may affect the Company's ability to market in
certain states include certain state requirements that require licensure as
either a doctor or a pharmacy in order for a third party to send or receive a
prescription. A common carrier, such as a telephone company, is often excluded
from such requirements. The Company's ability to market in such states would
depend upon each state's willingness to deem the Company to be a common carrier
of such prescriptions, the assurance of which cannot be given.
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In addition to certain state licensing requirements, each state has
various laws protecting the confidentiality of patient medical information,
including prescription information. Although it is not uncommon for a third
party to have access to such information, such third party has an obligation to
maintain the confidentiality of such information and could be subject to
liability if that obligation is breached. The Company has procedures in place to
maintain the confidentiality of the information it receives as part of its
ProxyNet services; however, there can be no assurance that inadvertent
disclosure of information will not occur to the detriment of the Company's
business.
The Company's institutional pharmacy business must comply with the
Florida Pharmacy Act, rules of the Florida Board of Pharmacy, the Florida Drug
and Cosmetic Act and the Florida Comprehensive Drug Abuse Prevention and Control
Act. In addition, the Florida Department of Professional Regulation inspects the
Company's facilities to ensure compliance with all applicable laws and
regulations.
Under federal laws and regulations, the Company's institutional
pharmacy business must comply with the Federal Food, Drug and Cosmetic Act and
the Federal Drug Abuse Act. These laws and regulations establish standards
concerning the labeling, packaging, advertising, and adulteration of
prescription drugs and the dispensing of controlled substances and prescription
drugs.
The Company believes that it is in substantial compliance with all
material federal and state laws and regulations governing its operations and has
obtained all licenses necessary for the operation of its business.
INTELLECTUAL PROPERTY
TRADEMARKS. The Company regards certain features of its products,
services and documentation as proprietary, and relies on a combination of
contract, copyright, trademark and trade secret laws and other measures to
protect its proprietary information. As part of its confidentiality procedures,
the Company generally enters into nondisclosure agreements with its employees,
distributors and customers, and limits access to and distribution of its
software, databases, documentation and other proprietary information. The
Company has no patents. The Company has federal trademark registrations for
PreScribe and ProxyScript, and has filed such applications for ClinScan,
ProxyCare, ProxyNet and RxReceive. The Company believes that because of the
rapid pace of technological change in the EDI industry, trade secret and
copyright protection are less significant than factors such as the knowledge,
ability, experience and integrity of the Company's employees, frequent product
enhancements and the timeliness and quality of support services.
The Company is not aware that its products, services,
trademarks or other proprietary rights infringe the proprietary rights of third
parties; however, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future products.
11
EMPLOYEES
As of February 28, 1998, the Company employed 154 full-time employees.
The Company is not and never has been a party to a collective bargaining
agreement. The Company considers its relationship with its employees to be good.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document contains "forward-looking statements" within the meaning
of the federal securities laws. These forward-looking statements include
assumptions, beliefs and opinions relating to the Company's growth strategy
based upon the Company's interpretation and analysis of healthcare industry
trends and management's ability to successfully develop, implement, market and
sell its secure network transaction processing services, software programs,
clinical databases and financial transaction services to physicians and other
healthcare providers. This strategy assumes that physicians will prefer
"one-stop shopping" for its products and services and that the Company will be
able to successfully develop, acquire, maintain and upgrade competitive clinical
and financial transaction sets and successfully integrate them with the
Company's existing products and services. This strategy also assumes that the
Company will be able to successfully develop and execute its strategic
relationships, especially with the providers of information systems to
physicians under the Company's electronic commerce partner program, and with
pharmacy chains, independent pharmacy owners and pharmacy information system
vendors. Many known and unknown risks, uncertainties and other factors,
including general economic conditions, healthcare reform initiatives, millennium
compliance issues that may arise, and risk factors detailed from time to time in
the Company's Securities and Exchange Commission filings, may cause these
forward-looking statements to be incorrect, and may cause actual results to be
materially different from any future results expressed or implied by these
assumptions, opinions and beliefs.
ITEM 2
DESCRIPTION OF PROPERTY
The Company leases approximately 15,000 square feet of space in two
facilities in Fort Lauderdale, Florida, and Delray Beach, Florida, for its
executive offices, network operations and product development facilities,
pursuant to leases expiring in February 1999 and July 2001, respectively, at a
monthly aggregate rent of $10,232. The Company's systems integration division,
Hayes Computer Systems, leases approximately 7,000 square feet of space in a
facility in Tallahassee, Florida, pursuant to a lease expiring April 30, 2000 at
a monthly rental of $7,500. The Company is also obligated under several other
operating leases for certain operating facilities which are for periods of less
than one year or are otherwise immaterial.
The Company's leases generally contain renewal options and require the
Company to pay costs such as property taxes, maintenance and insurance. The
Company considers its present facilities adequate for its operations and
12
believes that alternative and additional facilities are readily available in the
event that a particular lease is not renewed.
ITEM 3
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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, 1997.
13
PART II
ITEM 5
MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's 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. The
Common Stock has traded on The Nasdaq National Market since November 8, 1996.
Previously, the Common Stock traded on the SmallCap tier of The Nasdaq Stock
Market.
HIGH LOW
1996:
First Quarter $ 5.33 $ 3.42
Second Quarter 17.92 3.33
Third Quarter 15.67 9.13
Fourth Quarter 10.75 5.75
1997:
First Quarter $ 9.50 $ 5.38
Second Quarter 11.25 4.13
Third Quarter 10.81 7.00
Fourth Quarter 10.63 6.50
1998:
First Quarter $ 8.06 $ 5.25
(through February 27, 1998)
On November 18, 1997, the Company sold 500,000 shares of unregistered
Common Stock for $8.25 per share in a private placement to Bellingham Industries
Inc. ("Bellingham"). Net proceeds from this sale were $4,125,000. Subsequently
on February 20, 1998, Bellingham purchased another 500,000 shares of
unregistered Common Stock from the Company for $6.50 per share, of which the
Company has received $1,625,000 with the balance of $1,625,000 due to be paid on
March 30, 1998. There are no commissions associated with these issuances. Such
issuances are exempt from the registration provisions of Section 5 of the
Securities Act of 1933, as amended (the "Act"), by virtue of Section 4(2) of the
Act. However, the Company has agreed to file a registration statement(s) under
the Act and use its best efforts to have such registration statement(s) clear
and effective on dates to be mutually agreed upon between the Company and
Bellingham. Based on information provided by Bellingham, as of February 28,
1998, Bellingham beneficially owns 3,796,610 shares or 30.5% of the Company's
outstanding Common Stock.
On February 27, 1998, the last reported sale price of the Common Stock
was $7.56 per share. As of February 27, 1998, there were approximately 118
holders of record of the Common Stock. The Company believes that many of these
holders of record are in "street name" and that the number of individual
shareholders is over 2,500.
14
The Company has not paid any dividends on its Common Stock. The Company
intends to retain all earnings for use in its operations and the expansion of
its business, and does not anticipate paying any dividends on the Common Stock
in the foreseeable future. The payment of dividends is within the discretion of
the Company's Board of Directors. Any future decision with respect to dividends
will depend on future earnings, future capital needs and the Company's operating
and financial condition, among other factors.
ITEM 6
SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial
information for ProxyMed for and as of each of the five years in the period
ended December 31, 1997, and have been derived from the audited consolidated
financial statements of the Company. In March 1995, the Company's business focus
changed from primarily the sale of prescription drugs to healthcare EDI and
software products and services. The data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and related notes included elsewhere herein.
YEAR ENDED DECEMBER 31,
1997 1996 1995 1994 1993
------------- ----------- ------------ ------------ ------------
STATEMENT OF OPERATIONS DATA:
Revenues $ 10,931,969 $ 3,054,151 $ 7,622,803 $16,533,006 $ 8,298,821
Operating loss $(10,317,164) $(4,305,293) $(2,626,882) $(4,126,165) $ (530,786)
Net Loss $(18,517,122) $(2,853,735) $(2,848,887) $(4,265,657) $ (537,509)
Net loss applicable to common shareholders $(18,517,122) $(2,949,538) $(2,962,249) $(4,265,657) $ (537,509)
PER SHARE DATA:
Basic and diluted net loss per share of
common stock $ (1.75) $ (.39) $ (.61) $ (1.01) $ (.20)
Weighted average common shares outstanding 10,589,333 7,660,383 4,816,980 4,209,876 2,748,185
DIVIDEND DATA:
Dividends on cumulative preferred stock $ - $ 95,803 $ 113,362 $ - $ -
DECEMBER 31,
1997 1996 1995 1994 1993
----------- ----------- ---------- ---------- -------------
BALANCE SHEET DATA:
Working capital (deficiency) $ 1,966,406 $12,426,178 $ 990,734 $ (469,097) $ 2,861,107
Long-term debt $ 1,049,630 $ - $ 199,393 $ 425,256 $ 85,013
Total assets $19,603,121 $15,695,055 $4,993,337 $9,217,934 $ 4,290,241
Stockholders' equity $13,151,752 $14,915,305 $2,593,620 $3,336,035 $ 3,742,797
15
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
From inception until 1995, the Company's business was principally
related to the dispensing of prescription drugs through a variety of methods of
delivery, including retail and institutional pharmacies and its home infusion
therapy subsidiary. In the first quarter of 1995, management decided to divest
of the Company's retail pharmacy business, primarily due to the need for
substantial additional capital required to achieve the economies of scale
required for profitable operations, and shifted the emphasis of the Company's
business. As part of the retail pharmacy operations, the Company provided at no
charge to its customers certain of its healthcare information technology
products and services, which were favorably received. Management also recognized
a need for these products and services in the marketplace. Consequently, the
Company elected to pursue the commercialization of its healthcare information
technology products and services, and sold its retail pharmacy and home infusion
operations to Eckerd Corporation ("Eckerd") and National Health Care Affiliates,
Inc. ("NHCA"), respectively. The Company's sole remaining prescription drug
dispensing segment operation is ProxyCare, Inc. ("ProxyCare"), its institutional
pharmacy subsidiary which dispenses prescription drugs to patients in long-term
care facilities.
From mid-1995 through 1997, the Company embarked on its efforts to
commercialize its healthcare technology products and services. Specifically, the
Company enhanced its clinical EDI products into commercially feasible formats to
encourage physician use and acceptance. Concurrently, the Company entered into
numerous agreements to achieve connectivity to the nation's physicians and
pharmacies between which clinical transactions can be transmitted through
ProxyNet, the Company's secure, proprietary online national healthcare
information network. In addition, in 1997 the Company commenced a significant
acquisition program to further its presence in the healthcare information
systems ("HCIS") industry and broaden its EDI offerings. Through its
acquisitions of CMS, HCS, USHDI and PreScribe, the Company is developing a
diverse set of offerings designed to meet the connectivity needs of physicians
and other healthcare providers by providing "one-stop" shopping for clinical and
financial EDI transactions.
