SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 0-22052
PROXYMED, INC.
--------------
(Exact Name of Registrant as Specified in Its Charter)
FLORIDA 65-0202059
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2555 Davie Road, Suite 110, Ft. Lauderdale, Florida 33317
---------------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
Registrant's Telephone Number, Including Area Code: (954) 473-1001
Indicate 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. Yes __X__ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate by check mark 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
19,957,415 Shares as of August 8, 2000
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS.
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited)
Pro Forma
June 30, June 30, December 31,
Assets 2000 2000 1999
------------- ------------- -------------
(See Note 4)
Current assets:
Cash and cash equivalents $ 7,383,547 $ 7,383,547 $ 11,487,938
Accounts receivable - trade, net 4,366,670 4,366,670 3,298,298
Notes and other receivables 649,108 649,108 246,366
Prepaid expenses 1,873,623 1,873,623 363,261
Inventory 2,794,241 2,794,241 1,842,055
Other current assets 67,619 67,619 56,149
Net current assets of discontinued operations -- -- 1,719,791
------------- ------------- -------------
Total current assets 17,134,808 17,134,808 19,013,858
Property and equipment, net 4,681,794 4,681,794 4,321,943
Goodwill, net 6,170,771 6,170,771 9,629,115
Purchased technology, capitalized software and other intangibles, net 9,204,118 9,204,118 10,027,887
Other assets 534,538 534,538 477,742
Net long-term assets of discontinued operations -- -- 1,302,339
------------- ------------- -------------
Total assets $ 37,726,029 $ 37,726,029 $ 44,772,884
------------- ------------- -------------
Liabilities and Stockholders' Equity
Current liabilities:
Note payable $ -- $ -- $ 1,000,000
Current portion of long-term debt -- -- 735,788
Accounts payable and accrued expenses 5,220,830 5,220,830 4,263,032
Deferred revenue 559,599 559,599 435,349
------------- ------------- -------------
Total current liabilities 5,780,429 5,780,429 6,434,169
Long-term deferred revenue and other long-term liabilities 797,986 797,986 583,136
Put warrant obligation -- 11,603,866 --
------------- ------------- -------------
Total liabilities 6,578,415 18,182,281 7,017,305
------------- ------------- -------------
Stockholders' equity:
Series B 6% Convertible preferred stock - $.01 par value. Authorized and
issued 15,000 shares; outstanding 310 shares
Liquidation preference $310,000 3 3 150
Series C 7% Convertible preferred stock - $.01 par value
Authorized 300,000 shares; issued and outstanding 243,265 shares
Liquidation preference $24,326,500 243 243 --
Common stock - $.001 par value. Authorized 100,000,000 shares;
issued and outstanding 19,734,429 (after deducting 225,913
shares in treasury) and 18,327,402 shares, respectively 19,734 19,734 18,327
Additional paid-in capital 111,065,262 99,461,396 101,477,438
Accumulated deficit (79,937,628) (79,937,628) (63,740,336)
------------- ------------- -------------
Total stockholders' equity 31,147,614 19,543,748 37,755,579
------------- ------------- -------------
Total liabilities and stockholders' equity $ 37,726,029 $ 37,726,029 $ 44,772,884
============= ============= =============
See accompanying notes.
2
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
Revenues:
Services and license fees $ 4,602,137 $ 5,092,694 $ 8,900,851 $ 9,579,675
Communication devices, computer systems
and other tangible goods 3,414,716 2,672,996 6,760,952 5,711,074
------------- ------------- ------------- -------------
8,016,853 7,765,690 15,661,803 15,290,749
------------- ------------- ------------- -------------
Costs and expenses:
Cost of services and license fees 341,415 347,120 746,807 630,007
Cost of tangible goods 2,366,613 1,712,048 4,706,103 3,563,990
Selling, general and administrative expenses 7,101,002 6,661,873 14,740,387 12,718,677
Restructuring charges 1,425,000 -- 1,425,000 --
Depreciation and amortization 3,252,414 3,242,181 6,535,623 6,398,476
------------- ------------- ------------- -------------
14,486,444 11,963,222 28,153,920 23,311,150
------------- ------------- ------------- -------------
Operating loss (6,469,591) (4,197,532) (12,492,117) (8,020,401)
Interest income (expense), net (4,005,609) 16,311 (3,912,378) 35,091
------------- ------------- ------------- -------------
Loss from continuing operations (10,475,200) (4,181,221) (16,404,495) (7,985,310)
Discontinued operations:
Loss from discontinued operations -- (208,777) (303,927) (95,095)
Gain on disposal of discontinued operations -- -- 511,130 --
------------- ------------- ------------- -------------
-- (208,777) 207,203 (95,095)
------------- ------------- ------------- -------------
Net loss (10,475,200) (4,389,998) (16,197,292) (8,080,405)
Deemed dividends and other charges 14,412,079 -- 14,635,849 --
------------- ------------- ------------- -------------
Net loss applicable to common shareholders $(24,887,279) $ (4,389,998) $(30,833,141) $ (8,080,405)
============= ============= ============= =============
Weighted average common shares outstanding 19,222,849 17,913,831 18,828,694 17,866,363
============= ============= ============= =============
Basic and diluted net income (loss) per share of
common stock:
From continuing operations $ (1.29) $ (0.24) $ (1.65) $ (0.44)
From discontinued operations -- (0.01) 0.01 (0.01)
------------- ------------- ------------- -------------
Net loss $ (1.29) $ (0.25) $ (1.64) $ (0.45)
============= ============= ============= =============
See accompanying notes.
3
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
(unaudited)
Series B Series C
Preferred stock Preferred stock Common stock
----------------------------- ---------------------------- -----------------------------
Number Par Number Par Number Par
of shares value of shares value of shares value
------------- ------------- ------------- ------------- ------------- -------------
Balances, December 31, 1999 15,000 $ 150 -- $ -- 18,327,402 $ 18,327
Exercise of stock options
and warrants -- -- -- -- 168,438 168
Treasury stock received
for sales of discontinued
businesses -- -- -- -- (225,913) (226)
Common stock issued
for acquired businesses -- -- -- -- 33,708 34
Conversions of Series B
Preferred stock (1,690) (17) -- -- 1,401,516 1,402
Redemptions of Series B
Preferred stock (13,000) (130) -- -- -- --
Warrants issued to
placement agent under
advisory agreement -- -- -- -- -- --
Warrants issued to
placement agent pursuant to
Convertible Debt offering -- -- -- -- -- --
Amortization of beneficial
conversion of
Convertible Debt -- -- -- -- -- --
Conversion of Convertible
Debt into Series C
Preferred stock, net of costs -- -- 243,265 243 -- --
Compensatory stock options -- -- -- -- -- --
Dividends on preferred stock -- -- -- -- 29,278 29
Other -- -- -- -- -- --
Net loss -- -- -- -- -- --
------------- ------------- ------------- ------------- ------------- -------------
Balances, June 30, 2000 310 $ 3 243,265 $ 243 19,734,429 $ 19,734
============= ============= ============= ============= ============= =============
Additional Accumulated
paid-in capital deficit Total
------------- ------------- -------------
Balances, December 31, 1999 $ 101,477,438 $ (63,740,336) $ 37,755,579
Exercise of stock options
and warrants 426,581 -- 426,749
Treasury stock received
for sales of discontinued
businesses (1,929,598) -- (1,929,824)
Common stock issued
for acquired businesses 67,381 -- 67,415
Conversions of Series B
Preferred stock (1,385) -- --
Redemptions of Series B
Preferred stock (15,773,977) -- (15,774,107)
Warrants issued to
placement agent under
advisory agreement 1,300,000 -- 1,300,000
Warrants issued to
placement agent pursuant to
convertible debt offering 10,875,920 -- 10,875,920
Amortization of beneficial
conversion of
Convertible Debt 3,202,892 -- 3,202,892
Conversion of Convertible
Debt into Series C
Preferred stock, net of costs (358,719) -- (358,476)
Compensatory stock options 152,700 -- 152,700
Dividends on preferred stock (29) -- --
Other 22,192 -- 22,192
Net loss -- (16,197,292) (16,197,292)
------------- ------------- -------------
Balances, June 30, 2000 $ 99,461,396 $ (79,937,628) $ 19,543,748
============= ============= =============
See accompanying notes.
