UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 2002
--------------
[ ] TRANSITION 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
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PROXYMED, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 65-0202059
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2555 DAVIE ROAD, SUITE 110, FT. LAUDERDALE, FLORIDA 33317
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(Address of principal executive offices) (Zip Code)
(954) 473-1001
-------------------------------
(Registrant's telephone number)
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
COMMON STOCK, $.001 PAR VALUE
6,741,218 SHARES AS OF MAY 10, 2002
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
2002 2001
----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 5,168,000 $ 12,601,000
Accounts receivable - trade, net 5,642,400 5,588,800
Other receivables 146,600 88,800
Inventory 3,454,700 3,351,100
Other current assets 672,000 330,600
------------ ------------
Total current assets 15,083,700 21,960,300
Property and equipment, net 3,857,700 3,831,700
Goodwill, net 7,960,400 7,960,400
Purchased technology, capitalized software and other intangibles, net 2,065,000 2,075,800
Other assets 53,300 53,300
------------ ------------
Total assets $ 29,020,100 $ 35,881,500
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ -- $ 7,000,000
Accounts payable and accrued expenses 5,370,400 5,344,600
Deferred revenue 347,600 222,300
------------ ------------
Total current liabilities 5,718,000 12,566,900
Long-term deferred revenue and other long-term liabilities 381,000 442,100
------------ ------------
Total liabilities 6,099,000 13,009,000
------------ ------------
Stockholders' equity:
Series C 7% Convertible preferred stock - $.01 par value.
Authorized 300,000 shares; issued and outstanding 3,000 and
34,650 shares, respectively; liquidation preference $300,000
and $3,465,000, respectively -- 300
Common stock - $.001 par value. Authorized 13,333,333 shares;
issued and outstanding 5,141,818 (after deducting 15,061
shares in treasury) and 4,894,433 shares, respectively 5,100 4,900
Additional paid-in capital 120,276,400 120,276,500
Accumulated deficit (97,174,500) (97,223,300)
Note receivable from stockholder (185,900) (185,900)
------------ ------------
Total stockholders' equity 22,921,100 22,872,500
------------ ------------
Total liabilities and stockholders' equity $ 29,020,100 $ 35,881,500
============ ============
See accompanying notes.
2
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31,
---------------------------------
2002 2001
------------ ------------
Revenues:
Transaction fees, services and license fees $ 6,709,200 $ 4,334,300
Communication devices, computer systems
and other tangible goods 4,793,900 4,068,600
------------ ------------
11,503,100 8,402,900
------------ ------------
Costs and expenses:
Cost of transaction fees, services
and license fees 2,131,800 678,000
Cost of tangible goods 3,247,700 2,648,500
Selling, general and administrative expenses 5,492,900 5,625,000
Depreciation and amortization 568,500 3,019,800
------------ ------------
11,440,900 11,971,300
------------ ------------
Operating income (loss) 62,200 (3,568,400)
Interest income (expense), net (13,400) 101,200
------------ ------------
Net income(loss) 48,800 (3,467,200)
Deemed dividends and other charges 611,700 2,461,100
------------ ------------
Net loss applicable to common shareholders $ (562,900) $ (5,928,300)
============ ============
Weighted average common shares outstanding 5,114,596 1,401,262
============ ============
Basic and diluted net loss per share of common stock $ (0.11) $ (4.23)
============ ============
See accompanying notes
3
PROXYMED, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
-----------------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 48,800 $ (3,467,200)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 568,500 3,019,800
Provision for (recovery of) doubtful accounts (34,300) 30,400
Reserve for obsolete inventory 60,000 48,600
Compensatory stock options and warrants -- 325,000
Changes in assets and liabilities:
Accounts receivable and other receivables (90,800) (461,600)
Inventory (163,600) (171,800)
Other current assets (340,800) (224,900)
Accounts payable and accrued expenses 11,900 (285,000)
Deferred revenue 94,100 52,200
Other, net (20,800) 3,100
------------ ------------
Net cash provided by (used in) operating activities 133,000 (1,131,400)
------------ ------------
Cash flows from investing activities:
Acquisition of business, net of cash acquired -- (3,000,000)
Capital expenditures (412,400) (240,100)
Capitalized software (138,100) --
Payments for acquisition-related costs -- (3,800)
------------ ------------
Net cash used in investing activities (550,500) (3,243,900)
------------ ------------
Cash flows from financing activities:
Payment of note payable related to acquisition of business (7,000,000) --
Dividends on preferred stock -- (1,600)
Collections on notes receivable 13,700 8,400
Preferred stock conversion offer costs (200) --
Payment of note payable, capital leases and long-term debt (29,000) (25,600)
------------ ------------
Net cash used in financing activities (7,015,500) (18,800)
------------ ------------
Net decrease in cash and cash equivalents (7,433,000) (4,394,100)
Cash and cash equivalents at beginning of period 12,601,000 8,841,100
------------ ------------
Cash and cash equivalents at end of period $ 5,168,000 $ 4,447,000
============ ============
See accompanying notes.