The Company currently operates in three industry segments: healthcare
EDI and software products and services, network integration services, and
prescription drug dispensing.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997, COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Consolidated revenues for 1997 increased by $7,877,818, or
258%, to $10,931,969 from consolidated revenues of $3,054,151 in 1996.
16
Healthcare EDI and software products and services segment
revenues decreased by $68,885, or 4%, to $1,817,122 from $1,886,007 in 1996.
This decrease was primarily due to the net effect of two factors. First, as a
result of the acquisitions of CMS, USHDI and PreScribe in 1997, segment revenues
increased by $1,646,218 over 1996 levels. Revenues for these acquisitions
include the processing of certain clinical and financial transactions,
proprietary computer software and hardware, and annual software support
contracts. Second, segment revenues in 1996 include one-time license fee revenue
from Bergen Brunswig Drug Corporation ("Bergen")and Blue Cross and Blue Shield
of Massachusetts, Inc. ("BCBSM") totaling $1,204,000, whereas no such license
fee income was received in 1997.
Network integration services segment revenues were $7,779,787
in 1997 compared to no such revenues in 1996, due to the acquisition of HCS in
April 1997. Approximately 91% of the network integration services revenues were
to the State of Florida and its related agencies. Approximately 81% of this
segment's revenues are from sales of hardware and third-party software products.
Prescription drug dispensing segment revenues increased by
$166,916, or 14%, to $1,335,060 from $1,168,144 in 1996, primarily as a result
of increased marketing efforts to obtain new customers. The Company believes
that price fluctuations are not a significant factor affecting ProxyCare's
revenues because of contractual fixed pricing arrangements with many customers.
GROSS PROFIT MARGIN. Consolidated gross profit margin for 1997 was 37%
compared to 57% in 1996. The gross profit margin for the healthcare EDI and
software and services segment was 79% in 1997 compared to 70% in 1996. This
increase is primarily attributable to the contribution in 1997 from the
Company's lab software products and annual software support contracts, which
typically carry high gross profit margins. The gross profit margin in the
network integration services segment was 27% in 1997 due to the high
concentration of lower margin hardware products. The gross profit margin in the
drug dispensing segment was 37% in 1997 compared to 34% in 1996. This increase
was due to a change in the mix of customer from third-party payers to higher
margin private pay patients.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling,
general and administrative expenses for 1997 increased by $7,583,920, or 133%,
to $13,283,353 from consolidated selling, general and administrative expenses of
$5,709,433 in 1996. Consolidated selling, general and administrative expenses as
a percentage of consolidated net revenues decreased to 122% in 1997 from 187% in
1996, as the rate of increase in revenues in 1997 exceeded the rate of increase
in selling, general and administrative expenses.
Selling, general and administrative expenses for the
healthcare EDI and software products and services segment increased by
$5,217,656, or 192%, to $7,931,540 from selling, general and administrative
expenses of $2,713,884 in 1996. The increase resulted from acquisitions of CMS
and USHDI, and internal growth in order to support this core business of the
Company. The increase consisted primarily of the following: (i) additional
payroll and related costs for sales, product development, customer service,
implementation services, technical operations and management personnel
($3,866,000); (ii)
17
additional marketing expenses including attendance at national and local trade
shows, print ads, and travel to potential customers ($721,000); (iii)
telecommunication costs related to the Company's further development of its
ProxyNet network costs including direct connectivity with the Company's
strategic partners ($293,000); (iv) consulting fees to various software and
business consultants ($160,000); (v) occupancy costs primarily associated with
the acquisitions of CMS and USHDI and additional facilities for product
development and sales ($105,000); (vi) write-off of certain capitalized software
that the Company determined had no continuing future benefit to its operations
($202,000); (vii) charges related to certain compensatory stock options and
warrants issued in 1996, whereas there were no such charges in 1997 (decrease of
$300,000); and (viii) net increases in various other selling, general and
administrative expenses which were individually less than $100,000($171,000).
Selling, general and administrative expenses for the network
integration services segment were $1,824,967 in 1997 and resulted from the
acquisition of HCS in 1997. These expenses consisted primarily of payroll and
related costs ($1,345,000), occupancy costs ($144,000), telecommunications costs
($114,000), and marketing related costs including travel to potential customers
($82,000).
Selling, general and administrative expenses for the drug
dispensing segment increased by $114,937, or 33%, to $466,055 from selling,
general and administrative expenses of $351,118 in 1996. This increase primarily
resulted from payroll, commissions and related costs to support the increase in
business.
Corporate related selling, general and administrative expenses
increased by $426,370, or $16%, to $3,070,801 from $2,644,431 in 1996. This
increase was primarily a result of the following: (i) termination and separation
payments for certain employees ($235,000), (ii) the write-off of certain
computer hardware that the Company determined that it will no longer utilize in
its corporate operations ($161,000), and (iii) a net increase in various other
selling, general and administrative expenses ($30,000).
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
$755,712, or 234%, to $1,078,300 from $322,588 in 1996. This increase was
primarily due to the following five factors: (i) amortization of capitalized
software costs for healthcare EDI and software products and services ($214,000),
(ii) depreciation charges associated with ProxyNet and related systems
($100,000), (iii) exclusivity charges payable to Walgreen's associated with the
acquisition of PreScribe ($250,000), (iv) amortization charges for goodwill and
other intangible assets associated with the Company's acquisitions completed in
1997 ($84,000), and (v) other general depreciation increases ($108,000). The
development and distribution of certain of the Company's healthcare technology
products and services, particularly on-line clinical transaction services, is an
emerging business and, as such, is subject to uncertainty as to demand and
market acceptance for such products and services. Achieving market acceptance
for these products and services requires significant marketing efforts and
expenditure of significant funds to create awareness and demand by pharmacies,
physician groups, managed care organizations and other potential customers. As a
result, such factors can affect the Company's estimates of the recoverability
and useful lives of
18
property and equipment, capitalized software costs, other identifiable
intangible assets and goodwill, among other items, and actual results could
differ from those estimates.
INTEREST, NET. Net interest income decreased $169,519, or 39%, to
$267,140 from $436,569 in 1996. The decrease in net interest income is due
primarily to interest expense of approximately $136,000 in 1997 on the debt
issued for the acquisition of CMS, which was not present in 1996.
OTHER. As a result of the acquisitions of CMS and HCS, the Company
recorded charges totaling $8,467,098 in 1997 related to the expensing of
in-process research and development technology (see Note 2 of Notes to
Consolidated Financial Statements). In 1998, subject to cash constraints, the
Company intends to further develop the acquired CMS and HCS technologies to
integrate such technologies into its ProxyNet network transaction offerings,
specifically to provide lab transactions and secure E-mail transmissions over
the network. In 1996, the Company earned $1,014,989 from the sale of certain
assets of its drug dispensing operations to Eckerd Corporation in 1995.
NET LOSS. As a result of the foregoing, the Company recorded a net loss
of $18,517,122 in 1997, as compared to a net loss of $2,853,735 in 1996. The
Company believes it is making progress in its acquisition strategy, strategic
relationships and other plans to increase the usage of its healthcare
information technology products and services to achieve requisite economies of
scale. However, the Company anticipates that it will continue to incur operating
losses until it generates substantial recurring revenues from these products and
services. There can be no assurance that the Company will realize a significant
level of recurring revenues from the sale of its products and services, or that
revenues from these operations or those of its newly-acquired businesses or
ProxyCare will ultimately result in significant reductions in losses or
achievement of profitability.
YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues for 1996 decreased by $4,568,652, or 60%, to
$3,054,151 from revenues of $7,622,803 in 1995. This decrease was primarily
attributable to a decrease in the prescription drug dispensing segment due to
the Eckerd and NHCA dispositions which occurred in 1995. The combined revenues
of these operations comprised 70% of the Company's revenues in 1995. After
eliminating the sales represented by these operations which were sold, revenues
for 1996 increased $774,453, or 34%, compared to revenues "as adjusted" for 1995
of $2,279,698. This increase is due to the net effect of three factors. First,
the Company recognized income totaling $1,204,000 from two one-time license fees
in 1996 (Bergen and BCBSM), whereas no license fee income was received in the
1995 period. Second, Bergen purchased $529,298 of computer equipment containing
the Company's software in 1996, which did not occur in 1995. Third, revenues
from the Company's remaining drug dispensing operations, ProxyCare, decreased
$1,108,292, or 50%, to $1,088,144 in 1996, compared to revenues of $2,196,436 in
1995. This decrease was due primarily to the loss of business from several
customers, much of which were associated with the operations sold to Eckerd.
GROSS PROFIT MARGIN. Gross profit margin for 1996 was 57% compared to a
gross profit margin of 32% for 1995. Gross profit margin, after deducting the
19
sales and cost of sales related to the operations sold to Eckerd and NHCA, was
57% for 1996 compared to 33% for 1995. This increase is due to the favorable
impact of the one-time license fee revenues received in the first quarter of
1996 from Bergen and BCBSM.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 increased by $979,081, or 19%, to $6,032,021
from selling, general and administrative expenses of $5,052,940 for 1995. After
deducting selling, general and administrative expenses related to the operations
sold to Eckerd and NHCA, selling, general and administrative expenses for 1996
increased by $2,943,322, or 95%, over selling, general and administrative
expenses "as adjusted" for 1995 of $3,088,699. This increase is due to the net
effect of two factors. First, selling, general and administrative expenses for
ProxyCare decreased in 1996 by approximately 44% from the 1995 levels primarily
due to cost control measures instituted after the loss of certain customers in
1996. As a result of these measures, ProxyCare's selling, general and
administrative expenses as a percentage of revenues was maintained at
approximately 33% of revenues in 1996, compared to 29% in 1995. Second, other
selling, general and administrative expenses for the Company's other recurring
operations, as adjusted, increased by $3,223,833, or 132%, to $5,667,996 for
1996, compared to $2,444,163 for 1995, primarily due to the Company's efforts to
develop and market its new products and services. This increase primarily
resulted from the following: (i) additional payroll and related costs for sales,
product development, customer service, clinical pharmacy service and management
personnel related to the Company's new products and services ($1,742,000); (ii)
additional marketing expenses related to these products and services, marketing
materials, attendance at national and local trade shows, expenses for pilot
programs for potential customers and travel costs ($420,000); (iii) additional
depreciation, amortization and computer costs related to new network equipment
and capitalized software costs ($147,000); (iv) additional consulting fees to
various software and business consultants ($229,000); (v) charges related to
certain compensatory stock options and warrants issued in the second quarter of
1996, primarily related to the PPI licensing agreement, as described in Note 3
of Notes to Consolidated Financial Statements ($300,000), (vi) commissions,
including those under the Bergen agreement ($79,000), (vii) additional
stockholders' expenses related to the Company's annual meeting, and relations
with institutional and other investors ($174,000), and (viii) net increases in
various other selling, general and administrative expenses ($133,000).