4
PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Six Months Ended June 30,
------------------------------
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss $(16,197,292) $ (8,080,405)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,866,297 6,795,784
Amortization of private placement related costs 3,991,903 --
Restructuring charges 1,425,000 --
Provision for doubtful accounts 257,806 86,937
Compensatory stock options and warrants issued 369,367 --
Payment for non-compete agreement (200,000) --
Net gain on sales of discontinued operations (511,130) --
Changes in net current assets of discontinued operations (734,577) 543,435
Changes in assets and liabilities, net of
effect of acquisitions and dispositions:
Accounts and other receivables (1,204,364) (1,294,003)
Inventory (952,186) 154,832
Prepaid expenses (243,696) (157,668)
Accounts payable and accrued expenses (247,657) 345,912
Deferred revenue 24,250 167,699
Other, net (33,049) (13,627)
------------ ------------
Net cash used in operating activities (7,389,328) (1,451,104)
------------ ------------
Cash flows from investing activities:
Capital expenditures (660,649) (404,863)
Capital expenditures of discontinued operations (230,072) (173,128)
Capitalized software (1,586,759) (196,319)
Acquisition of business, net of cash acquired -- (1,000,000)
Payments for acquisition-related costs (8,355) (450,529)
------------ ------------
Net cash used in investing activities (2,485,835) (2,224,839)
------------ ------------
Cash flows from financing activities:
Proceeds from sale of convertible debt securities 21,332,299 --
Proceeds from sale of common stock -- 2,940,000
Redemption of convertible preferred stock (15,721,808) --
Proceeds from exercise of stock options and warrants 426,749 149,839
Collections on notes receivable 1,136,706 --
Draw on line of credit 2,000,000 --
Repayment of line of credit (3,000,000) --
Payment of note payable, capital leases and long-term debt (403,174) (257,799)
------------ ------------
Net cash provided by financing activities 5,770,772 2,832,040
------------ ------------
Net decrease in cash (4,104,391) (843,903)
Cash and cash equivalents at beginning of period 11,487,938 4,626,649
------------ ------------
Cash and cash equivalents at end of period $ 7,383,547 $ 3,782,746
============ ============
See accompanying notes.
5
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 generally accepted accounting principles. However, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management, necessary
for a fair statement of results for the interim periods.
The results of operations for the three and six months ended June 30,
2000 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, 1999.
On March 31, 2000, ProxyMed sold its non-core network integration and
prescription drug dispensing segments. These two segments are shown as
discontinued operations and the consolidated financial statements and
related notes have been reclassified to segregate the net assets and
operating results of these segments (see Note 2). Certain prior period
amounts have been reclassified to conform to the current period
presentation.
(b) Revenue Recognition - Electronic transaction processing fee revenue is
recorded in the period the service is rendered. Revenue from sales of
software, software licenses, computer hardware and manufactured goods is
recognized when persuasive evidence of an arrangement exists, delivery
has occurred, the price is fixed or determinable and collectibility is
probable. The same criteria is applied to each element of multiple
element arrangements after allocating the amounts paid to individual
elements based on vendor-specific objective evidence of fair value.
Revenue from hardware leases, software rentals and maintenance fees is
recognized ratably over the applicable period.
(c) Net Loss Per Share - Basic loss per share of common stock is computed by
dividing net loss applicable to common shareholders by the weighted
average shares of common stock outstanding during the year. Diluted per
share results reflect the potential dilution from the exercise or
conversion of securities into common stock; however, stock options,
warrants and contingent shares totaling 26,881,240 shares and 3,209,227
shares at June 30, 2000 and 1999, respectively,
6
as well as common shares issuable on conversion of both Series B and
Series C preferred stock (24,667,506 shares, if converted on June 30,
2000) were excluded from the calculation of diluted per share results
because their effect was antidilutive.
(2) Discontinued Operations - In March 2000, ProxyMed sold its discontinued
network integration and prescription drug dispensing segments in separate
transactions. Proceeds from the sale of the network integration segment
were $3,398,000 and were paid with 208,913 shares of ProxyMed common
stock (valued at $1,776,000, the closing market price of the common stock
on the date of closing, and recorded as treasury stock) and a note
receivable of $1,622,000 due on July 31, 2000. The sale resulted in a
gain of $574,000. As of August 3, 2000, all amounts due under this note
receivable have been collected.
Proceeds from the sale of the prescription drug dispensing segment were
$255,000 and were paid with 17,000 shares of ProxyMed common stock
(valued at $154,000, the closing market price of the common stock on the
date of closing, and recorded as treasury stock) and a note receivable of
$101,000 payable in monthly installments over two years and bearing
interest at 9% per annum. The sale resulted in a loss of $63,000.
The following table represents the results of discontinued operations for
the six months ended June 30, 2000 and 1999:
2000 1999
----------- -----------
Net revenues:
Network integration $ 2,371,758 $ 6,071,503
Prescription drug dispensing 574,665 1,009,396
----------- -----------
$ 2,946,423 $ 7,080,899
=========== ===========
Net income (loss):
Network integration $ (327,767) $ (19,294)
Prescription drug dispensing 23,840 (75,801)
----------- -----------
$ (303,927) $ (95,095)
=========== ===========
(3) Redemption and Exchange Agreement
On December 23, 1999, the Company issued 15,000 shares of its Series B 6%
Convertible Preferred Stock, par value $.01 per share (the "Series B
Preferred") and warrants to purchase 800,000 shares (the "Old Warrants")
of its common stock, par value $.001 per share, in a private placement to
institutional investors.