4
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION - The accompanying unaudited condensed
consolidated financial statements of ProxyMed, Inc. and subsidiaries
("ProxyMed" or the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
disclosures required by accounting principles generally accepted in the
United States of America. However, such information reflects all
adjustments (consisting solely of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair statement of
results for the interim periods.
The results of operations for the three months ended March 31, 2002 are
not necessarily indicative of the results to be expected for the full
year. The unaudited consolidated financial statements included herein
should be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the Company's Form 10-K
for the year ended December 31, 2001.
In August 2001, our Board of Directors effected a 1-for-15 reverse
stock split of the Company's common stock, par value $.001 per share.
All share and per share amounts have been restated to reflect this
transaction.
(b) REVENUE RECOGNITION - Electronic transaction processing fee revenue is
recorded in the period the service is rendered. Certain transaction fee
revenue may be subject to revenue sharing or rebates per agreements
with resellers, vendors or gateway partners and are recorded as gross
revenues. Revenue from sales of software, software licenses, computer
hardware and manufactured goods is recognized when persuasive evidence
of an arrangement exists, delivery has occurred, the price is fixed or
determinable and collectibility is probable. The same criteria are
applied to each element of multiple element arrangements after
allocating the amounts paid to individual elements based on
vendor-specific objective evidence of fair value. Revenue from certain
up-front fees is amortized ratably over the expected life of the
customer. Revenue from hardware leases, network access and maintenance
fees is recognized ratably over the applicable period.
5
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(c) NET LOSS PER SHARE - Basic net loss per share of common stock is
computed by dividing net loss applicable to common shareholders by the
weighted average shares of common stock outstanding during the year.
Diluted per share results reflect the potential dilution from the
exercise or conversion of securities into common stock; however, stock
options and warrants totaling 960,378 shares and 2,657,289 shares at
March 31, 2002 and 2001, respectively, as well as common shares
issuable on conversion of both Series B (2001 period only) and Series C
preferred stock (20,000 and 1,696,500 shares, if converted on
March 31, 2002 and 2001, respectively), were excluded from the
calculation of diluted per share results because their effect was
antidilutive.
(d) NEW ACCOUNTING PRONOUNCEMENTS - In May 2002, the Financial Accounting
Standards Board issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds the automatic treatment of gains or
losses from extinguishments of debt as extraordinary unless they meet
the criteria for extraordinary items as outlined in APB Opinion No. 30,
"Reporting the Results of Operations, Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." In addition, SFAS No. 145 also
requires sale-leaseback accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions
and makes various technical corrections to existing pronouncements. The
provisions of SFAS No. 145 related to the rescission of FASB Statement
No. 4 are effective for fiscal years beginning after May 15, 2002, with
early adoption encouraged. All other provisions of SFAS No. 145 are
effective for transactions occurring after May 15, 2002, with early
adoption encouraged. The Company does not anticipate that SFAS No. 145
will have a material effect on its financial statements.
(2) INVENTORY
Inventory consists of the following at March 31, 2002:
Materials, supplies and component parts $ 2,290,700
Work in process 402,100
Finished goods 761,900
-----------
$ 3,454,700
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6
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(3) GOODWILL AND OTHER INTANGIBLE ASSETS
(a) GOODWILL - The Company adopted the provisions of SFAS No. 142,
"Goodwill and Other Intangible Assets" effective January 1, 2002
resulting in the reduction of approximately $808,000 of amortization
relating to its existing goodwill each quarter, which would have been
recorded through the first quarter of 2004.
SFAS No. 142 also requires that goodwill be tested at least annually
for impairment using a two-step process. The first step is to identify
a potential impairment and, in transition, this step must be measured
as of the beginning of the fiscal year. The second step of the goodwill
impairment test measures the amount of the impairment loss (measured as
of the beginning of the year of adoption), if any, and must be
completed by the end of the Company's fiscal year. The Company
completed the first step of the transitional goodwill impairment test
and did not record an impairment charge as a result of applying SFAS
No. 142 during the first quarter of 2002.