INTEREST, NET. The Company earned net interest income for 1996 of
$436,569, whereas the Company incurred net interest expense for 1995 of
$151,625. This reflects the use of proceeds from the Eckerd and NHCA sales in
1995, and proceeds from the sale of equity securities in 1995 and 1996, to
retire all indebtedness, resulting in the elimination of interest expense. In
the second quarter of 1996, the Company retired all indebtedness, and all
available cash has been invested in interest-bearing accounts and U.S. Treasury
Notes.
OTHER. The gain (loss) on sale of assets in 1996 and 1995 relate to the
sale of certain, but not all, of the assets related to the Company's HMO
prescription drug dispensing operations to Eckerd. Initially, a loss on the sale
was recorded in the first quarter of 1995, and contingent income was
20
recorded in subsequent periods based on the amount of prescription business
retained by Eckerd through September 30, 1996. Ultimately, the Company
recognized a cumulative gain on the sale of approximately $275,000. The
extraordinary gain on sale of subsidiary of $669,664 in 1995 relates to the sale
of ProxyFusion, Inc. to NHCA. See Note 4 of Notes to Consolidated Financial
Statements for a description of these transactions.
NET LOSS. As a result of the foregoing, the Company recorded a net loss
of $2,853,735 in 1996, as compared to net loss of $2,848,887 in 1995.
MILLENNIUM COMPLIANCE
All of the Company's software and EDI products, including without
limitation, any parts or components thereof, when used prior to, during and
after the turn-of-the-century, are programmed to process turn-of-the-century
dates. This capability includes, without limitation, date formats that have
century recognition, calculations that accommodate same century and
multi-century formulas and date values, date interface values that reflect the
century and calculations that accommodate the occurrence of leap year. The
Company is in the process of conducting a review of its internal business and
computer systems, and is querying its customers, vendors and resellers as to
their progress in identifying and addressing problems that their computer
systems may face in correctly interrelating and processing date information as
the year 2000 approaches and is reached. Based on the results of such efforts
achieved to date, the expenses of the Company's continuing efforts to identify
and address any such issues, or the expenses or liabilities to which the Company
may become subject as a result of such issues, are not considered to be
material.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income", SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", and SFAS
No. 132, "Employers' Disclosures about Pensions and Other Post-retirement
Benefits" were recently issued, as was Statement of Position ("SOP") No. 97-2,
"Software Revenue Recognition", and SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." These pronouncements
are effective for fiscal years beginning subsequent to December 15, 1997. With
respect to such pronouncements, the Company has adopted and is reporting in
accordance with SFAS No. 131 and SOP No. 98-1. In addition, the Company does not
expect the adoption of SOP No. 97-2 to have a significant effect on the timing
of its revenue recognition. Finally, the Company does not expect the adoption of
SFAS Nos. 130 or 132 to result in any substantive changes in its disclosures.
LIQUIDITY AND CAPITAL RESOURCES
In 1997, cash used in operating activities was $8,826,345; $9,909,551
was used to acquire CMS, HCS and USHDI; $2,000,000 was used to acquire the
PreScribe network; and $554,958 was used to purchase 110,000 shares of its
common stock in the open market. These activities were financed through
available cash resources, private placement sales of 1,625,000 of the Company's
common stock resulting in net proceeds of $13,391,387, and $1,102,651 in
proceeds from the exercise of stock options and warrants. After
21
these receipts and expenditures, the Company had cash and cash equivalents
totaling $2,654,423 as of December 31, 1997. These available funds continue to
be used for operations, the further development and marketing of the Company's
products and services, equipment and other general corporate purposes. In
addition, the Company is continuously evaluating acquisition opportunities that
add synergies to the Company's product offerings and current business strategy.
The Company has a revolving bank line of credit of up to $5,000,000,
subject to availability of suitable collateral. Borrowings, if any, are due on
demand, collateralized by certificates of deposit and U.S. Treasury Notes, and
bear interest at the prime rate less 3/4%.
As a result of the acquisitions of CMS, HCS and PreScribe in 1997, the
Company is obligated to make certain payments on or before June 30, 1998. These
payments are as follows: $750,000 for CMS with at least 50% in cash, $1,000,000
for HCS with at least 50% in cash (if certain defined operating criteria are
achieved), and $500,000 for PreScribe.
The ratio of current assets to current liabilities was 1.4 times in
1997 compared to 16.9 times in 1996. This decrease is primarily due to the use
of available cash for operations and acquisitions and an increase in debt and
other accrued liabilities associated with the Company's acquisitions. Accounts
receivable turnover for the Company was 6.7 times in 1997 compared to 3.3 times
in 1996, after eliminating the effect of one-time license fee revenue in 1996.
Inventory turnover was 12.9 times for the Company in 1997 compared to 6.1 times
1996 period. The increase in both ratios reflect the favorable impact of the
CMS, HCS and USHDI acquisitions and increased business in the Company's drug
dispensing segment.
As noted above, the Company expects to continue to incur negative net
cash flow from operations until it begins receiving substantial recurring
revenues from the sale of its healthcare EDI and software products and services
or from cash generated by its network integration services segment. Management
is committed to the strategy of investing funds in further marketing and
development of its products and services and may pursue additional acquisitions
which are deemed to be in accordance with its business strategy, both of which
would require additional equity or debt financing. On February 20, 1998, the
Company agreed to sell 500,000 shares of common stock at $6.50 per share in a
private placement to an investor of which $1,625,000 has been paid, and
$1,625,000 will be paid by March 30, 1998. If these funds and cash flow from
operations are insufficient to fund the Company's operating and acquisition
activities, the Company may need to pursue additional debt or equity financing
(although there can be no assurances that such financing will be available under
terms and conditions acceptable to the Company), curtail operations or sell
assets.
22
ITEM 8
FINANCIAL STATEMENTS AND SCHEDULES
The financial statements and schedules are included herein beginning at
Page F-1.
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
The Company has not had any change in or disagreement with its
accountants on accounting and financial disclosures during its two most recent
fiscal years or any later interim period.
23
PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
NAME AGE POSITION
Harold S. Blue(1) 36 Chairman of the Board, Chief
Executive Officer
John Paul Guinan(1) 37 President and Director
Bennett Marks(1) 49 Executive Vice President -
Finance, Chief Financial
Officer and Director
James Pickering 43 Executive Vice President -
Operations and Chief
Operating Officer
Frank M. Puthoff 52 Executive Vice President -
Chief Legal Officer and
Secretary
Bruce S. Roberson 49 Executive Vice President -
Sales and Marketing
Donald R. Sallot 51 Executive Vice President -
Research and Development
Harry A. Gampel 78 Director
Samuel X. Kaplan(2)(3) 75 Director
Bertram J. Polan(2)(3) 46 Director
Eugene R. Terry(2)(3) 59 Director
- --------------------------
(1) Member of the Executive Committee, the Chairman of which is Mr. Blue.
(2) Member of the Audit Committee, the Chairman of which is Mr. Polan.
(3) Member of the Compensation Committee, the Chairman of which is Mr.
Terry.
HAROLD S. BLUE joined ProxyMed, Inc. in 1993 and currently serves as
Chief Executive Officer and Chairman of the Board. From 1992 to 1996, Mr. Blue
was also President and Chief Executive Officer of Health Services Inc., a
physician practice management company which was sold to InPhyNet Medical
Management, Inc. From 1979 to 1984, Mr. Blue was President and Chief Executive
Officer of Budget Drugs, Inc., a retail discount pharmacy chain located in South
Florida. In September 1984, Mr. Blue founded Best Generics, Incorporated. Best
Generics was later sold to pharmaceutical manufacturer,
24
Ivax Corporation, where Mr. Blue served as a member of Ivax's Board of Directors
from 1988 to 1990. He currently serves as a director of two publicly-held
companies, iMall, Inc., the largest independent mall on the Internet, and
Windsor Capital Corp., a specialty regional mall based retailer.
JOHN PAUL GUINAN has been the President and a director of the Company
since June 1995 and also its Chief Operating Officer until January 1998. He was
an Executive Vice President of the Company 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. (f/k/a Medical Containment Systems, Inc.), which
the Company 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.
BENNETT MARKS has been Executive Vice President - Finance, Chief
Financial Officer and a director of the Company since October 1993. From May
1991 to October 1993, Mr. Marks was Vice President - Finance and a director of
FiberCorp International, Inc., a public company engaged in the manufacturing and
marketing of network management systems for use by telecommunication companies.
From 1981 to April 1991, Mr. Marks was an audit partner with KPMG Peat Marwick,
an international accounting and consulting firm. While with KPMG Peat Marwick,
Mr. Marks was the partner on audits of numerous public companies and served as
an Associate SEC Reviewing Partner. He also served as the Administrative Partner
in charge of KPMG Peat Marwick's West Palm Beach office. Mr. Marks is a
certified public accountant.
JAMES PICKERING was appointed Executive Vice President-Operations and
Chief Operating Officer in January 1998. From September 1995 to January 1998,
Mr. Pickering served as President of Med-Link Technologies, Inc., a healthcare
EDI transaction company and a subsidiary of SPS Payment Systems, Inc., a New
York Stock Exchange company and affiliate of Morgan Stanley, Dean Witter
Discover and Co. From October 1991 to September 1995, Mr. Pickering was Vice
President-Systems for National Electronic Information Corporation (NEIC), also a
healthcare EDI transaction company. Prior to that, Mr. Pickering served as a
consultant for Metropolitan Life Insurance Company and the Prudential Insurance
Company designing and implementing claims administration, utilization review and
managed care capitation systems.
FRANK M. PUTHOFF was appointed Executive Vice President, Chief Legal
Officer and Secretary of the Company in August 1996. From July 1994, he was Vice
President, General Counsel and Secretary for Miami Subs Corporation. Between
July 1990 and July 1994, he held several management positions with Ground Round
Restaurants, Inc., serving most recently as Senior Vice President, General
Counsel and Secretary.
BRUCE S. ROBERSON was appointed Executive Vice President - Sales and
Marketing of the Company in October 1996. From June 1994 to October 1996, he
served as Vice President - Sales and Marketing for Health Care Information for
National Data Corporation, a healthcare EDI transaction company. From December
1993 to June 1994, he was Director of Business Development for First Consulting
Group and from September 1990 to December 1993, he was Vice President of Sales
and Marketing for IBAX Healthcare, a joint venture of
25
International Business Machine Corp. and Baxter International, Inc., which
marketed healthcare information systems. From 1988 to September 1990, he was
manager of the Florida operations of the American Express Health Systems Group
and from June 1984 to November 1988, he was Senior Sales Executive of McDonald
Douglas Health Systems Company.