7
Due to the decline in the price of the Company's common stock below $4.21
for a period of ten consecutive trading days in April and May 2000, certain
contractual provisions were triggered which would have permitted the
holders of the Series B Preferred shares to immediately convert the
preferred shares and exercise the Old Warrants into a potentially large
number of shares of common stock. As a result, on May 4, 2000, the Company
entered into a Redemption and Exchange Agreement (the "Redemption
Agreement") with the holders of 13,000 shares of the Series B Preferred
(the "Redemption Agreement Holders"). Under the terms of the Redemption
Agreement, the Company immediately redeemed 4,000 shares of the Series B
Preferred for $4,687,000 (a 16.5% premium) and was required to redeem an
additional 2,500 shares of the Series B Preferred on each of June 19, 2000,
August 1, 2000, and August 31, 2000, and an additional 1,500 shares of the
Series B Preferred on September 29, 2000. So long as the Company remained
in compliance with the terms of the Redemption Agreement, the Redemption
Agreement Holders were prohibited from converting their shares of Series B
Preferred into shares of common stock. As a result of the completion of a
private placement financing of convertible securities (see Note 4), the
Company was able to redeem the remaining 9,000 shares of the Series B
Preferred in June 2000 for $10,636,000. The total premium of $2,170,000
paid on the redemption of the 13,000 shares of Series B Preferred, in
addition to $728,000 of unamortized original issuance costs of the Series B
Preferred, have been recorded as dividend charges included in the net loss
applicable to common stockholders in the quarter ended June 30, 2000.
Also pursuant to the Redemption Agreement, 693,333 of the Old Warrants
(with an exercise price of $12.05 per share) issued to the Redemption
Agreement Holders were exchanged for an equal number of warrants (the
"Exchanged Warrants") with an exercise price of $1.50 per share. Such
holders also received, in the aggregate, 650,000 additional warrants to
purchase common stock (the "New Warrants") at an exercise price of $1.50
per share. The total value of the Exchanged Warrants and New Warrants of
approximately $1,325,000 has been included as dividend charges in the net
loss applicable to common stockholders for the quarter ended June 30, 2000.
The Exchanged Warrants expire on December 23, 2002 and the New Warrants
expire on May 5, 2003. The exercise price and number of shares of common
stock which may be purchased upon exercise of the Exchanged Warrants and
the New Warrants are subject to adjustment upon the occurrence of certain
dilution events including, without limitation, certain issuances of common
stock, stock options or convertible securities issued after November 2000,
or certain corporate transactions such as stock splits, mergers or asset
sales. Subject to certain restrictions, the holders of the Exchanged
Warrants and the New Warrants agreed not to exercise such warrants for a
period of 180 days following the date of the Redemption Agreement. The
Company incurred approximately $451,000 in costs for professional fees
related to the negotiation of the Redemption Agreement which have been
recorded as dividend charges included in the net loss applicable to common
stockholders in the quarter ended June 30, 2000.
8
Additionally, under the terms of the Redemption Agreement, the Company has
agreed to pay the Redemption Agreement Holders the aggregate amount of
$4,333,333 if there is a change of control of the Company on or before
December 23, 2002.
The Company has not entered into an agreement to redeem the shares of
Series B Preferred held by the holder of 2,000 shares of the Series B
Preferred (the "Remaining Holder"). To date, the Remaining Holder has
converted 1,890 shares of the Series B Preferred into an aggregate of
1,621,936 shares of common stock, and 110 shares of Series B Preferred
remain outstanding. In addition, as a result of certain anti-dilution
provisions, 106,667 Old Warrants issued to the Remaining Holder at an
exercise price of $12.05 have been converted into 1,285,337 warrants with
an exercise price of $1.00 per share.
(4) Issuance of Securities
On May 8, 2000, ProxyMed entered into a one-year advisory agreement with
Commonwealth Associates, L.P. ("Commonwealth") to assist the Company in
performing certain financial advisory services including the sale of
securities and the possible sale, merger, or other business combination
involving the Company. Pursuant to this agreement, the Company paid to
Commonwealth a cash fee of $250,000 and issued to Commonwealth a five-year
warrant to purchase 1,000,000 shares of common stock at an exercise price
of $1.00 per share (valued at $1,300,000). These costs are being amortized
over a one-year period through April 2001.
In June 2000, the Company sold, in a private placement to institutional and
individual investors (the "Financing"), a total of $24,310,000 of 7%
Convertible Senior Secured Notes (the "Notes") due January 1, 2001.
Together with the Notes, the Company issued five-year warrants for the
purchase of an aggregate of 12,155,000 shares of the Company's common stock
at an exercise price of $1.00 per share. The total net proceeds received by
the Company from the Financing was approximately $21,332,000. Under
different circumstances the Notes were convertible into either common stock
at a conversion price of $1.00 per share, or into shares of the Company's
Series C 7% Convertible Preferred Stock (the "Series C Preferred") at the
rate of one Series C Preferred share for each $100 of principal and accrued
interest under the Notes. As described below, all of the Notes have been
converted into shares of Series C Preferred. The conversion price of the
Series C Preferred, the warrant exercise price, and number of shares of
common stock issuable upon exercise of the warrants are subject to
adjustment upon the occurrence of certain dilution events including,
without limitation, certain issuances of common stock, stock options or
convertible securities issued after June 2001, or certain corporate
transactions such as stock splits, mergers or asset sales. As the
conversion price of the Notes was less than the market price of the
Company's common stock on the dates of issuance, the Company recorded a
beneficial conversion charge in interest expense of approximately
$3,203,000. The total proceeds were allocated between the debt and the
warrants resulting in an accretion charge through interest expense of
approximately $260,000.
9
The warrants issued to the investors in the Financing provided that they
were not exercisable until such time as the Company had obtained
shareholder approval of a certain increase in the number of shares of its
authorized common stock (see Note 7). However, since the investors agreed
to accept a $2.00 per warrant redemption price as protection in case
shareholder approval did not occur before January 1, 2001, the value of
these "put" warrants of $11,603,866 is classified as debt on the June 30,
2000 balance sheet but will be reclassified to equity as of July 7, 2000,
the date shareholder approval was obtained. This reclassification is shown
in the pro forma column of the balance sheet. A charge of approximately
$259,000 was recorded as interest expense associated with accreting the put
warrants up to their redemption value during the quarter ended June 30,
2000.
As a result of completion of the redemption of the Series B Preferred
pursuant to the Redemption Agreement, the Notes, plus accrued interest
thereon of $20,000, automatically converted into 243,265 shares of Series C
Preferred on June 30, 2000. Shares of Series C Preferred are immediately
convertible into common stock at any time by the holder at an initial
conversion price of $1.00 per share, subject to adjustment upon the
occurrence of certain dilution events including, without limitation,
certain issuances of common stock, stock options or convertible securities
issued after June 15, 2001, or certain corporate transactions such as stock
splits, mergers or asset sales. Shares of Series C Preferred are
mandatorily convertible if the Company raises more than $30 million in
gross proceeds from the issuance of securities in a private or public
placement or if the closing stock price of the Company is trading at $3.00
for 20 consecutive trading days. The Series C Preferred is entitled to
receive a 7% annual non-cumulative dividend, payable quarterly in cash or
shares of common stock at the Company's option. If paid in stock, the stock
is valued at $1.00 per share, subject to adjustment. Additionally, upon the
conversion of the Notes to Series C Preferred, the unamortized balance of
the beneficial conversion feature of $9,762,741 was taken as a charge
included in the net loss applicable to common stockholders in the quarter
ended June 30, 2000.