The changes in the carrying amount of goodwill for the three months
ended March 31, 2002 by operating segment are as follows:
Electronic
healthcare Laboratory
transaction communication
processing solutions Total
----------- ------------- -----------
Balance as of December 31, 2001 $ 7,430,700 $ 529,700 $ 7,960,400
Impairment losses -- -- --
------------ ------------- -----------
Balance as of March 31, 2002 $ 7,430,700 $ 529,700 $ 7,960,400
============ ============= ===========
7
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
In accordance with SFAS No. 142, a reconciliation of the previously
reported net loss applicable to common shareholders and net loss per
share to the amounts adjusted for the exclusion of goodwill
amortization, net of any related income tax effect, is as follows:
Three Months Ended March 31,
---------------------------------
2002 2001
----------- -----------
Reported net loss applicable to common shareholders $ (562,900) $(5,928,300)
Goodwill amortization, net of tax -- 1,566,100
----------- -----------
Adjusted net loss applicable to common shareholders $ (562,900) $(4,362,200)
=========== ===========
Weighted average common shares outstanding 5,114,596 1,401,262
=========== ===========
Basic and diluted net loss per share of common stock:
Reported net loss applicable to common shareholders $ (0.11) $ (4.23)
Goodwill amortization -- 1.12
----------- -----------
Adjusted net loss applicable to common shareholders $ (0.11) $ (3.11)
=========== ===========
(B) OTHER INTANGIBLE ASSETS - The carrying amount of other intangible
assets for as of March 31, 2002 and December 31, 2001, by category, are
as follows:
March 31, 2002 December 31, 2001
----------------------------------------------- -----------------------------------------------
Carrying Accumulated Carrying Accumulated
Amount Amortization Net Amount Amortization Net
----------- -------------- ----------- ----------- ----------------- -----------
Capitalized software $ 3,507,400 $(1,576,100) $ 1,931,300 $ 3,369,400 $(1,469,900) $ 1,899,500
Other intangibles 852,500 (718,800) 133,700 852,500 (676,200) 176,300
----------- ----------- ----------- ----------- ----------- -----------
$ 4,359,900 $(2,294,900) $ 2,065,000 $ 4,221,900 $(2,146,100) $ 2,075,800
=========== =========== =========== =========== =========== ===========
Amortization expense of purchased technology, capitalized software and
other intangible assets was $148,900 and $1,069,600 for the three
months ended March 31, 2002 and 2001, respectively.
As of March 31, 2002, estimated future amortization expense of other
intangible assets is as follows: $360,200 for the remaining quarters of
2002, $315,600 in 2003, $293,400 in 2004, $237,800 in 2005, $227,700 in
2006 and $227,700 in 2007.
(4) DEBT OBLIGATION
In January 2002, the Company paid in full its $7 million promissory note
related to its May 2001 acquisition of MDP Corporation.
8
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(5) EQUITY TRANSACTIONS
(a) SERIES C PREFERRED CONVERSION OFFER - On December 13, 2001, the Company
offered to convert its then outstanding Series C Preferred into shares
of common stock at a reduced conversion price (the "Conversion Offer").
For a period of sixty days ending February 11, 2002, the holders of the
Series C Preferred shares were able convert such shares at a reduced
conversion price of $13.05 per share instead of the original conversion
price of $15.00. As of December 31, 2001, holders of 83.0% of the
outstanding Series C Preferred had converted their shares into
1,296,126 shares of common stock and, as a result, the Company recorded
a deemed dividend charge of $3,365,400 included in the net loss
applicable to common shareholders in the fourth quarter of 2001. At the
conclusion of the Conversion Offer on February 11, 2002, holders of
98.5% of the outstanding Series C Preferred had converted their shares
into a total of 1,538,636 common shares. A deemed dividend charge of
$611,700 was recorded in the first quarter of 2002 for conversions
consummated after the 2001 year end. As of March 31, 2002, there were
3,000 unconverted shares of Series C Preferred.
(b) SALE OF COMMON STOCK - On March 26, 2002, the Company agreed to sell
1,569,366 shares of unregistered common stock at $15.93 per share (the
"Primary Shares") in a private placement to General Atlantic Partners
74, L.P., GAP Coinvestment Partners II, L.P., Gapstar, LLC, GAPCO GmbH
& Co. KG. (the "General Atlantic Purchasers"), four companies
affiliated with General Atlantic Partners, LLC ("GAP"), a private
equity investment fund. In addition, the Company also agreed to issue
warrants for the purchase of 549,279 shares of common stock exercisable
at $15.93 per share (the "GAP Warrants"). On April 5, 2002, the Company
closed on the transactions with the General Atlantic Purchasers and
received gross proceeds of $25 million. No placement agent was used in
this transaction. The Company granted the General Atlantic Purchasers
and certain of their transferees and affiliates certain demand and
"piggy back" registration rights starting one year from closing.