DONALD R. SALLOT was appointed Executive Vice President - Research and
Development of the Company in May 1997 after serving as Vice President of
Research and Development since 1996. From 1995 to 1996, Mr. Sallot was Director
of MIS and IT Integration Consultant for Expert Software, Inc., as well as
serving a IT Data Warehouse Integration Consultant for Florida Power & Light in
1995. From 1994 to 1995, he was an IT BPR Consultant for Ryder Systems, Inc.,
and from 1992 to 1994, he was IT Data Warehouse Consultant for Saudi Arabian Oil
Company responsible for developing and implementing business requirement
planning and strategic planning methodologies.
HARRY A. GAMPEL has been a director of the Company since February 1996.
Mr. Gampel has over 36 years of experience in commercial and residential real
estate development in the Northeastern United States and Florida as Chairman of
Gampel Organization, Hollywood, Florida, and as President of Gampel Realty
Company, Hartford, Connecticut.
SAMUEL X. KAPLAN has been a director of the Company since August 1995.
Since 1987, Mr. Kaplan has been a healthcare management consultant. He has also
been the President of U.S. Care, Inc., a California-based company which designs
and administers long-term care insurance programs, since 1987, when he founded
that company. In 1962, he founded U.S. Administrators, Inc., a healthcare
management company, which he served as President and Chairman until 1987.
BERTRAM J. POLAN has been a director of the Company 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 North
American Biologicals, Inc., one of the world's largest independent providers of
human plasma products.
EUGENE R. TERRY has been a director of the Company since August 1995.
Mr. Terry 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.
Directors are elected annually at the Company's annual meeting of
shareholders. Each director of the Company serves until his successor is elected
and qualified or until the earlier death, resignation, removal or
disqualification of the director. The officers are elected annually by the
directors.
26
The Company has agreed, through August 5, 1998, if so requested by the
underwriter of the Company's initial public offering, to nominate and use its
best efforts to elect a designee of the underwriter as a director of the Company
or, at the underwriter's option, as a non-voting adviser to the Board of
Directors of the Company. No such nominee has been designated to date.
The Company has "key person" life insurance policies on the lives of
Mr. Blue and Mr. Guinan in the amount of $1,000,000 each.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than 10% of the registered class of the Company's 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 the Company with copies of all Section
16(a) forms they file.
Based on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the Company's
fiscal year ended December 31, 1997, all filing requirements applicable to its
officers and directors, and greater than 10% beneficial owners were complied
with, except that (1) Mr. Gampel failed to timely file a monthly report of
transactions in February, March and April 1997, but has since filed such
transactions on Form 5, and (2) the Company has not received from Bellingham
Industries Inc. a Form 5 or a written representation that no Form 5 is required.
ITEM 11
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during
the past three fiscal years to the Company's Chief Executive Officer and the
other four most highly compensated executive officers of the Company with annual
compensation for such years over $100,000 (the "named executive officers"):
27
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------- ---------------------- -------
OTHER
ANNUAL RESTRICTED # OF ALL OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL POSITION YEAR SALARY(S) BONUS SATION AWARD(S) SARS PAYOUTS SATION
------------------ ---- ----------- ----- ------ -------- ---- ------- ---------
Harold S. Blue 1997 125,000 -- -- -- -- -- --
Chairman and CEO 1996 100,983 -- -- -- 150,000 -- --
1995 60,000 -- -- -- -- -- --
John Paul Guinan 1997 125,000 -- -- -- -- -- --
President 1996 127,792 -- -- -- 15,000 -- --
1995 99,693 -- -- -- 202,500 -- --
Bennett Marks 1997 128,646 15,000 -- -- -- -- --
Exec. V.P. and CFO 1996 107,542 -- (1) 10,625 -- 86,250 -- --
1995 100,000 -- (1) 15,000 -- 15,000 -- --
Bruce S. Roberson 1997 180,000 50,000 (3) 22,506 -- -- -- --
Exec. V.P. 1996 (2) 30,000 -- (3) 24,759 -- 100,000 -- --
1995 -- -- -- -- -- -- --
Frank M. Puthoff 1997 125,000 15,000 -- -- 22,168 -- --
Exec. V.P., CLO 1996 (4) 46,664 -- -- -- 40,000 -- --
and Secretary 1995 -- -- -- -- -- -- --
(1) Mr. Marks received a non-accountable expense allowance of $15,000 (net
of taxes) per year through September 15, 1996.
(2) Mr. Roberson joined the Company on October 28, 1996.
(3) Consists of reimbursement of relocation expenses.
(4) Mr. Puthoff joined the Company on August 8, 1996.
The following table provides information on stock option grants during
fiscal year 1997 to each of the named executive officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
% OF TOTAL
OPTIONS/SARS
NUMBER OF GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/SHARE) DATE
---- ------- -------------- --------- ----
Frank M. Puthoff 22,168 8% $7.38 9/10/07
The following table sets forth certain information concerning
unexercised options held by each of the named executive officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FY-END (#) OPTIONS/SARS AT FY-END ($)
-------------------------- --------------------------
# OF SHARES VALUE
ACQUIRED ON REALIZED
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- --- ----------- ------------- ----------- -------------
Harold S. Blue -- -- 180,000 -- 625,800 --
John Paul Guinan -- -- 217,500 -- 647,400 --
Bennett Marks -- -- 151,250 10,000 413,550 1,200
Bruce S. Roberson -- -- 62,000 38,000 7,440 4,560
Frank M. Puthoff -- -- 26,667 35,501 3,200 --
28
There were no awards made to a named executive officer in the last
completed fiscal year under any long-term incentive plan for performance to
occur over a period longer than one fiscal year.
COMPENSATION OF DIRECTORS
Employee directors of the Company are not compensated for their
services as directors. The Company reimburses all directors for reasonable
expenses incurred in attending board meetings. In addition, non-employee
directors receive stock options under the 1995 Outside Plan (described below)
upon the directors' initial election or appointment to the Board of Directors.
In 1995 and 1996, Messrs. Gampel, Kaplan, Polan and Terry, upon joining the
Board, were each granted options to purchase 75,000 shares of Common Stock at an
exercise price equal to the market price on the date of grant. These options
were immediately vested with respect to 22,500 shares, with installments of
22,500 and 30,000 shares vesting one and two years from the date of grant,
respectively. These options expire five years after the dates of grant.
EMPLOYMENT AGREEMENTS WITH THE NAMED EXECUTIVE OFFICERS
On April 1, 1996, the Company entered into an Employment Agreement with
Mr. Blue for a period of three years, which is automatically extended from year
to year unless terminated by either party upon 60 days written notice. Mr. Blue
receives an annual base salary of $125,000 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 or bonus plans which the Company may now have or in the future
develop. Mr. Blue 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 which shall remain exercisable for 90 days
after the date of termination. 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 six months following termination. In
addition, the Agreement contains confidentiality and noncompetition covenants.
Mr. Guinan has an employment agreement with the Company for a three-year term
commencing on December 5, 1995, which is substantially similar to Mr. Blue's,
with an annual base salary of $125,000.
In November 1996, the Company entered into Employment
Agreements with Mr. Marks, Mr. Puthoff and Mr. Roberson. The Agreements are for
a three-year term and automatically extend from year to year thereafter unless
terminated by the Company 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. They
receive an annual base salary of $137,500, $125,000 and $180,000, respectively,
and are entitled to such bonuses as may be awarded from time to time and to
participate in any stock option or bonus plans which the Company may now have or
in the future develop. They may be terminated for "cause" as defined in their
Agreements. If terminated for cause, they will be entitled to base salary
earned, and they will retain all vested stock options which shall remain
exercisable for 90 days after the date of termination. If, upon 90 days prior
written notice, they are terminated "without cause," they will be entitled to
receive an amount equal to their base salary plus bonus, if any, and
continuation of health insurance for six months following
29
termination, plus any unvested options shall vest. In addition, the Agreements
contain confidentiality and noncompetition covenants.
LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS OF THE COMPANY
The Company has entered into Indemnification Agreements with each of
its directors and executive officers limiting their personal liability for
monetary damages for breach of their fiduciary duties as officers and directors,
except for liability that cannot be eliminated under the Florida Business
Corporation Act. 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.
The Restated Articles of Incorporation and Bylaws of the Company also provide
that the Company shall indemnify its 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. The
Company has procured and maintains a policy of insurance under which the
directors and officers of the Company are insured, subject to the limits of the
policy, against certain losses arising from claims made against such directors
and officers.
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of February 27, 1998, with respect to
(i) each person known to the Company to be the beneficial owner of more than 5%
of the Company's Common Stock, (ii) each director, (iii) each executive officer
named in the Executive Compensation chart, and (iv) all directors and officers
of the Company as a group:
30
NAME AND ADDRESS(1) # OF SHARES (2) % OF CLASS
- ---------------- --------------- ----------
Harold S. Blue(3) 814,132 6.5%
John Paul Guinan(4) 217,500 1.7%
Bennett Marks(5) 159,750 1.3%
Frank M. Puthoff(4) 26,667 *
Bruce S. Roberson(4) 62,000 *
Harry A. Gampel(6) 283,558 2.3%
Samuel X. Kaplan(4) 75,000 *
Bertram J. Polan(7) 82,500 *
Eugene R. Terry(4) 75,000 *
Bellingham Industries Inc.(8) 3,796,610 30.5%
Urraca Building
Frederico Boyd Avenu
Panama City, Panama
ALL DIRECTORS AND OFFICERS 2,237,072 16.9%
AS A GROUP (25 PERSONS)(9)
- --------------------------
*Less than 1%
(1) The address for each person, unless otherwise noted, is 2501 Davie
Road, Suite 230, 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 February 27,
1998, 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 634,132 shares held of record, and 180,000 shares issuable
upon the exercise of currently exercisable stock options.
(4) Represents shares issuable upon the exercise of currently exercisable
stock options.
(5) Includes 8,500 shares held of record, and 151,250 shares issuable upon
the exercise of currently exercisable stock options.
(6) Includes 208,558 shares held of record, and 75,000 shares issuable upon
the exercise of currently exercisable stock options.
(7) Includes 7,500 shares held of record, and 75,000 shares issuable upon
exercise of currently exercisable stock options.
(8) Includes 3,146,610 shares held of record, 500,000 shares subscribed to
on February 20, 1998, and 150,000 shares issuable upon the exercise of
currently exercisable stock options which were purchased from an
unaffiliated third party.
(9) Includes 1,246,905 shares held of record, and 990,167 shares issuable
upon the exercise of currently exercisable stock options.
31
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Blue was a principal shareholder in three medical centers which
were customers of the Company's former drug dispensing business in 1995. Dr.
Steven Fox, a former director of the Company, was a principal shareholder in two
medical centers which were also customers of the Company's former drug
dispensing business in 1995. The Company received a total of approximately 4% of
its revenues in 1995 from these five medical centers.
In July 1995, Mr. Blue purchased 8,000 shares of the Company's Series A
Preferred Stock at an aggregate price of $200,000 pursuant to the Company's
private placement of such stock. Such Preferred Stock was converted into 75,232
shares of Common Stock in August 1996 pursuant to the terms of the Preferred
Stock.