Commonwealth represented the Company as private placement agent in the
transaction for which it received cash fees of $2,431,000 and five-year
warrants to purchase 7,293,000 shares of the Company's common stock at an
exercise price of $1.00 per share (valued at $10,876,000). Other costs of
the transaction aggregated approximately $547,000.
Costs of $13,854,000 incurred in the Financing have been capitalized and
are being amortized through the original maturity date of the Notes. Of
this amount, $268,000 has been charged to interest expense. However, due to
the conversion of the Notes to Series C Preferred on June 30, 2000, the
unamortized financing costs of $13,585,000, and the unaccreted value of the
debt of $12,704,580, were reclassified to equity.
10
The Company is required to register with the Securities and Exchange
Commission the underlying common shares by December 16, 2000. The
investors in this transaction have agreed to a one-year lock-up on the
transfer or sale of any shares of common stock received upon conversion
of the Series C Preferred shares and exercise of the warrants issued.
Additionally, Commonwealth has agreed to a 15-month lockup on the sale or
transfer of the shares of common stock underlying the warrants issued in
connection with this financing and certain officers of the Company have
also agreed to a similar lockup on all common stock owned or acquired
during the 15-month period. At the discretion of Commonwealth, lockup
periods for all parties can be extended for a period of up to an
additional 12 months or may be terminated early. Furthermore, as part of
the financing, the size of ProxyMed's board of directors was required to
be increased including the appointment of four new members, two of which
were appointed by the investors and the other two by Commonwealth. On
July 20, 2000, one existing director resigned and five new directors were
appointed to serve with the remaining three directors.
(5) Restructuring Charge
In May 2000, the Company announced a reorganization plan aimed at
reducing costs and reallocating resources. As a result, the Company
reduced its workforce by approximately 70 employees, including the
resignation of its chief executive officer, president/chief operating
officer, chief financial officer, chief marketing officer and other
management positions. The Company recorded a charge of $1,425,000 in the
quarter ended June 30, 2000 primarily for separation payments and
marketing and telecommunication contracts that were canceled in
connection with the implementation of the reorganization plan. In
conjunction with this restructuring, the Company also paid $200,000 to
its former president/chief operating officer under the non-compete clause
of his employment contract. This payment has been recorded as a prepaid
expense and is being amortized over a one year period through May 2001.
11
(6) Supplemental Disclosure of Cash Flow Information
Six Months Ended June 30,
--------------------------
2000 1999
----------- -----------
Common stock issued for payment of preferred stock dividends $ 223,770 $ --
=========== ===========
Acquisition of business:
Common stock and warrants issued for business acquired $ -- $ 181,563
Other acquisition costs accrued -- 174,000
Details of acquisition:
Working capital components, other than cash -- (206,408)
Property and equipment -- (38,546)
Goodwill -- (999,549)
Other intangible assets -- (111,060)
----------- -----------
Net cash used in acquisition $ -- $(1,000,000)
=========== ===========
Disposition of businesses:
Common stock received $(1,929,823) $ --
Notes and other receivables received (1,723,125) --
Net gain recognized 511,130
Details of dispositions:
Working capital components, other than cash 1,940,081 --
Property and equipment 1,070,926 --
Goodwill 109,658 --
Other assets 21,153 --
----------- -----------
Net cash provided by dispositions $ -- $ --
=========== ===========
In April 2000, the Company acquired $406,872 of equipment through the execution
of a capital lease.
(7) Other
(a) Related Party Transaction - In April 1997, the Company made loans
totaling $350,000 to its chairman of the board and interim chief
executive officer. The funds were advanced pursuant to two demand
promissory notes in the principal amounts of $290,000 and $60,000,
respectively, each bearing interest at a rate of 7-3/4% per annum. In
June 2000, the Company amended the terms of these notes whereby interest
on the notes ceased to accrue subsequent to June 2000 and the loan plus
accrued interest, totaling $435,983 at June 30, 2000, would be payable in
a balloon payment in December 2001. Additionally, the loans are
collateralized with options to purchase 550,000 shares of common stock
granted to him under the Company's stock option plans.
Additionally, the Company has entered into a consulting agreement with
him which commences upon the appointment of a new chief executive
officer. Under the terms of this agreement, the chairman will provide
consulting services to the
12
Company for a period of one year and will receive consulting fees in an
amount equal to his current annual base salary in lieu of any separation
payments and other benefits he would have been entitled to receive under
his employment agreement.
(b) Debt payment - In April 2000, the Company paid the third and final debt
payment to the former owner of Clinical MicroSystems, Inc., which was
acquired by the Company in March 1997. The $750,000 payment was paid with
$375,000 in cash and 33,708 shares of common stock. The number of shares
of common stock issued was based on a price of $11.12 per share (as
determined by the purchase agreement). However, at the time of the actual
payment, the price of the stock had fallen to $2.00 per share. Therefore,
due to this drop in the stock price, the Company reduced the remaining
goodwill and other intangible assets related to this acquisition to zero
(total of $212,230) and recorded the excess as a reduction of
amortization expense ($95,356) in the three months ended June 30, 2000.
(c) Subsequent Event - At ProxyMed's annual meeting held on July 7, 2000, the
shareholders of the Company ratified and/or approved (i) the amendment of
the articles of incorporation to increase the number of authorized shares
of common stock from 50,000,000 to 100,000,000, (ii) the issuance of up
to 50,000,000 shares of common stock and securities convertible into or
exercisable for common stock in connection with the Financing; (iii) the
issuance of the 15,000 shares of Series B Preferred and related 800,000
Old Warrants, the issuance of common stock upon the conversion of the
Series B Preferred, exercise of the 800,000 Old Warrants, and the payment
of dividends of the Series B Preferred, the issuance of the 650,000 New
Warrants in connection with the Redemption Agreement, and the issuance of
common stock upon the exercise of the New Warrants issued in connection
with the Redemption Agreement; and (iv) the Company's 2000 Stock Option
Plan and 2000-1/2 Stock Option Plan pursuant to which options to purchase
300,000 and 3,000,000 shares of common stock may be issued, respectively.
The shareholders also elected four members to the Company's Board of
Directors.
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
ProxyMed is an eHealth company providing eSolutions to physicians and
business-to-business healthcare electronic commerce services to healthcare
information system suppliers such as pharmacies, commercial and hospital
laboratories, insurance companies, managed care organizations and nursing homes.
Our products and services are provided from our three operating facilities
located in Fort Lauderdale, Florida; Santa Ana, California; and New Albany,
Indiana.
In May 1999, we announced and commenced the development of
proxyMed.com, a secure and proprietary healthcare portal website aimed at
increasing the use of our services through the internet and in November 1999,
the first version of the website was introduced. In March 2000, Version 2.0 of
the portal was released with our first three transaction services: eligibility
verification, laboratory test results reporting, and drug formulary management.