Additionally, in connection with the transaction, a general partner of
GAP was appointed as a director to fill a vacancy on the Company's
board.
As a result of the purchase of the Primary Shares, the General Atlantic
Purchasers owned approximately 23.4% of the then outstanding shares of
the Company's common stock. Subject to approval and ratification at the
Company's Annual Meeting of Shareholders to be held on May 22, 2002,
the GAP Warrants may be exercised at any time after April 5, 2003, and
prior to April 5, 2004. If not so approved, then the April 5, 2004
deadline for exercising the GAP Warrants will be extended until 90 days
after the date on which the holders of the GAP Warrants can exercise
the GAP Warrants in compliance with relevant Nasdaq rules.
9
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(c) STOCK OPTIONS - In January 2002, certain vested stock options for three
resigning directors were amended to allow for an extension of the
exercise period through December 31, 2003.
Additionally, in January 2002, the Company's Board of Directors agreed
to cancel up to 37,767 stock options with exercise prices ranging from
$57.45 to $202.50 issued to current officers and employees of the
Company with the intent of reissuing the same number of options in the
future at the then current market price.
(6) SEGMENT INFORMATION
ProxyMed operates in two reportable segments which are separately
managed: Electronic healthcare transaction processing and Laboratory
communication solutions. Electronic healthcare transaction processing includes
transaction and value-added services principally between physicians and
insurance companies (Payer Services) and physicians and pharmacies (Prescription
Services); and Laboratory communication solutions includes the sales, lease and
service of communication devices principally to laboratories and the contract
manufacturing of printed circuit boards (Laboratory Services). Intersegment
sales are not material and there were no foreign sales for any periods
presented.
Three Months Ended March 31,
-----------------------------------
2002 2001
------------ ------------
Net revenues:
Electronic healthcare transaction processing $ 5,278,000 $ 2,721,600
Laboratory communication solutions 6,225,100 5,681,300
------------ ------------
$ 11,503,100 $ 8,402,900
============ ============
Operating income (loss):
Electronic healthcare transaction processing $ 152,200 $ (3,246,000)
Laboratory communication solutions 592,700 988,500
Corporate and consolidating (682,700) (1,310,900)
------------ ------------
$ 62,200 $ (3,568,400)
============ ============
March 31,
------------------------------------
2002 2001
------------ ------------
Total assets:
Electronic healthcare transaction processing $ 14,211,200 $ 7,540,800
Laboratory communication solutions 8,647,800 8,460,500
Corporate and consolidating 6,161,100 7,933,900
------------ ------------
$ 29,020,100 $ 23,935,200
============ ============
10
PROXYMED, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), CONTINUED
(7) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Three Months Ended March 31,
----------------------------
2002 2001
--------- ---------
Common stock issued for payment
of preferred stock dividends $ -- $ 491,400
========= =========
(8) SUBSEQUENT EVENT
On May 6, 2002, the Company acquired all of the capital stock of KenCom
Communications & Services, Inc. ("KenCom"), a privately-owned provider of
laboratory communication solutions, for $3,275,000 in cash and 30,034 shares of
unregistered ProxyMed common stock (valued at $600,000). The number of shares of
common stock issued was based on the average of the closing prices of the
Company's common stock for the five days immediately preceding the closing. The
Company will register these shares no later than one year after the closing. The
acquisition will be accounted for as a purchase and is expected to result in
goodwill and other intangible assets of approximately $3.3 million.
11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
ProxyMed is an electronic healthcare transaction processing services
company providing connectivity services and related value-added products to
physicians, payers, medical laboratories, pharmacies, and other healthcare
providers. Our electronic transaction processing services support a broad range
of both financial and clinical transactions. To facilitate these services, we
operate ProxyNet(R), our secure, proprietary national electronic information
network, which provides physicians and other healthcare providers with direct
connectivity to one of the industry's largest group of payers, the largest group
of clinical laboratories, and the largest group of chain and independent
pharmacies. Our products and services are currently provided from our operating
facilities located in Fort Lauderdale, Florida; New Albany, Indiana; Santa Ana,
California; and Atlanta, Georgia.
We operate in two reportable segments which are separately managed:
Electronic healthcare transaction processing and Laboratory communication
solutions. Electronic healthcare transaction processing includes transaction and
value-added services principally between physicians and insurance companies
(Payer Services) and physicians and pharmacies (Prescription Services); and
Laboratory communication solutions includes the sales, lease and service of
communication devices principally to laboratories and the contract manufacturing
of printed circuit boards (Laboratory Services).