On April 30, 1997, the Company loaned a total of $350,000 to Mr. Blue.
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 year. Mr. Blue has agreed to secure the notes pursuant to pledges
of securities, including shares of the Company's Common Stock, satisfactory to
the Company's Board of Directors.
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 Accountants F-2
Consolidated Balance Sheets - December 31, 1997 F-3
and 1996
Consolidated Statement of Operations - Years Ended F-4
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity - F-5
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended F-6
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements F-7 - F-21
(2) The following schedule for the years 1997 and 1996 are
submitted herewith:
Report of Independent Accountants F-22
Schedule II - Valuation and Qualifying Accounts - F-23
Years Ended December 31, 1997 and 1996
(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 35 through 36.
(b) Reports on Form 8-K
During the quarter ended December 31, 1997, a Form 8-K report
was filed by the Company with the Securities and Exchange
Commission on December 3, 1997, reporting an event dated
November 19, 1997, regarding the acquisition of the business
and assets of USHDI.
33
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 11, 1998 PROXYMED, INC.
By: /S/HAROLD S. BLUE
-------------------------------------
Harold S. Blue, Chairman of the Board
and 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/HAROLD S. BLUE Chairman of the Board and Chief March 11, 1998
- ---------------------------- Executive Officer (principal
Harold S. Blue executive officer)
/S/JOHN PAUL GUINAN President and Director March 11, 1998
- ---------------------------
John Paul Guinan
/S/BENNETT MARKS Executive Vice President-Finance March 11, 1998
- ---------------------------- Chief Financial Officer and
Bennett Marks Director (principal financial
and accounting officer)
/S/HARRY A. GAMPEL Director March 11, 1998
- ----------------------------
Harry A. Gampel
/S/SAMUEL X. KAPLAN Director March 11, 1998
- ----------------------------
Samuel X. Kaplan
/S/BERTRAM J. POLAN Director March 11, 1998
- ----------------------------
Bertram J. Polan
/S/EUGENE R. TERRY Director March 11, 1998
- ----------------------------
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).
10.1 License Agreement between the Company and Blue Cross and Blue Shield of
Massachusetts, Inc., dated March 1, 1996 (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 the Company, 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 the Company 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 the Company 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).
10.5 *Employment Agreement between the Company and Harold S. Blue
(incorporated by reference to Exhibit 3.1 of the Registration Statement
on Form SB-2, File No. 333-2678).
10.6 *Employment Agreement between the Company and John Paul Guinan
(incorporated by reference to Exhibit 3.1 of the Registration Statement
on Form SB-2, File No. 333-2678).
10.7 *Employment Agreement between the Company and Bennett Marks dated
November 11, 1996 (incorporated by reference to Exhibit 10.7 of the
Form 10-KSB for the period ending December 31, 1996).
10.8 Asset Purchase Agreement between the Company 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 the Company and Frank M. Puthoff dated
November 11, 1996 (incorporated by reference
35
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 the Company'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).
10.13 *Employment Agreement between the Company and Bruce Roberson dated
October 17, 1996 (incorporated by reference to Exhibit 10.1 of the
10-QSB for the period ending September 30, 1996).
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 *Employment Agreement between the Company and Donald R. Sallot dated
May 22, 1997 (incorporated by reference to Exhibit 2 of the Form
10-QSB, File No. 000-22052, for the period ending June 30, 1997).
10.16 Asset Purchase Agreement between the Company and Hayes Computer
Systems, Inc. and Danny Hayes (incorporated by reference to Exhibit 1
of Form 8-K, File No. 000-22052, reporting an event dated April 30,
1997).
10.17 Asset Purchase Agreement between the Company and U.S. 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 the
Company's Proxy Statement for its 1997 Annual Meeting of Shareholders).
10.19 *Employment Agreement between the Company and James Pickering dated
November 10, 1997.
21 Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P.
- ---------------------------------
*Denotes employment agreement or compensatory plan.
36
PROXYMED, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
PAGE
----
Consolidated Financial Statements
Report of Independent Accounts F-2
Consolidated Balance Sheets - December 31, 1997 and 1996 F-3
Consolidated Statements of Operations - Years Ended F-4
December 31, 1997, 1996 and 1995
Consolidated Statements of Stockholders' Equity - Years F-5
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows - Years Ended F-6
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements F-7 - F-21
Financial Statement Schedule
Report of Independent Accountants F-22
Schedule II - Valuation and Qualifying Accounts - Years F-23
Ended December 31, 1997 and 1996
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
ProxyMed, Inc.
We have audited the accompanying consolidated balance sheets of ProxyMed, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ProxyMed, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Miami, Florida
February 24, 1998
F-2
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
ASSETS 1997 1996
------ ----------- -----------
Current assets:
Cash and cash equivalents $ 2,654,423 $ 6,020,358
Investment in U.S. Treasury Notes - 6,008,698
Accounts receivable - trade, net of allowance for
doubtful accounts of $242,549 and $16,712, respectively 2,364,455 650,600
Other receivables 826,998 165,345
Inventory 1,202,431 195,964
Other current assets 319,838 164,963
------------ ------------
Total current assets 7,368,145 13,205,928
Property and equipment, net 2,323,174 1,069,662
Capitalized software costs, net 4,730,268 795,479
Goodwill and other intangible assets, net 5,138,473 597,637
Other assets 43,061 26,349
------------ ------------
Tota1 assets $ 19,603,121 $ 15,695,055
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 735,980 $ -
Accounts payable and accrued expenses 4,239,073 664,750
Deferred revenue 426,686 115,000
------------ -----------
Total current liabilities 5,401,739 779,750
Long-term debt 1,049,630 -
------------ -----------
Total liabilities 6,451,369 779,750
------------ -----------
Commitments and contingencies (Note 15)
Stockholders' equity:
Common stock - $.001 par value. Authorized
20,000,000 shares; issued and outstanding
11,781,872 (after deducting 110,000 shares in
treasury) and 9,541,610 shares, respectively 11,782 9,542
Additional paid-in capital 42,695,386 25,944,057
Accumulated deficit (29,555,416) (11,038,294)
------------ -----------
Total stockholders' equity 13,151,752 14,915,305
------------ ------------
Total liabilities and stockholders' equity $ 19,603,121 $ 15,695,055
============ ============
See accompanying notes.
F-3
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------ ----------- -----------
Revenues:
Services and license fees $ 3,073,085 $ 1,433,505 $ 49,000
Prescription drugs and computer systems 7,858,884 1,620,646 7,573,803
------------ ----------- -----------
10,931,969 3,054,151 7,622,803
------------ ----------- -----------
Costs and expenses:
Cost of sales 6,877,480 1,327,423 5,196,745
Selling, general and
administrative expenses 13,293,353 5,709,433 4,755,057
Depreciation and amortization 1,078,300 322,588 297,883
------------ ---------- -----------
21,249,133 7,359,444 10,249,685
------------ ---------- -----------
Operating loss (10,317,164) (4,305,293) (2,626,882)
Other income (expense):
In-process research and development
technology (Note 2) (8,467,098) - -
Gain (loss) on sale of assets (Note 4) - 1,014,989 (740,044)
Interest, net 267,140 436,569 (151,625)
------------ ---------- -----------
Loss before extraordinary item (18,517,122) (2,853,735) (3,518,551)
Extraordinary item - gain on sale of sub-
sidiary, net of income tax effect (Note 4) - - 669,664
------------ ----------- -----------
Net loss (18,517,122) (2,853,735) (2,848,887)
Dividends on cumulative preferred stock - 95,803 113,362
------------ ---------- -----------
Net loss applicable to
common shareholders $(18,517,122) $ (2,949,538) $ (2,962,249)
============ ============ ============
Basic and diluted loss per share
of common stock:
Loss before extraordinary item $ (1.75) $ (.39) $ (.75)
Extraordinary gain - - .14
------------ ------------ ------------
Net loss $ (1.75) $ (.39) $ (.61)
============ ============ ============
See accompanying notes.
F-4
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1997, 1996 and 1995
PREFERRED STOCK COMMON STOCK
--------------- ------------
NUMBER OF NUMBER OF ADDITIONAL PAID ACCUMULATED
SHARES PAR VALUE SHARES PAR VALUE IN CAPITAL DEFICIT TOTAL
------ --------- --------- --------- ---------------- ----------- -----------
Balances, January 1, 1995 - $ - 4,782,674 $ 4,783 $ 8,666,924 $ (5,335,672) $ 3,336,035
Sale of preferred stock, net
of expenses of $318,781 95,000 950 - - 2,055,269 - 2,056,219
Common stock issued for
acquired businesses - - 33,171 33 86,032 - 86,065
Common stock and options
issued for services - - 17,250 17 66,246 - 66,263
Preferred stock dividends - - - - (102,075) - (102,075)
Conversion of preferred
stock to common stock (12,000) (120) 112,500 113 7 - -
Net loss - - - - - (2,848,887) (2,848,887)
------- --------- --------- --------- ----------- ---------- -----------
Balances, December 31, 1995 83,000 830 4,945,595 4,946 10,772,403 (8,184,559) 2,593,620
Sale of common stock, net
of expenses of $1,831,816 - - 3,367,500 3,367 13,037,942 - 13,041,309
Exercise of stock options and
warrants - - 432,610 433 1,860,469 - 1,860,902
Common stock issued
for services - - 15,000 15 55,985 - 56,000
Compensatory stock options - - - - 300,172 - 300,172
Preferred stock dividends - - - - (82,963) - (82,963)
Conversion of preferred
stock to common stock (83,000) (830) 780,905 781 49 - -
Net loss - - - - - (2,853,735) (2,853,735)
------- --------- --------- --------- ----------- ---------- ----------
Balances, December 31, 1996 - - 9,541,610 9,542 25,944,057 (11,038,294) 14,915,305
Sales of common stock, net
of expenses of $664,863 - - 1,625,000 1,625 13,389,762 - 13,391,387
Exercise of stock options and
warrants - - 211,261 211 1,102,440 - 1,102,651
Common stock issued for
acquired businesses - - 514,001 514 2,055,937 - 2,056,451
Warrants issued for acquisition
of assets - - - - 731,938 - 731,938
Compensatory stock options - - - - 26,100 - 26,100
Purchase of treasury stock - - (110,000) (110) (554,848) - (554,958)
Net loss - - - - - (18,517,122) (18,517,122)
------- --------- --------- --------- ----------- ---------- ----------
Balances, December 31, 1997 - $ - 11,781,872 $ 11,782 $42,695,386 $(29,555,416) $ 13,151,752
======= ========= ========== ========= =========== ============ ============
See accompanying notes.