When fully developed, proxyMed.com will offer a secure, single access point
through the internet for connectivity needs of physicians and other healthcare
providers to facilitate healthcare eCommerce services.
In March 2000, we sold our non-core network integration and
prescription drug dispensing segments. These two segments are shown as
discontinued operations in the consolidated financial statements.
In May 2000, a number of factors, including a weak Nasdaq stock market,
particularly in the eHealth segment, and sales into the market of a significant
number of shares of our common stock resulting from margin calls against our
largest shareholder, contributed to the decline in the price of our common stock
below $4.21 for a period of ten consecutive trading days in April and May 2000.
Certain contractual provisions were triggered which would have permitted our
Series B Preferred shareholders to convert their preferred shares and exercise
their warrants into a significant number of shares of common stock. As a result,
we entered into a Redemption and Exchange Agreement with holders of 13,000 of
the 15,000 shares of the Series B Preferred stock. In order for us to comply
with the terms of the Redemption and Exchange Agreement and continue to fund our
operating requirements, we were required to raise additional capital, and in
June 2000, we sold, in a private placement to institutional and individual
investors, a total of $24,310,000 of convertible debt securities and issued
five-year warrants for the purchase of an aggregate of 20,448,000 shares of the
Company's common stock at an exercise price of $1.00 per share to the investors
and the placement agent, resulting in net proceeds to us of approximately
$21,332,000. On June 30, 2000, upon completion of the redemption of the 13,000
Series B Preferred, the convertible debt automatically converted into Series C
Preferred shares. See Notes 3 and 4 to the consolidated financial statements for
further details concerning these transactions.
14
Additionally, in May 2000, in an effort to reduce our operating costs,
we announced a reorganization aimed at reducing costs and reallocating
resources. As a result, we reduced our workforce, including the resignation of
our chief executive officer, president/chief operating officer, chief financial
officer, chief marketing officer, and other management positions.
Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Net Revenues. Consolidated net revenues for the three months ended June
30, 2000 increased by $251,163, or 3%, to $8,016,853 from consolidated net
revenues of $7,765,690 for the three months ended June 30, 1999. This net
increase is primarily due to volume increases in our laboratory communication
device operations and eHealth operations (increases of $924,000 and $142,000,
respectively) offset by volume decreases in financial claims transactions
processed (decrease of $390,000) and a one-time source code license sale in the
1999 period (decrease of $425,000).
Cost of Sales and Gross Profit Margin. Cost of services and license
fees include third-party electronic transaction processing costs, certain
telecommunication costs, third-party databases, and certain labor and travel
costs. Cost of sales for communication devices, computer systems and other
tangible goods includes hardware, third-party software, direct labor and
consumable materials. Consolidated gross profit margin for the three months
ended June 30, 2000 was 66% compared to 73% for the three months ended June 30,
1999. This decrease was primarily due to a change in the mix of revenues
generated by our laboratory communication device operations from higher margin
leasing of communication devices to lower margin sales and servicing of these
devices and contract manufacturing.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the three months ended June 30, 2000
increased by $439,129, or 7%, to $7,101,002 from consolidated SG&A expenses of
$6,661,873 for the three months ended June 30, 1999. This increase is primarily
due to (i) increases in selling and marketing expenses for our current products
and proxyMed.com ($340,000), (ii) expense related to the issuance of
compensatory options and warrants to outside consultants in the 2000 period
($359,000) offset by (iii) a decrease in net payroll, outside labor and related
expenses (net of capitalization for software development) due to higher amounts
capitalized in the 2000 period primarily for proxyMed.com ($227,000). As a
result of these factors and the establishment of a recurring revenue base,
consolidated SG&A expenses as a percentage of consolidated net sales was 89% in
the 2000 period compared to 86% in the 1999 period. Alternatively, as a result
of our restructuring in May 2000, future consolidated SG&A expenses are expected
to be reduced from current levels.
15
Restructuring Charges. In May 2000, we announced a reorganization plan
aimed at reducing costs and reallocating resources. As a result, we reduced our
workforce by approximately 70 employees, including the resignation of our chief
executive officer, president/chief operating officer, chief financial officer,
chief marketing officer, and other management positions. For this plan, we
recorded a charge of $1,425,000 in the three months ended June 30, 2000
primarily for separation payments and marketing and termination fees due under
telecommunication contracts that were canceled. We estimate that our annual
expenses will be reduced by approximately $8.0 million under this plan.
Interest, net. We incurred net interest expense for the three months
ended June 30, 2000 of $4,005,609, whereas we earned net interest income for the
three months ended June 30, 1999 of $16,311. The current period amount reflects
charges related to the amortization of costs from our private placement of
convertible debt securities completed in June 2000 including approximately
$3,203,000 for a beneficial conversion charge resulting from the conversion
price of the convertible debt being less than the market price of our stock on
the dates of issuance.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $10,475,200 for the three months ended June 30,
2000 compared to $4,181,221 for the three months ended June 30, 1999.
Deemed Dividends and Other Charges. As a result of the Redemption and
Exchange Agreement entered into in May 2000 with the holders of 13,000 of the
15,000 Series B Preferred stock issued in December 1999 and the private
placement of convertible debt securities in June 2000, we incurred total charges
of $14,412,079 in the three months ended June 30, 2000 consisting of the
following: (i) the unamortized beneficial conversion feature of the debt upon
the conversion to the new Series C Preferred stock ($9,763,000), (ii) the
premiums paid on the redemption of the Series B Preferred shares ($2,898,000),
(iii) the repricing of existing warrants ($610,000), (iv) the issuance of new
warrants ($715,000), and (v) professional and other fees ($451,000).
Net Loss Applicable to Common Shareholders. As a result of the
foregoing, we recorded a net loss applicable to common shareholders of
$24,887,279 for the three months ended June 30, 2000 compared to $4,389,998 for
the three months ended June 30, 1999.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Net Revenues. Consolidated net revenues for the six months ended June
30, 2000 increased by $371,054, or 2%, to $15,661,803 from consolidated net
revenues of $15,290,749 for the six months ended June 30, 1999. This net
increase is primarily due to volume increases in our laboratory communication
device operations and eHealth operations (increases of $1,007,000 and $285,000,
respectively) offset by volume decreases in financial claims transactions
processed (decrease of $496,000) and a one-time source code license sale in the
1999 period (decrease of $425,000).
16
Cost of Sales and Gross Profit Margin. Cost of services and license
fees includes third-party electronic transaction processing costs, certain
telecommunication costs, third-party databases, and certain labor and travel
costs. Cost of sales for communication devices, computer systems and other
tangible goods includes hardware, third-party software, direct labor and
consumable materials. Consolidated gross profit margin for the six months ended
June 30, 2000 was 65% compared to 73% for the six months ended June 30, 1999.
This decrease was primarily due to a change in the mix of revenues generated by
our laboratory communication device operations from higher margin leasing of
communication devices to lower margin sales and servicing of these devices and
contract manufacturing.