Our business strategy is to leverage our leadership position in
connectivity services in order to establish ProxyMed as the premier provider of
automated financial, clinical, and administrative transaction services primarily
between small physician offices (offices with one to nine physicians) and
payers, clinical laboratories and pharmacies. Through strategic relationships
and partnerships with front-end solutions providers, our goal is to drive more
healthcare transactions through ProxyNet while remaining neutral in the battle
for the physician's desktop. Additionally, since we have a substantial existing
customer base of physicians and other healthcare providers, we believe that
there are opportunities to increase revenues by cross-selling our existing
products and services to these current customers, as well as revenue
opportunities from the development of new services from our development efforts,
including Internet-based transaction services, and from opportunities afforded
by the Health Insurance Portability and Accountability Act of 1996 (known as
HIPAA) as it relates to privacy, security and education. We remain committed to
developing additional capabilities and value-added products and services for our
back-end connectivity network.
To facilitate our ability to fund our internal and strategic growth
plans, on March 26, 2002, we agreed to sell 1,569,366 shares of unregistered
common stock at $15.93 per share, including a warrant for the purchase of
549,279 shares of common stock also at $15.93 per share, in a private placement
to four entities affiliated with General Atlantic Partners, LLC ("GAP"), a
private equity investment fund. This transaction closed on April 5, 2002 and we
received gross proceeds of $25 million. No placement agent was used in the
transaction and we granted the GAP entities certain
12
demand and "piggy back" registration rights starting one year from closing.
Additionally, in connection with the transaction, a general partner of GAP was
appointed as a director to fill a vacancy on our board.
With our investment from GAP to bolster our cash position, we are poised
to take advantage of the opportunities in the healthcare connectivity industry
and become the premier provider of electronic connectivity solutions for the
small physician practice. Our focus for 2002 and beyond is on internal growth
primarily through cross-selling opportunities and external growth through
strategic acquisitions. Our first strategic acquisition was completed on
May 6, 2002 with the purchase of KenCom Communications & Services, Inc.
("KenCom"), a provider of laboratory communication solutions, for $3,275,000 in
cash and 30,034 shares of our common stock (valued at $600,000).
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001.
NET REVENUES. Consolidated net revenues for the three months ended March
31, 2002 increased by $3,100,200, or 37%, to $11,503,100 from consolidated net
revenues of $8,402,900 for the three months ended March 31, 2001. Net revenues
classified by our reportable segments are as follows:
Three Months Ended March 31,
----------------------------
2002 2001
----------- -----------
Electronic healthcare transaction processing $ 5,278,000 $ 2,721,600
La oratory communication solutions 6,225,100 5,681,300
------------ -----------
$ 11,503,100 $ 8,402,900
============ ===========
Electronic healthcare transaction processing segment net revenues
increased by 94% primarily due to a 65% increase in the number of electronic
clinical and financial healthcare transactions processed through ProxyNet from
16.0 million transactions in the first quarter of 2001 to 26.4 million
transactions in 2002. The 2001 period did not include any electronic claim and
patient statement transactions from MDP Corporation ("MDP"), which was acquired
in May 2001. For the 2002 period, approximately 46% of our revenues came from
our Electronic healthcare transaction processing segment, whereas only 32% was
from this segment for the 2001 period. For the remainder of 2002 and beyond, it
is anticipated that our greatest growth will come from this segment.
Laboratory communication solutions segment net revenues increased by
10% primarily due to an increase in contract manufacturing revenues offset by
decreases in sales and leases of communication devices, and field services
revenues. In the first quarter of 2002, we experienced delays in communication
device orders from a large laboratory and printer partner with whom we are
finalizing negotiations for a new nationwide products and services contract, and
expect these purchases later in the year. Additionally, we believe that the
continued consolidation of laboratories in the industry has delayed some
communication device purchases until later in the year.
13
COST OF SALES. Consolidated cost of sales increased as a percentage of
net revenues to 47% for the three months ended March 31, 2001 from 40% for the
three months ended March 31, 2001. Cost of sales classified by our reportable
segments is as follows:
Three Months Ended March 31,
------------------------------
2002 2001
----------- -----------
Electronic healthcare transaction processing $ 2,131,800 $ 679,300
Laboratory communication solutions 3,247,700 2,647,200
----------- -----------
$ 5,379,500 $ 3,326,500
=========== ===========
Cost of sales in the Electronic healthcare transaction processing
segment consists of transaction fees, services and license fees, including
third-party electronic transaction processing costs, certain telecommunication
costs, revenue sharing and rebate arrangements with our business partners,
third-party database licenses, and certain labor and travel expenses. Cost of
sales as a percentage of revenues increased to 40% in the 2002 period compared
to 25% in the same period last year primarily due to direct costs for our
statement processing services resulting from our acquisition of MDP in May 2001
(which have a higher direct cost than other payer service transactions) and
increased revenue sharing and rebates paid to our business partners as a result
of increased transaction volumes.