F-5
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 1997, 1996 and 1995
1997 1996 1995
------------- ------------ ------------
Cash flows from operating activities:
Net loss $ (18,517,122) $ (2,853,735) $ (2,848,887)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,078,300 322,588 297,883
Acquired in-process research and
development technology (Note 2) 8,467,098 - -
Write-off of retired assets 363,237 - -
Common stock issued for services - 56,000 -
Compensatory options and warrants issued (Note 6) 26,100 300,172 -
Amortization of covenant not-to-compete (80,000) (80,000) (20,000)
(Gain) loss on sale of assets (Note 4) - (1,014,989) 740,044
Extraordinary gain on sale of subsidiary (Note 4) - - (669,664)
Provision for doubtful accounts 76,963 8,105 73,598
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts and other receivables (1,126,398) (203,113) 934,786
Inventory (570,027) 42,299 44,721
Accounts payable and accrued expenses 1,839,643 (58,102) (3,505,399)
Deferred revenue (323,861) (115,000) -
Other, net (60,278) 46,660 58,244
------------- ------------ ------------
Net cash used in operating activities (8,826,345) (3,549,115) (4,894,674)
------------- ------------ ------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (Note 11) (9,909,551) - -
Purchases of U.S. Treasury Notes - (8,541,153) -
Maturities of U.S. Treasury Notes 6,008,698 2,532,455 -
Proceeds from sale of dispensary assets - 1,300,000 3,551,481
Proceeds from sale of subsidiary - 649,275 892,363
Capital expenditures (1,386,154) (665,891) (143,195)
Purchased and capitalized software (Note 3) (3,182,288) (570,557) (246,390)
------------- ------------ ------------
Net cash provided by (used in) investing activities (8,469,295) (5,295,871) 4,054,259
------------- ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of equity securities (Note 5) 13,391,387 13,041,309 2,056,219
Proceeds from exercise of stock options and warrants 1,102,651 1,860,902 -
Purchase of treasury stock (554,958) - -
Draw on line of credit 2,500,000 - -
Repayment of line of credit (2,500,000) - -
Payment of notes payable, long-term debt and capital leases (9,375) (417,884) (1,787,662)
Payment of preferred stock dividends - (82,963) (102,075)
------------- ------------ ------------
Net cash provided by financing activities 13,929,705 14,401,364 166,482
------------- ------------ ------------
Net increase (decrease) in cash (3,365,935) 5,556,378 (673,933)
Cash and cash equivalents at beginning of period 6,020,358 463,980 1,137,913
------------- ------------ ------------
Cash and cash equivalents at end of period $ 2,654,423 $ 6,020,358 $ 463,980
============= ============ =============
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 THE COMPANY - The Company is a healthcare information
systems company providing healthcare technology software products and
on-line clinical and financial transaction processing services to
physicians through their existing practice management information
systems, as well as connectivity to various healthcare providers (such
as pharmacies, hospitals and managed care organizations) through
ProxyNet, the Company's national healthcare information network. In
addition, the Company derives revenues from network integration
services and related computer hardware sales, and from the dispensing
of prescription drugs to patients who are residing in long-term care
facilities. Until their sale in 1995, the Company also derived revenue
from dispensing prescription drugs from retail dispensaries, by mail,
and through infusion administered in the patient's home. Substantially
all of the Company's services have been provided from its operating
facilities located in Florida. The Company's operations are subject to
extensive and evolving statutory and regulatory framework on both the
state and federal levels.
(b) PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company 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 generally accepted accounting principles 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 financial statements and the
reported amounts of revenues and expenses during the reporting period.
The development and distribution of certain of the Company's healthcare
technology products and services, particularly on-line clinical
transaction services, is an emerging business and, as such, is subject
to uncertainty as to demand and market acceptance for such products and
services. Achieving market acceptance and significant levels of
revenues for these products and services requires significant marketing
efforts and expenditure of significant funds to create awareness and
demand by pharmacies, physician groups, managed care organizations and
other potential customers. As a result, such factors can affect the
Company's estimates of the recoverability and useful lives of property
and equipment, capitalized software costs, other identifiable
intangible assets and goodwill, among other items, and actual results
could differ from those estimates.
(d) REVENUE RECOGNITION - Transaction fee revenue is recorded in the period
the service is rendered. Revenue from sales of software or software
licenses is recognized upon delivery of the software, if collection is
probable, and the Company has no significant obligations remaining
under the sale agreement. Revenue from software rentals and maintenance
fees is recognized ratably over the applicable period. Revenue from
sales of computer hardware is recognized when the related goods have
been shipped and title has passed. Revenue from the Company's
prescription drug dispensing activities is reported at net realizable
amounts from insurance providers and patients at the time the
individual prescriptions are delivered to the patients.
F-7
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(e) CASH, CASH EQUIVALENTS AND INVESTMENTS - The Company 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 U.S. Treasury Notes, or in bank certificates of deposit
and money market accounts.
(f) ACCOUNTS RECEIVABLE - Substantially all of the Company's accounts
receivable are due from the State of Florida or agencies thereof, or
from various healthcare payors and providers. Collateral is not
required. Credit losses are provided for in the consolidated financial
statements and have been within management's expectations.
(g) INVENTORY - Inventory, consisting of finished goods which are stated at
the lower of cost (first-in, first-out method) or market, includes the
following at December 31, 1997 and 1996:
1997 1996
---------- --------
Prescription Drugs $ 217,158 $195,964
Computer Hardware and software 985,273 -
---------- --------
$1,202,431 $195,964
========== ========
(h) PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
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, the cost of property and equipment,
and related accumulated depreciation, are eliminated from the accounts.
Any resulting gains or losses are reflected in operations for the
period.
(i) PURCHASED AND CAPITALIZED SOFTWARE COSTS - In June 1997, the Company
purchased the PreScribe pharmacy-physician prescription network from
Walgreens Co. (see Note 3), the cost of which is being amortized over
12 years. In addition, certain computer software costs 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
which has achieved technological feasibility or that has an alternative
future use, and are amortized over their estimated useful lives,
generally over three to five years. Software development costs incurred
prior to achieving technological feasibility are charged to research
and development expense when incurred. Research and development
expense, excluding acquired in-process research and development
technology (see Note 2), was approximately $1,908,000 and $177,000 in
1997 and 1996, respectively, and was not material in 1995. Accumulated
amortization of purchased and capitalized software costs at December
31, 1997 and 1996 was $257,025 and $21,468, respectively.
F-8
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(j) GOODWILL AND OTHER LONG-LIVED ASSETS - Goodwill is amortized on the
straight-line basis over 15 to 40 years. Other acquired intangible
assets consist primarily of customer contracts and
covenants-not-to-compete, and are being amortized over their estimated
useful lives of 4 to 5 years. The recoverability of goodwill and other
long-lived assets is regularly reviewed by the Company for indications
that the carrying value may be impaired or that the useful lives
assigned are excessive. When such indications exist, the carrying value
is assessed based upon an analysis of estimated future cash flows on an
undiscounted basis and before interest charges, or useful lives are
changed prospectively. Accumulated amortization at December 31, 1997
and 1996 is $138,998 and $38,088, respectively.
(k) INCOME TAXES - The Company provides for income taxes pursuant to the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for 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.
(l) 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 (10,589,333
shares, 7,660,383 shares and 4,816,980 shares for the years ended
December 31, 1997, 1996 and 1995, respectively). Diluted per share
results reflect the potential dilution from the exercise or conversion
of securities into common stock. For the three years ended December 31,
1997, the effects of (i) the exercise of outstanding stock options and
warrants, and (ii) the conversion of outstanding convertible preferred
stock, were excluded from the calculation of diluted per share results
because their effect was antidilutive.
(m) NEW ACCOUNTING PRONOUNCEMENTS - SFAS No. 130, "Reporting Comprehensive
Income", SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information", and SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits" were recently issued, as
was Statement of Position ("SOP") No. 97-2, "Software Revenue
Recognition", and SOP No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." These pronouncements
are effective for fiscal years beginning subsequent to December 15,
1997. With respect to such pronouncements, the Company has adopted and
is reporting in accordance with SFAS No. 131 and SOP No. 98-1. In
addition, the Company does not expect the adoption of SOP No. 97-2 to
have a significant effect on the timing of its revenue recognition.
Finally, the Company does not expect the adoption of SFAS Nos. 130 or
132 to result in any substantive changes in its disclosures.
(n) RECLASSIFICATIONS - Certain prior year amounts have been reclassified
to conform with current year presentation.
F-9
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) ACQUISITIONS OF BUSINESSES
(a)CLINICAL MICROSYSTEMS - In March 1997, the Company acquired
substantially all the assets and certain liabilities of Clinical
MicroSystems, Inc. ("CMS"). CMS is the developer of ClinScan, a
physician desktop lab ordering and results posting software. The
purchase price consisted of the following: $3,000,000 in cash and
125,786 shares of unregistered common stock paid at closing (valued at
$760,452), plus $2,000,000 in cash and common stock payable over a
three year period as follows: $750,000, $500,000 and $750,000 in 12, 24
and 36 months following the closing date, respectively (recorded net of
interest imputed at the rate of 10.31% per annum). Each of the future
payments will be at least 50% in cash, with the remaining balance, if
any, paid in shares of unregistered common stock.
(b)HAYES COMPUTER SYSTEMS - In April 1997, the Company acquired
substantially all the assets and assumed certain specific, but limited
liabilities of Hayes Computer Systems, Inc. ("HCS"), a company that
provides information technology solutions and services to public and
private sector organizations including systems integration services,
Internet access services, and client/server software development. The
purchase price consisted of $3,147,126 in cash and 388,215 shares of
unregistered common stock paid at closing (valued at $1,296,000). In
addition, the Company will pay up to $1,000,000 in cash and common
stock in each of the two subsequent 12 month periods if certain defined
operating criteria are achieved. Each of the future payments will be at
least 50% in cash, with the remaining balance, if any, paid in shares
of unregistered common stock. If such payments are made, the fair value
assigned thereto will be allocated to the long-term assets acquired, a
substantial portion of which is in-process research and development
technology, which will be expensed.
(c)USHDI - In November 1997, the Company acquired substantially all of
the assets and the business of US HealthData Interchange, Inc.
("USHDI") from Avatex Corporation. USHDI provides electronic processing
of transactions including medical claims, encounters and other
financial transactions. The purchase price consisted of $4,000,000 in
cash paid at closing.
The acquisitions of CMS, HCS and USHDI have been accounted for as
purchases and accordingly, the acquired assets and liabilities have been
recorded at their estimated fair values at the dates of acquisition.