Selling, General and Administrative Expenses. Consolidated selling,
general and administrative expenses for the six months ended June 30, 2000
increased by $2,021,710, or 16%, to $14,740,387 from consolidated SG&A expenses
of $12,718,677 for the six months ended June 30, 1999. This increase is
primarily due to (i) increases in payroll, outside labor and related expenses
(net of capitalization for software development) for additional sales
representatives, field implementation and senior management positions
($637,000), (ii) increases in selling and marketing expenses for our current
products and proxyMed.com ($687,000), (iii) expense related to the issuance of
compensatory options and warrants to outside consultants in the 2000 period
($359,000), and (iv) increases in professional fees for legal and consulting
projects ($201,000). As a result of these factors, consolidated SG&A expenses as
a percentage of consolidated net sales increased to 94% in the 2000 period from
83% in the 1999 period. As a result of our restructuring plan we implemented in
May 2000, future consolidated SG&A expenses are expected to be reduced from
current levels.
Restructuring Charges. In May 2000, we announced a reorganization plan
aimed at reducing costs and reallocating resources. As a result, we reduced our
workforce by approximately 70 employees, including the resignation of our chief
executive officer, president/chief operating officer, chief financial officer,
chief marketing officer, and other management positions. For this plan, we
recorded a charge of $1,425,000 in the six months ended June 30, 2000 primarily
for severance payments and marketing and termination fees due under
telecommunication contracts that were canceled. We estimate that our annual
expenses will be reduced by approximately $8.0 million under this plan.
Depreciation and Amortization. Consolidated depreciation and
amortization expense increased $137,147, or 2%, to $6,535,623 for the six months
ended June 30, 2000 from $6,398,476 for the six months ended June 30, 1999. This
net increase was primarily due to additional computer hardware and peripherals
purchased for our computer networks and additional personnel and new
manufacturing equipment at our laboratory printer device operations ($208,000)
offset by an adjustment to amortization expense related to the final debt
payment paid in April 2000 for the acquisition of Clinical MicroSystems, which
we acquired in March 1997 ($95,000).
Interest, net. We incurred net interest expense for the six months
ended June 30, 2000 of $3,912,378, whereas we earned net interest income for the
six months ended June
17
30, 1999 of $35,091. The current period amount reflects charges related to the
amortization of costs from our private placement of convertible debt securities
completed in June 2000 including approximately $3,203,000 for a beneficial
conversion charge resulting from the conversion price of the convertible debt
being less than the market price of our common stock on the dates of issuance.
Loss from Continuing Operations. As a result of the foregoing, the loss
from continuing operations was $16,404,495 for the six months ended June 30,
2000 compared to a loss from continuing operations of $7,985,309 for the six
months ended June 30, 1999.
Discontinued Operations. As a result of selling both the network
integration and prescription drug dispensing segments in the first quarter of
2000 for total proceeds of $3,652,942, we recorded a net gain of $511,130. The
loss from the operations of our discontinued network integration and
prescription drug dispensing segments was $303,927 in the six months ended June
30, 2000 compared to $95,095 in the six months ended June 30, 1999.
Revenues from the network integration segment were $2,371,758 in the
six months ended June 30, 2000 compared to $6,071,503 in the six months ended
June 30, 1999. The net loss for this segment was $327,767 in the 2000 period
compared to $19,294 in the 1999 period.
Revenues from the prescription drug dispensing segment were $574,665
for the six months ended June 30, 2000 compared to $1,009,396 for in the six
months ended June 30, 1999. Net income for this segment was $23,840 in the 2000
period compared to a net loss of $75,801 in the 1999 period.
Deemed Dividends and Other Charges. As a result of the Redemption and
Exchange Agreement entered into in May 2000 with the holders of 13,000 of the
15,000 Series B Preferred stock issued in December 1999 and the private
placement of convertible debt securities in June 2000, we incurred total charges
of $14,412,079 in the six months ended June 30, 2000 consisting of the
following: (i) the unamortized beneficial conversion feature of the debt upon
the conversion to the new Series C Preferred stock ($9,763,000), (ii) the
premiums paid on the redemption of the Series B Preferred shares ($2,898,000),
(iii) the repricing of existing warrants ($610,000), (iv) the issuance of new
warrants ($715,000), and (v) professional and other fees ($451,000).
Additionally, as required pursuant to the terms of the Series B Preferred stock,
we paid dividends of $223,770 to the holders of the Series B Preferred by
issuing 29,278 shares of our common stock in the six months ended June 30, 2000.
Net Loss Applicable to Common Shareholders. As a result of the
foregoing, we recorded a net loss applicable to common shareholders of
$30,833,141 for the six months ended June 30, 2000 compared to $8,080,405 for
the six months ended June 30, 1999.
18
Liquidity and Capital Resources
In the six month period ended June 30, 2000, cash used in operating
activities totaled $7,389,328. This was primarily due to our net loss partially
offset by depreciation and amortization charges, restructuring charges, and
non-cash charges related to the redemption of the Series B Preferred stock and
the private placement sale of convertible securities in June 2000. During the
six month period ended June 30, 2000, we paid approximately $3,324,000 to redeem
13,000 shares of Series B Preferred stock under the Redemption and Exchange
Agreement, paid in full our outstanding line of credit with Transamerica of
$3,000,000, spent $2,477,000 for fixed assets and capitalized software
development costs, and issued 29,278 shares of common stock to holders of Series
B Preferred stock as dividends. These activities were financed through the
private placement of $24,310,000 in convertible securities (resulting in net
proceeds to us of $21,232,000), the collection of notes receivables from our
sale of discontinued operations ($1,137,000), proceeds from the exercise of
stock options ($426,749), capital lease financing ($407,000), and available cash
resources. After these proceeds and expenditures, we had cash and cash
equivalents totaling $7,383,547 as of June 30, 2000.
These available funds continue to be used for operations, the further
development of our products and services (including proxyMed.com, our healthcare
internet portal), and other general corporate purposes. As a result of the
completed sales of our network integration and prescription drug dispensing
segments in March 2000, we received payments of approximately $1,137,000 through
June 30, 2000 under the notes issued to us by the purchasers of these
businesses. Additionally, as a result of acquisitions made in 1997 and 1998, we
paid (i) approximately $330,000 in April 2000 for the final assessment of a tax
audit at Key Communications; (ii) $750,000 in April 2000 to the former owner of
Clinical MicroSystems with $375,000 in cash and 33,708 shares of common stock;
and (iii) $500,000 in June 2000 to the former owner of the PreScribe(R) network.
In addition, we are continuously evaluating acquisition opportunities and other
strategic alternatives that may add synergies to our product offerings and
business strategy.
Through May 2000, we had been aggressively implementing our new
strategic plan which concentrates on empowering physicians with internet-enabled
tools and solutions in three critical areas: (i) development and launch of
proxyMed.com, (ii) adding physician-users to our desktop software, and (iii)
enhancing our suppliers network to deliver additional physician customers and
new physician services. As we continue to execute our plan, in May 2000, we
announced a reorganization plan aimed at reducing costs and reallocating
resources. As a result, we reduced our workforce by approximately 70 employees,
including the resignation of our chief executive officer, president/chief
operating officer, chief financial officer, chief marketing officer, and other
management positions as well as sales, marketing, and implementation staff. We
estimate that our annual expenses will be reduced by approximately $8.0 million
under this plan. Our sales approach is now direct and market specific as we
continue to penetrate our target markets. We continue to expect that there will
be opportunities to increase revenues by cross-selling products and services to
our current customers
19
utilizing only selected services, as well as revenue opportunities from the
development of new services from our product development efforts, including
proxyMed.com. We remain committed to delivering additional capabilities to
proxyMed.com and, as a result, did not significantly reduce our development
workforce.