Cost of sales in the Laboratory communication solutions segment
includes hardware, third-party software, and consumable materials. Cost of sales
as a percentage of revenues increased to 52% for the 2002 period compared 47% in
the same period last year primarily due to a shift in the revenue mix from lower
cost leases to higher cost contract manufacturing.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated SG&A for the
three months ended March 31, 2002 decreased by $132,100, or 2%, to $5,492,900
from consolidated SG&A of $5,625,000 for the three months ended March 31, 2001.
Consolidated SG&A expenses as a percentage of consolidated revenues decreased to
48% in the 2002 period compared to 67% in the same period last year. SG&A
expenses classified by our reportable segments are as follows:
Three Months Ended March 31,
-----------------------------
2002 2001
----------- -----------
Electronic healthcare transaction processing $ 2,630,000 $ 2,511,100
Laboratory communication solutions 2,229,800 1,913,800
Corporate 633,100 1,200,100
----------- -----------
$ 5,492,900 $ 5,625,000
=========== ===========
Electronic healthcare transaction processing segment SG&A expenses for
the 2002 period increased 5% over the same period last year primarily due to
expenses incurred at our Atlanta operations as a result of our acquisition of
MDP in May 2001 offset by decreases in payroll and related expenses due to
personnel reductions in the first quarter of 2001 and the capitalization of
payroll and other costs for HIPAA and private label software projects in the
first quarter of 2002. We anticipate that SG&A expenses in
14
this segment will grow for the remainder of 2002 as we add additional sales
staff to drive revenues and staff to ready our networks, processing platforms,
customers and partners for HIPAA.
Laboratory communication solutions segment SG&A expenses in the 2002
period increased by 17% over the same period last year primarily due to higher
payroll and related costs, and selling expenses. In anticipation of the
elimination of certain lower margin revenues in 2002, we took proactive measures
to eliminate related operating expenses and we expect to recognize future
savings of approximately $100,000 per quarter for the remainder of 2002 from our
actions.
Corporate SG&A expenses decreased 47% in 2002 over the same period last
year primarily due to the non-cash compensatory warrants and additional accrual
recorded for our software licensing contingency in the 2001 period.
DEPRECIATION AND AMORTIZATION. Consolidated depreciation and
amortization decreased by $2,451,300 to $568,500 for the three months ended
March 31, 2002 from $3,019,800 for the three months ended March 31, 2001
primarily from a reduction in amortization expense due to the conclusion of
amortization of certain intangible assets in 2001 related to prior acquisitions
in our Electronic healthcare transaction processing segment and the adoption of
SFAS No. 142 on January 1, 2002. Depreciation and amortization classified by our
reportable segments is as follows:
Three Months Ended March 31,
----------------------------
2002 2001
--------- -----------
Electronic healthcare transaction processing $ 364,100 $ 2,777,300
Laboratory communication solutions 154,900 131,700
Corporate 49,500 110,800
--------- -----------
$ 568,500 $ 3,019,800
========= ===========
OPERATING INCOME (LOSS). As a result of the foregoing, consolidated
operating income for the three months ended March 31, 2002 was $62,200 compared
to an operating loss of $3,568,400 for the three months ended March 31, 2001.
Operating income (loss) classified by our reportable segments is as follows:
Three Months Ended March 31,
----------------------------
2002 2001
--------- -------------
Electronic healthcare transaction processing $ 152,200 $ (3,246,000)
Laboratory communication solutions 592,700 988,500
Corporate (682,700) (1,310,900)
--------- -------------
$ 62,200 $ (3,568,400)
========= ============
INTEREST, NET. We incurred consolidated net interest expense of $13,400
for the three months ended March 31, 2002 compared to net interest income of
$101,200 for the three months ended March 31, 2001. The 2002 period amount
includes interest expense related to the note payable for our acquisition of
MDP, which was paid in full in January 2002. Additionally, as a result of lower
cash balances and interest rates, interest income earned decreased between the
periods noted.
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NET INCOME (LOSS). As a result of the foregoing, consolidated net
income for the three months ended March 31, 2002 was $48,800 compared to a net
loss of $3,467,200 for the three months ended March 31, 2001.
DEEMED DIVIDENDS AND OTHER CHARGES. We incurred deemed dividends and
other charges of $611,700 for the three months ended March 31, 2002 as a result
of non-cash accounting charges for the conversion of 31,650 preferred shares
into 242,510 shares of common stock by our Series C preferred stockholders in
2002 pursuant to our offer to convert their shares commencing in December 2001.