Significant portions of the purchase prices for the CMS and HCS acquisitions
were allocated to in-process research and development technology, resulting in
charges to the Company's 1997 operations of $4,300,000 for the CMS acquisition
and $4,167,098 for the HCS acquisition. The fair value of in-process research
and development technology was determined using a risk adjusted cash flow
model, under which projected income and expenses attributable to the purchased
technology were identified, and potential income streams were discounted for
identified risks and uncertainties, including the stage of development of the
technology, viability of target markets, rapidly changing nature of the
industry, and other factors. Income tax benefits resulted from these charges
of approximately
F-10
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
$1,613,000 and $1,563,000 for the CMS and HCS acquisitions, respectively;
however, based on the weight of available evidence, valuation allowances in
the amounts of $1,613,000 and $1,563,000 have been recorded concurrently. For
the CMS and USHDI acquisitions, the excess of the consideration paid over the
estimated fair value of net assets acquired (including acquired intangibles
and in-process research and development) in the amounts of $841,000 and
$2,966,000, respectively, have been recorded as goodwill, which is being
amortized over 15 years.
The following unaudited pro forma summary presents the consolidated
results of operations of the Company, CMS, HCS and USHDI as if the
acquisitions of these businesses had occurred at the beginning of 1996,
including any amortization of goodwill and additional interest expense but
excluding one-time charges for acquired in-process research and development
technology. These pro forma results do not necessarily represent results which
would have occurred if the acquisitions had taken place at that date, or of
results which may occur in the future.
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
------------- -------------
Revenues $ 15,517,187 $ 13,573,029
Net loss $ (12,517,984) $ (5,931,861)
Basic and diluted net loss
per share of common stock $ (1.13) $ (0.70)
(3) ACQUISITION OF PRESCRIBE TECHNOLOGY
In June 1997, the Company acquired all rights, title and interest in
all copyrights and trademarks related to the technology underlying the
PreScribe(R) pharmacy-physician prescription network (the "PreScribe network")
from Walgreens Co. Concurrently, Walgreens entered into a network services
agreement whereby Walgreens will pay fees to the Company for 12 years (the first
three of which are on an exclusive basis) for transactions (as defined) received
over the PreScribe network or ProxyMed's existing network, ProxyNet. ProxyMed
paid Walgreens $2,000,000 at closing, issued a 10-year warrant for 200,000
shares of ProxyMed's common stock exercisable at $9.96 per share (the market
price at the date of grant) commencing on the fourth anniversary of the closing
date, and will pay $500,000 per year on the first, second and third
anniversaries of the agreement. The value of the warrant resulted in a $731,938
credit to additional paid-in capital and was computed using the Black-Scholes
model using the following assumptions: risk-free interest rate of 6.45%,
expected life of 10 years, expected volatility of 75% and no dividend yield.
F-11
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) DISPOSITIONS
(a)SALE OF CERTAIN DISPENSARY ASSETS - On March 15, 1995, the Company
sold to Eckerd Corporation ("Eckerd") certain, but not all, of the
assets related to the Company's HMO prescription drug dispensing
operations for $4,851,481. Of this total purchase price, $2,200,000 was
contingent on the amount of prescription business retained by Eckerd
through September 30, 1996. Accordingly, the Company initially recorded
a loss on the sale, and recognized additional income as prescription
data was provided by Eckerd. Ultimately, the Company collected the
entire purchase price, including the entire contingent amount, and
recognized a cumulative gain on the sale of approximately $275,000. Net
sales related to these prescription drug dispensing operations prior to
their sale were $3,404,000 in 1995.
(b)SALE OF SUBSIDIARY - On September 29, 1995, the Company sold to
National Health Care Affiliates, Inc. and an affiliate thereof
(collectively "NHCA") all of the outstanding common stock of its
wholly-owned subsidiary, ProxyFusion, Inc., for $1,541,638.
ProxyFusion, Inc. provided home infusion therapy services, including
pharmacy and nursing services, primarily to HMO patients. An
extraordinary gain on this sale of $669,664 was recorded in 1995. Net
sales related to these operations prior to their sale were
approximately $1,936,000 in 1995.
(5) EQUITY SECURITIES
(a) SALES OF COMMON STOCK - During 1997, private placement sales of common
stock totaling 1,625,000 shares were consummated to an investor,
resulting in net proceeds of $13,391,387. The weighted average sales
price was $8.65 per share. Under the terms of the sales, the Company
was obligated to register such shares shortly after they were issued.
In 1996, the Company raised net proceeds of $13,041,309 in an
underwritten offering to the public of 3,367,500 shares of common stock
at a price of $4.42 per share. As of December 31, 1997, underwriter
warrants for the purchase of 199,950 shares of common stock at an
exercise price of $5.63 per share remain outstanding through May 7,
2001.
(b) SALE OF PREFERRED STOCK - In 1995, the Company raised net proceeds of
$2,056,219 through a private placement sale of 23.75 units of Series A
convertible preferred stock for $100,000 per unit. Each unit was
convertible into 37,500 shares of common stock, and the preferred stock
bore a cumulative annual dividend of 9%. The Company's chief executive
officer purchased two units in the offering. During 1996, all of the
outstanding preferred stock was converted into common stock. As of
December 31, 1997, underwriter warrants for the purchase of 202,876
shares of common stock at an exercise price of $4.17 per share remain
outstanding through June 9, 2000. If the preferred stock had been
converted to common stock as of the beginning of 1996, net loss per
share would have been $(.34) for 1996.
F-12
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company has 1,870,000 authorized but unissued shares of preferred
stock, par value $.01 per share, which is entitled to rights and
preferences to be determined at the discretion of the Board of
Directors.
(c) TREASURY STOCK - In April 1997, the Company repurchased 110,000 shares
of its common stock on the open market for $5.05 per share.
(d) OTHER WARRANTS - In connection with the Company's initial public
offering in 1993 and a private placement of common stock in 1994,
warrants are outstanding to the underwriter and the placement agent for
the purchase of up to 49,101 and 48,187 shares of common stock,
respectively, at exercise prices of $3.94 and $3.06 per share through
August 5, 1998 and August 19, 1999, respectively.
(e) STOCK SPLIT - All share and per share data have been retroactively
adjusted for a 3-for-2 stock split in June 1996.
(6) LICENSING AGREEMENTS
(a)ELECTRONIC COMMERCE PARTNER ("ECP") AGREEMENTS - One of the Company's
strategies for the distribution of its clinical and financial
transaction processing services is its ECP program, through which the
Company "partners" with leading physician office management information
system vendors to develop software interfaces and provide other
services that facilitate seamless on-line connectivity to ProxyNet from
the software systems currently in use by large numbers of physicians
throughout the United States. Typically under the ECP agreements, the
Company shares in defined revenues paid by physicians to the ECP
partners, and the ECP partners are entitled to a portion of all defined
transaction fee revenue derived from the Company's prescription network
services. The Company's ECP partners include Medical Manager Corp.
("MMC"), The Reynolds and Reynolds Company, IDX Systems Corporation,
and Eclipsys Corporation. As part of the MMC agreement, the Company
granted a five-year warrant to MMC for the purchase of 150,000 shares
of common stock for $3.50 per share. MMC subsequently sold this warrant
to an unrelated third party. The compensatory value of the MMC warrant,
as well as a warrant for 37,500 shares exercisable at $4.17 per share
issued in connection with a license agreement with Blue Cross and Blue
Shield of Massachusetts, Inc. ("BCBSM") (see (c) below), and certain
other stock options for 12,500 shares issued to two consultants, have
been charged to expense in 1996 in the amount of $300,172. The weighted
average fair value of each compensatory warrant and option was
estimated at $1.50 at the date of grant using the Black-Scholes option
pricing model with the following assumptions: risk-free interest rate
of 6.17%, expected life of 5 years, expected volatility of 60.8%, and
no dividend yield.
F-13
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(b) BERGEN BRUNSWIG - In February 1996, the Company signed a marketing
agreement with IntePlex, Inc. and Bergen Brunswig Drug Company, both of
which are wholly-owned subsidiaries of Bergen Brunswig Drug Corporation
(collectively "Bergen"), a major national pharmaceutical and medical
supplies distributor. Under the agreement, Bergen paid a one-time,
non-refundable fee of $1,000,000 for a non-exclusive limited license to
market certain of the Company's products (as defined in the agreement)
throughout the United States. The original term of the agreement was
for 12 months, and automatically renews for successive 12 month periods
unless terminated as provided under the agreement. The Company is
prohibited from entering into similar arrangements for certain
designated products with certain of Bergen's principal competitors,
including other major national pharmaceutical and medical supplies
distributors. Under the agreement, the Company pays Bergen from 10% to
30% of net sales (as defined) from the sale of these products,
depending on the total annual volume of sales, including certain sales
of the defined products not resulting from Bergen referrals, and
including prescription transactions between participating physicians,
pharmacies and managed care organizations over ProxyNet. To date, net
sales (as defined) under this agreement are immaterial. The $1,000,000
fee was recorded as revenue in 1996. In addition, Bergen purchased
$529,298 of computer equipment containing ProxyScript software in 1996,
which is included in sales.
(c) BLUE CROSS AND BLUE SHIELD OF MASSACHUSETTS, INC. ("BCBSM") - In March
1996, the Company entered into a license agreement with BCBSM, a large
health insurance provider based in Boston, Massachusetts. Under this
agreement, BCBSM agreed to pay a one-time license fee of $204,000 in
exchange for which it received a right to license the Company's
product, ProxyScript, to physicians exclusively, including its
approximately 12,000 affiliated physicians, in Massachusetts, Vermont,
New Hampshire, Maine and Rhode Island (the "States"), and on a
non-exclusive basis in Connecticut. Under the BCBSM agreement, the
Company is barred until March 1, 1998 from competing in the States with
BCBSM for the electronic prescription business, and BCBSM is barred
from competing with the Company's electronic prescription business
outside the States for the same period. The license fee was recorded as
revenue in 1996.
(7) LOAN AGREEMENT
The Company has a revolving loan agreement with a bank for borrowings
of up to $5,000,000, subject to availability of suitable collateral. Outstanding
borrowings bear interest at the prime rate less 3/4%, are due on demand and are
collateralized by U.S. Treasury Notes and certificates of deposit. There were no
borrowings outstanding as of December 31, 1997 or 1996.
F-14
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1997
and 1996:
1997 1996 Estimated useful lives
----------- -----------
Furniture, fixtures and equipment $ 800,240 $ 501,533 5 to 7 years
Computer hardware and software 2,014,293 1,034,071 5 years
Leasehold improvements 189,908 139,480 Life of lease
----------- -----------
3,004,441 1,675,084
Less accumulated depreciation 681,267 605,422
----------- -----------
Property and equipment, net $ 2,323,174 $ 1,069,662
=========== ===========
Depreciation expense was $499,000 in 1997, $297,000 in 1996 and
$239,000 in 1995.