In June 2000, we paid in full our accounts receivable-based revolving
line of credit which had an outstanding balance of $3,000,000. The creditor did
not renew this line of credit and we have not entered into any other line of
credit arrangement at this time. We have not yet determined if we will pursue
another similar arrangement; however, if we are successful in securing such an
arrangement, the terms may differ significantly from our prior arrangement.
At the current time, we do not have any material commitments for
capital expenditures.
We expect to continue to incur negative net cash flow from operations
until we begin achieving higher levels of revenues. Management is committed to
the strategy of investing funds in further development of our products and
services, especially for proxyMed.com, which will integrate our existing desktop
products into a single internet-based solution and where we believe we have the
greatest opportunity for long-term revenue growth. We may also pursue additional
acquisitions that are deemed to be in accordance with our business strategy.
While we believe that we have sufficient cash and cash equivalents on hand to
fund our future operational capital requirements based on our current level of
revenues and expenditures, we may need to raise funds through the issuance of
additional equity or debt in the public or private capital markets in order to
fund specific research and development projects or pursue additional strategic
acquisitions. Our ability to raise any additional funds may be adversely
affected if, among other things, we do not continue to improve our operating
performance or achieve increased market acceptance of our products and services.
There can be no assurance that any additional funding will be available to us,
or if available, that it will be available on acceptable terms. If we are
successful in obtaining additional financing, the terms of the financing may
have the effect of significantly diluting or adversely affecting the holdings or
the rights of the holders of our common stock. We believe that if we are not
successful in obtaining additional financing for further product development or
strategic acquisitions, such inability could impact our ability to successfully
advance our business plan and may put us at a competitive disadvantage.
20
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
This document contains forward-looking statements that reflect the
Company's current expectations regarding future events, including, without
limitation, statements regarding the level of expenses expected to be incurred
by the Company in the future, the Company's ability to fund its future capital
requirements, and opportunities for increasing revenues. While these statements
reflect the Company's best current judgment, they are subject to risks and
uncertainties that could cause such statements to prove to be incorrect and
cause actual results to differ significantly from projected results, including,
without limitation, risks and uncertainties relating to: ProxyMed's ability to
improve its operating performance, increase revenues and maintain its expenses
within estimated ranges; ProxyMed's ability to achieve increased market
acceptance of its products and services; ProxyMed's ability to secure additional
funding sources, if needed; and the validity of ProxyMed's assumptions, beliefs
and opinions relating to ProxyMed's growth strategy based upon ProxyMed's
interpretation and analysis of healthcare industry trends and management's
ability to successfully develop, market, sell and implement its e-commerce
solutions, clinical and financial e-transaction services and software
applications and internet strategies to physicians, pharmacies, laboratories,
and payers. These factors and other risk factors are more fully discussed in the
Company's filings with the Securities and Exchange Commission. ProxyMed
expressly disclaims any intent or obligation to update any forward-looking
statements.
Item 3. Qualitative and Quantitative Disclosure about Market Risk
- Not applicable
21
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) On May 4, 2000, the Company issued warrants to purchase 693,333
shares of its common stock, at an exercise price of $1.50 per
share (the "Exchange Warrants"), to the holders of 13,000 shares
of the Company's Series B 6% Convertible Preferred stock (the
"Series B Preferred"). The Exchange Warrants were issued in
exchange for an equal number of warrants previously issued to the
holders of the Series B Preferred. The Exchange Warrants were
issued in reliance upon the exemption from registration provided
in Section 3(a)(9) of the Securities Act of 1933, as amended (the
"Securities Act").
On May 4, 2000, the Company issued warrants to purchase 650,000
shares of its common stock at an exercise price of $1.50 per share
(the "New Warrants") to the holders of the Series B Preferred. The
New Warrants were issued in reliance upon the exemption from
registration provided by Rule 506 of Regulation D promulgated
under the Securities Act.
The exercise price and the number of shares of common stock
issuable upon exercise of the Old Warrants and the New Warrants
are subject to adjustment upon the happening of certain dilution
events.
(b) On May 8 2000, the Company issued a warrant to purchase 1,000,000
shares of its Common Stock, at an exercise price of $1.00 per
share, to Commonwealth Associates, L.P., ("Commonwealth") as
partial compensation for financial advisory services provided by
Commonwealth to the Company. This warrant was issued in reliance
upon the exemption from registration provided under Section 4(2)
of the Securities Act.
The exercise price and the number of shares issuable upon exercise
of this warrant are subject to adjustment upon the happening of
certain dilution events.
(c) On June 16 and 29, 2000, the Company sold a total of $24,310,000
of 7% Convertible Senior Secured Notes to institutional and
individual investors in a private placement transaction (the
"Notes"). As part of this transaction, the Company also issued to
the investors five-year warrants to purchase an aggregate of
12,155,000 shares of the Company's common stock at an exercise
price of $1.00 per share (the "Investor Warrants"). The Company
received net proceeds of approximately $21,332,000 from this
transaction. Pursuant to their terms, the Notes were convertible
into either shares of the Company's Series C 7% Convertible
Preferred stock (the "Series C Preferred") or shares of common
stock. As a result of the
22
Company's completion of the redemption of 13,000 shares of its
Series B Preferred stock pursuant to the Redemption Agreement (as
further described in Note 3 to the financial statements included
in this report), the entire principal and accrued interest balance
on the Notes was automatically converted into 243,265 shares of
Series C Preferred at a conversion rate of one share of Series C
Preferred for each $100 of principal and accrued interest under
the Notes. The Series C Preferred is convertible into common stock
at a conversion price of $1.00 per share. Commonwealth Associates
represented the Company as private placement agent in this
transaction and as part of its compensation the Company issued to
Commonwealth a five-year warrant to purchase an aggregate of
7,293,000 shares of common stock at an exercise price of $1.00 per
share (the "Commonwealth Warrant").
The Notes, Investor Warrants and Series C Preferred were issued in
reliance upon the exemption from registration provided by Rule 506
of Regulation D. The Commonwealth Warrant was issued in reliance
upon the exemption from registration provided under Section 4(2)
of the Securities Act.
The exercise price and the number of shares issuable upon exercise
of the Investor Warrants and the Commonwealth Warrants and the
conversion price of the Series C Preferred are subject to
adjustment upon the happening of certain dilution events.
Item 4. Submission of Matters to a Vote of Security Holders
Subsequent to the quarter ending June 30, 2000, at the Company's annual
meeting held on July 7, 2000, the shareholders approved the following
resolutions:
- Election of Directors. The following persons were elected to serve on
the Board of Directors until the next annual meeting of the shareholders or
until the election and qualification of their respective successors: Harold S.
Blue, Bertram J. Polan, Peter A. A. Saunders and Eugene R. Terry. The total
number of votes cast for directors was 16,906,140, and each director received
15,303,068 votes in favor and 1,603,072 votes withheld (including broker
non-votes). On July 20, 2000, Mr. Saunders resigned his position from the board
and five additional new board members were appointed to serve with the existing
three directors.
- Series B Preferred Stock. The shareholders ratified and approved: the
issuance and sale of 15,000 shares of Series B Convertible Preferred stock; the
issuance of warrants to purchase 800,000 shares of common stock to the holders
of the Series B Convertible Preferred stock; the issuance of common stock upon
conversion of the Series B Convertible Preferred stock, upon exercise of the
warrants and the payment of dividend on the Series B Preferred stock; the
issuance of warrants to purchase 650,000 shares of common stock to the holders
of 13,000 shares of the Series B Convertible Preferred stock pursuant to the
Redemption and Exchange Agreement and the issuance of warrants to purchase
693,333 shares of common stock issued to such shareholders in exchange for
warrants previously issued to them; and the issuance of common stock upon
exercise of the warrants issued to the holders of 13,000 shares of Series B
Convertible Preferred stock. Of these votes, 7,483,574 were in favor, 286,212
were against and 30,537 abstained.
23
- Ratification and approval of the issuances of up to 50,000,000 shares
of common stock and securities convertibles into or exercisable for common
stock. The total number of votes cast for this proposal, which approves the
issuance of up to 50,000,000 shares of common stock and issuance of debt or
equity securities convertible into common stock in connection with the financing
was 7,800,413. Of these votes, 7,483,395 were in favor, 384,931 were against and
22,087 abstained.
- Adoption of the amendment of the Company's restated Articles of
Incorporation to increase the number of authorized shares of common stock from
50,000,000 to 100,00,000. The total number of votes cast for this proposal,
which approves an additional 50,000,000 authorized shares of Common Stock, par
value $.001, was 7,970,096. Of these votes, 7,416,943 were in favor, 346,026
were against and 207,127 abstained.
- Adoption of the 2000 Stock Option Plan. The total number of votes
cast for this proposal, which provides for the issuance of up to 300,000 shares
of common stock upon the exercise of options by our employees, officers and
directors effective August 11, 1999, was 7,800,263. Of these votes, 5,561,229
were in favor, 746,906 were against and 1,492,128 abstained.
- Adoption of the Proposed 2000-1/2 Stock Option Plan. The total number
of votes cast for this proposal, which provides for the issuance of up to
3,000,000 shares of common stock upon the exercise of options by our employees,
officers, directors and consultants effective July 7, 2000, was 7,800,263. Of
these votes, 5,510,765 were in favor, 815,294 were against and 1,474,204
abstained.
24
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits:
3.4 - Articles of Amendment to Articles of Incorporation of
ProxyMed dated as of June 15, 2000.
10.27 - Placement Agency Agreement dated June 7, 2000 between
ProxyMed and Commonwealth Associates, L.P.
10.28 - Warrant No. 00-09 - Warrant Agreement for Common
Stock of ProxyMed dated as of June 15, 2000 in favor
of Commonwealth Associates, L.P. or its permitted
assigns.
10.29 - Warrant No. 00-21 - Warrant Agreement for Common
Stock of ProxyMed dated as of June 15, 2000 in favor
of Commonwealth Associates, L.P. or its permitted
assigns.
10.30 - Subscription Agreement dated as of June 28, 2000
among ProxyMed and the subscribers listed in that
agreement for the purchase of 7% Convertible Senior
Secured Notes due January 1, 2001 and Warrants to
Purchase Shares of Common Stock.
10.31 - Amended and Restated General Security Agreement dated
as of June 28, 2000 among ProxyMed, Key
Communications Service, Inc., WPJ, Inc. d/b/a
Integrated Medical Systems and Commonwealth
Associates, L.P., in its capacity as agent for the
Purchasers described in the agreement.
10.32 - Amended and Restated Intellectual Property Security
Agreement dated as of June 28, 2000 in favor of
Commonwealth Associates, L.P., in its capacity as
agent for the Purchasers described in the agreement.
10.33 - Form of Warrant Agreement for Common Stock of
ProxyMed for Warrants issued under the Subscription
Agreement contained in Exhibit 10.30.
10.34 - Form of 7% Convertible Senior Secured Promissory Note
Due January 1, 2001.
27 - Financial Data Schedule.
25
99.1 - Press Release dated July 20, 2000 announcing five new
board members.
(b) Reports on Form 8-K:
- May 8, 2000 - Report on Redemption and Exchange
Agreement reached with ProxyMed's Series B Preferred
Stockholders.
- May 9, 2000 - Report on engagement of investment bank
to assist ProxyMed in a capital raising transaction
and serve as exclusive financial advisor.
- May 19, 2000 - Report on announcement of
reorganization aimed at reducing costs and
reallocation resources.
- June 16, 2000 - Report on completion of $6 million
private placement financing to satisfy ProxyMed's
obligation under the Redemption and Exchange
Agreement with its Series B Preferred stockholders.
26
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)
Dated: August 30, 2000 BY: /s/ Judson E. Schmid
-----------------------------
Judson E. Schmid, Vice President
- Corporate Finance, Interim
Chief Financial Officer and
Principal Accounting Officer
27
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.4 Articles of Amendment to Articles of Incorporation of ProxyMed
dated as of June 15, 2000.
10.27 Placement Agency Agreement dated June 7, 2000 between ProxyMed
and Commonwealth Associates, L.P.
10.28 Warrant No. 00-09 - Warrant Agreement for Common Stock of
ProxyMed dated as of June 15, 2000 in favor of Commonwealth
Associates, L.P. or its permitted assigns.
10.29 Warrant No. 00-21 - Warrant Agreement for Common Stock of
ProxyMed dated as of June 15, 2000 in favor of Commonwealth
Associates, L.P. or its permitted assigns.
10.30 Subscription Agreement dated as of June 28, 2000 among ProxyMed
and the subscribers listed in that agreement for the purchase of
7% Convertible Senior Secured Notes due January 1, 2001 and
Warrants to Purchase Shares of Common Stock.
10.31 Amended and Restated General Security Agreement dated as of June
28, 2000 among ProxyMed, Key Communications Service, Inc., WPJ,
Inc. d/b/a Integrated Medical Systems and Commonwealth
Associates, L.P., in its capacity as agent for the Purchasers
described in the agreement.
10.32 Amended and Restated Intellectual Property Security Agreement
dated as of June 28, 2000 in favor of Commonwealth Associates,
L.P., in its capacity as agent for the Purchasers described in
the agreement.
10.33 Form of Warrant Agreement for Common Stock of ProxyMed for
Warrants issued under the Subscription Agreement contained in
Exhibit 10.30.
10.34 Form of 7% Convertible Senior Secured Promissory Note Due January
1, 2001.
27 Financial Data Schedule.
28
99.1 Press Release dated July 20, 2000 announcing five new board
members.
29