For the three months ended March 31, 2001, deemed dividends and other charges
were $2,461,100 and resulted primarily from non-cash accounting charges from the
February 2001 anti-dilution reset in number and price of certain warrants issued
to our Series B preferred stockholders and quarterly dividends paid to our
Series C Preferred shareholders through issuance of 29,123 shares of common
stock in April 2001.
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS. As a result of the
foregoing, we reported a net loss applicable to common shareholders of $562,900
for the three months ended March 31, 2002 compared to a net loss applicable to
common shareholders of $5,928,300 for the three months ended March 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
In the three month period ended March 31, 2002, cash provided by
operating activities totaled $133,000. During this period, we paid in full our
$7,000,000 promissory note for our acquisition of MDP and paid $550,500 for
fixed assets and capitalized software. These activities were principally
financed through available cash resources. After these activities, we had cash
and cash equivalents totaling $5,168,000 as of March 31, 2002. These available
funds, plus the $25 million investment from GAP (as described in the "In
General" section above), will be used for operations, strategic acquisitions
(including $3,275,000 for our May 2002 acquisition of KenCom), the further
development of our products and services, and other general corporate purposes.
We continue to evaluate other acquisition opportunities and strategic
alternatives that may add synergies to our product offerings and business
strategy.
At the current time, we do not have any material commitments for
capital expenditures except for approximately $500,000 that is committed evenly
over the next three years related to the licensing of software for use in our
internal systems. In April 2002, we paid $166,700 towards this commitment.
Additionally, we have forecasted approximately $2.6 million for other capital
expenditures and capitalized software for 2002 and continue to evaluate our
expenditure requirements as it relates to the continuation of our HIPAA
compliance and co-location of our production networks to a third-party site.
We may adjust our projected expenditure spending levels up or down accordingly.
As we continue to improve our operating performance and achieve
increased market acceptance of our products and services, we are confident in
our ability to grow our business, both internally and externally. With our
additional equity financing from
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GAP, we believe that we have sufficient cash and cash equivalents on hand to
fund our future operational capital requirements and expenditures, and a
sufficient level of capital in order to fund specific research and development
projects or to pursue additional strategic acquisitions. However, if we need
additional capital funding in the future to further our strategic plans, there
can be no assurance that any additional funding will be available to us, or if
available, that it will be available on acceptable terms. If we are successful
in obtaining additional financing, the terms of the financing may have the
effect of significantly diluting or adversely affecting the holdings or the
rights of the holders of our common stock. We believe that if we are not
successful in obtaining additional financing for further product development or
strategic acquisitions, such inability may adversely impact our ability to
successfully execute our business plan and may put us at a competitive
disadvantage.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of
operations are based on our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of our financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions but we believe that any variation in results would not
have a material effect on our financial condition. On an ongoing basis, we
evaluate our estimates.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements. For a detailed discussion on the application of these and
other accounting policies, see Note 1 in the Notes to Consolidated Financial
Statements beginning on Page F-7 in our Form 10-K for the year ended
December 31, 2001.
REVENUE RECOGNITION - Electronic transaction processing fee and monthly
service revenues are recorded in the period the service is rendered. Certain
transaction revenues generated from our resellers, vendors and gateway partners
are subject to revenue sharing and rebate arrangements and are recorded as gross
revenues. Revenue from certain up-front development and connectivity fees is
amortized ratably over the expected life of the customer. Revenue from hardware
leases, network access and maintenance fees is recognized ratably over the
applicable period. Revenue from sales of software, software licenses, computer
hardware and manufactured goods is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the price is fixed or determinable
and collectibility is probable. The same criteria are applied to each element of
multiple element arrangements after allocating the amounts paid to individual
elements based on vendor-specific objective evidence of fair value. Because we
rely primarily on customer purchase orders in our Laboratory communication
solutions business, revenues
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may fluctuate from period to period compared to revenues generated in our
Electronic Healthcare Transaction business which is primarily based on recurring
revenue streams.
GOODWILL - Goodwill is generated from the excess of the cost of a
business acquired over the fair market value of its identifiable assets. In
accordance with SFAS No. 142 (see New Accounting Pronouncements below), goodwill
will no longer be amortized, but instead be subject to periodic impairment
tests. We adopted the provisions of SFAS No. 142 on January 1, 2002, and we will
no longer record approximately $808,000 of amortization relating to our existing
goodwill each quarter, which would have been recorded through the first quarter
of 2004. SFAS No. 142 also requires that goodwill be tested at least annually
for impairment using a two-step process. The first step is to identify a
potential impairment and, in transition, this step must be measured as of the
beginning of the fiscal year. We completed that first step of the goodwill
impairment test during the first quarter of 2002. The second step of the
goodwill impairment test measures the amount of the impairment loss (measured as
of the beginning of the year of adoption), if any, and must be completed by the
end of our fiscal year. We completed the first step of the transitional goodwill
impairment test and did not record an impairment charge as a result of applying
SFAS No. 142 during the first quarter of 2002.
CAPITALIZED SOFTWARE DEVELOPMENT AND RESEARCH AND DEVELOPMENT - Costs
incurred internally and fees paid to outside contractors and consultants in the
development of our externally and internally used software products are expensed
as incurred as research and development expenses (which are included in selling,
general and administrative expenses) until reaching technological feasibility.
At that time, any future costs are properly capitalized and ultimately amortized
over the remaining estimated economic life of the product on a
product-by-product basis. Our judgment is used in determining whether costs meet
the criteria for immediate expensing or capitalization. We periodically review
projected cash flows and other criteria in assessing the impairment of any
capitalized software and take impairment charges as needed.
EQUITY TRANSACTIONS - Over the past two years we have engaged in
various equity transactions. These transactions were first aimed at providing
capital to continue to operate and grow our business and then became a critical
step aimed at simplifying our capital structure. These transactions were complex
and required the application of various accounting rules and standards that have
resulted in significant cash and non-cash charges reflected primarily as deemed
dividend charges included our net loss applicable to common shareholders.
BAD DEBT ESTIMATES - We rely on estimates to determine the bad debt
expense and the adequacy of the reserve for doubtful accounts receivable. These
estimates are based on our historical experience and the industry in which we
operate. If the financial condition of our customers was to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
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NEW ACCOUNTING PRONOUNCEMENTS
In May 2002, the Financial Accounting Standards Board issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." SFAS No. 145 rescinds the
automatic treatment of gains or losses from extinguishments of debt as
extraordinary unless they meet the criteria for extraordinary items as outlined
in APB Opinion No. 30, "Reporting the Results of Operations, Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." In addition, SFAS No. 145 also
requires sale-leaseback accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions and makes
various technical corrections to existing pronouncements. The provisions of SFAS
No. 145 related to the rescission of FASB Statement No. 4 are effective for
fiscal years beginning after May 15, 2002, with early adoption encouraged. All
other provisions of SFAS No. 145 are effective for transactions occurring after
May 15, 2002, with early adoption encouraged. We do not anticipate that SFAS No.
145 will have a material effect on our financial statements.
CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This document contains forward-looking statements that reflect our
current assumptions and expectations regarding future events. While these
statements reflect our current judgment, they are subject to risks and
uncertainties. Actual results may differ significantly from projected results
due to a number of factors, including, but not limited to, the soundness of our
business strategies relative to the perceived market opportunities; our ability
to identify suitable acquisition candidates; our ability to integrate any future
acquisitions into our existing operations; our ability to successfully develop,
market, sell, cross-sell, install and upgrade our clinical and financial
transaction services and applications to new and current physicians, payers,
medical laboratories and pharmacies; our ability to compete effectively on price
and support services; our interpretation of HIPAA and our ability to comply with
the associated rules and regulations; our assessment of the healthcare
industry's need, desire and ability to become technology efficient; and our
ability and that of our business associates to comply with various government
rules regarding healthcare information and patient privacy. These and other risk
factors are more fully discussed in the Risk Factors disclosure in our Form 10-K
for the year ended December 31, 2001 and our other filings with the Securities
and Exchange Commission, which we strongly urge you to read. We expressly
disclaim any intent or obligation to update any forward-looking statements. When
used in this document, the words "believes", "estimated", "expects",
"anticipates", "may" and similar expressions are intended to identify
forward-looking statements.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
- None
(b) Reports on Form 8-K:
- February 20, 2002 - Report on fourth quarter and year ended
December 31, 2001 teleconference call held on February 14, 2002,
including transcript thereon and press release dated February 13,
2002, pursuant to Regulation FD.
- March 29, 2002 - Report on agreement to sell 1,569,366 shares of
unregistered common stock of ProxyMed, Inc. and a warrant to
purchase 549,279 shares of common stock of ProxyMed, Inc. dated
March 26, 2002 to four companies affiliated with General Atlantic
Partners, LLC, a private equity investment fund, including stock
and warrant purchase agreement, form of common stock purchase
warrant, form of registration rights agreement, and press release
dated March 27, 2002 announcing the transaction.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROXYMED, INC.
(Registrant)
May 15, 2002 /s/ Judson E. Schmid
------------ -----------------------------------------
(Date) Judson E. Schmid
Executive Vice President and
Chief Financial Officer
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