(9) ACCOUNTS PAVABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following at December
31, 1997 and 1996:
1997 1996
----------- -----------
Accounts payable $ 2,671,182 $ 399,353
Accrued expenses related to sales of
assets and subsidiary - 59,914
Accrued payroll, related costs and
contractual employment obligations 365,716 92,202
Accrued expenses related to acquisitions 556,316 -
Other accrued expenses 645,859 113,281
----------- -----------
Total accounts payable and accrued expenses $ 4,239,073 $ 664,750
=========== ===========
F-15
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCOME TAXES
The significant components of the deferred tax asset account is as
follows at December 31, 1997 and 1996:
1997 1996
----------- -----------
Net operating losses - Federal $ 8,224,000 $ 4,386,000
Net operating losses - State 1,261,000 673,000
In-process research and development technology 2,964,000 -
Other - net (principally allowance for
doubtful accounts and depreciation) (125,000) (166,000)
----------- -----------
Total deferred tax assets 12,324,000 4,893,000
Less valuation allowance (12,324,000) (4,893,000)
----------- -----------
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 deferred
assets and the valuation allowance recorded relating thereto increased by
$7,431,000 in 1997 and $2,093,000 in 1996, primarily due to net operating
losses, and in 1997, in-process research and development technology. Net
operating loss carryforwards, which amount to $24,189,000 as of December 31,
1997, begin to expire in 2008.
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 due to the following:
1997 1996 1995
-------- ------- -------
Federal income tax benefit at statutory rate 35.0 % 35.0 % 35.0 %
State income tax benefit 3.5 3.5 3.5
Increase in valuation allowance (38.5) (38.5) (38.5)
------- ------- -------
- - -
======= ======= =======
F-16
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
YEAR ENDING DECEMBER 31,
1997 1996 1995
----------- -------- -----------
Cash paid for interest $ 3,230 $ 31,123 $ 292,310
=========== ======== ===========
Warrants issued for acquisition of PreScribe technology (Note 3) $ 731,938 $ - $ -
=========== ======== ===========
Acquisition and disposition of businesses:
Contingent common stock issued for prior year acquisition $ - $ - $ 86,065
=========== ======== ===========
Common stock issued for businesses acquired $ 2,056,452 $ - $ -
Debt issued for businesses acquired 1,649,555 - -
Other acquisition costs accrued 1,131,759 - -
Details of acquisitions and dispositions:
Working capital components, other than cash (688,757) - 1,986,321
In-process research and development technology (8,467,098) - -
Property and equipment (485,517) - 1,748,111
Goodwill and other intangible assets (4,641,746) - 1,002,239
Capitalized software (473,574)
Other assets - - (222,447)
Note payable 9,375 - -
Net loss - - (70,380)
----------- -------- -----------
Net cash from acquisitions and dispositions $(9,909,551) $ - $ 4,443,844
=========== ======== ===========
(12) SIGNIFICANT CUSTOMERS
Approximately 65% of the Company's revenues for 1997 were from sales to
the State of Florida or agencies thereof. Approximately 50% of the Company's
revenues for 1996 were from sales to Bergen as more fully described in Note 6.
Approximately 26% of the Company's revenues for 1995 were from sales to
providers under contract with Humana Medical Plan, Inc. and Humana Health
Insurance Company of Florida, Inc. (collectively referred to as Humana), an HMO
with national operations.
F-17
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) STOCK OPTIONS
The Company has three stock option plans for executives, directors and
other key personnel, under which both incentive stock options and non-qualified
options may be issued. Under such plans, options to purchase up to 1,226,250
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 order to
qualify as an incentive stock option, the value of shares exercisable in any one
calendar year cannot exceed $100,000 (as determined at the date of grant). The
Company also has a stock option plan for outside directors under which options
to purchase up to 300,000 shares of common stock may be granted at prices and
with vesting periods as may be determined by the Board of Directors or the
Compensation Committee thereof. In addition, as of December 31, 1997, options
for the purchase of 502,200 shares were granted principally as inducements to
newly-hired officers and employees. Stock options issued by the Company
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, 1997:
SHARES OF COMMON STOCK WEIGHTED AVERAGE
----------------------
AVAILABLE EXERCISE PRICE OF
FOR GRANT UNDER PLAN SHARES UNDER PLAN
------------ ---------- -----------------
Balance, January 1, 1995 48,000 552,000 $4.15
Options authorized 450,000 - -
Options granted (679,875) 679,875 $3.61
Options expired 297,750 (297,750) $4.32
---------- ----------
Balance, December 31, 1995 115,875 934,125 $3.73
Options authorized 532,500 - -
Options granted (875,250) 875,250 $5.20
Options exercised - (139,601) $4.22
Options expired 231,124 (231,124) $4.00
---------- ----------
Balance, December 31, 1996 4,249 1,438,650 $4.59
Options authorized 457,200 - -
Options granted (291,368) 291,368 $8.51
Options exercised - (87,900) $6.22
Options expired - (14,000) $7.04
---------- ----------
Balance, December 31, 1997 170,081 1,628,118 $5.18
========== ==========
F-18
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The following table summarizes information regarding outstanding and
exercisable options as of December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------- --------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF EXERCISE NUMBER REMAINING CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
----------------- ----------- --------------------- -------------- ----------- --------------
$3.17 - 4.00 870,750 2.90 $3.53 833,250 $3.53
$4.01 - 6.50 197,450 2.32 $4.54 145,750 $4.39
$6.51 - 10.00 559,918 6.89 $7.96 234,751 $7.46
----------- -----------
1,628,118 1,213,751
=========== ===========
The following table summarizes information regarding options
exercisable at of December 31, 1997:
1997 1996 1995
---- ---- ----
Number exercisable 1,213,751 822,234 554,625
Weighted average exercise price $4.40 $4.10 $4.08
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its 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," the Company's net loss and
basic and diluted net loss per share would have been $(19,269,832) and $(1.82)
for 1997, $(3,723,924) and $(.49) for 1996, and $(3,271,095) and $(.68) for
1995, respectively. The weighted average grant date fair value of options
granted ($3.13 in 1997, $2.31 in 1996, and $1.20 in 1995) was estimated using
the Black-Scholes option pricing model with the following weighted average
assumptions:
1997 1996 1995
--------- --------- --------
Risk-free interest rate 6.33% 6.08% 6.04%
Expected life 5.3 years 7.0 years 5.0 years
Expected volatility 74.7% 65.1% 59.4%
Expected dividend yield 0.0% 0.0% 0.0%
F-19
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) SEGMENT INFORMATION
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has classified the following
reportable segments which are separately managed: Prescription drug dispensing,
healthcare and EDI software and services, and network integration services. In
1995, the Company's focus changed from its drug dispensing operations to its
healthcare and EDI operations. Intersegment sales are not material and there
were no foreign sales for any years presented.
1997 1996 1995
------------ ------------ -----------
Net sales:
Prescription drug dispensing $ 1,335,060 $ 1,168,144 $ 7,573,803
Healthcare EDI and software
products and services 1,817,122 1,886,007 49,000
Network integration services 7,779,787 - -
------------ ----------- -----------
$ 10,931,969 $ 3,054,151 $ 7,622,803
============ =========== ===========
Operating income (loss):
Prescription drug dispensing $ 18,050 $ 36,063 $ (243,294)
Healthcare EDI and software
products and services (7,369,360) (1,596,925) (753,588)
Network integration services 224,947 - -
Corporate (3,190,801) (2,744,431) (1,630,000)
------------ ------------ -----------
$(10,317,164) $ (4,305,293) $(2,626,882)
============ ============ ===========
Depreciation and amortization:
Prescription drug dispensing $ 15,003 $ 12,907 $ 124,373
Healthcare EDI and software
products and services 873,924 209,681 93,510
Network integration services 69,373 - -
Corporate 120,000 100,000 80,000
------------ ------------ -----------
$ 1,078,300 $ 322,588 $ 297,883
============ ============ ===========
Capital expenditures and purchased
and capitalized software:
Prescription drug dispensing $ 16,264 $ 10,000 $ 30,000
Healthcare EDI and software
products and services 4,297,152 1,106,448 317,988
Network integration services 155,026 - -
Corporate 100,000 120,000 41,597
------------ ------------ -----------
$ 4,568,442 $ 1,236,448 $ 389,585
============ ============ ===========
Total assets:
Prescription drug dispensing $ 996,545 $ 910,685 $ 1,293,812
Healthcare EDI and software
products and services 12,228,222 1,952,686 416,382
Network integration services 2,402,150 - -
Corporate 3,976,204 12,831,684 3,283,143
------------ ------------ -----------
$ 19,603,121 $ 15,695,055 $ 4,993,337
============ ============ ===========
F-20
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) COMMITMENTS AND OTHER
(a) LEASES - The Company leases certain premises and equipment under
operating leases which expire on various dates through 2002. The
leases for the premises contain renewal options, and require the
Company to pay such costs as property taxes, maintenance and
insurance. Future minimum lease payments under noncancelable
operating leases with initial or remaining lease terms in excess of
one year are as follows: $471,697 in 1998, $239,272 in 1999,
$142,082 in 2000, $61,145 in 2001, and $9,224 in 2002. The
Company's obligations under capital leases are not material. Total
rent expense for all operating leases amounted to $372,000 in 1997,
$119,000 in 1996 and $161,000 in 1995.
(b) EMPLOYMENT AGREEMENTS - The Company has employment agreements with
certain of its officers and employees for terms of up to three
years, with compensation for up to nine months if terminated under
certain conditions.
(c) DUE FROM OFFICER - Included in Other Receivables at December 31,
1997 is a 7-3/4% demand loan in the amount of $350,000 due from the
Company's chief executive officer. The officer has agreed to
collateralize the loan pursuant to pledges of securities, including
shares of the Company's common stock, satisfactory to the Company's
Board of Directors.
(16) SUBSEQUENT SALE OF COMMON STOCK
On February 20, 1998, the Company agreed to sell 500,000 shares of
common stock at $6.50 per share in a private placement to an investor of which
$1,625,000 has been paid, and $1,625,000 will be paid by March 30, 1998.
F-21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
ProxyMed, Inc.
Our report on the consolidated financial statements of ProxyMed, Inc. and
subsidiaries is included on page F-2 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule on page F-23 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Miami, Florida
February 24, 1998
F-22
PROXYMED, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
---------------------------------------------------------------------------------------------------
ADDITIONS
-----------------------------------------
YEAR ENDED BALANCE AT BEGINNING CHARGED TO COSTS AND CHARGED TO OTHER BALANCE AT END
DECEMBER 31, OF PERIOD EXPENSES ACCOUNTS (1) DEDUCTIONS OF PERIOD
- ------------ -------------------- -------------------- ---------------- ---------- --------------
1997 $ 16,712 121,771 138,630 34,565 $ 242,548
==================== ==================== ================ ========== ==============
1996
$ 106,625 8,105 - 98,018 $ 16,712
==================== ==================== ================ ========== ==============
(1) Acquired through acquisitions of CMS and USHDI
F-23
EXHIBIT INDEX
EXHIBIT DESCRIPTION
10.19 Employment Agreement between the Company and James Pickering dated
November 10, 1997.
21 Subsidiaries of the Registrant
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule