TABLE OF CONTENTS

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PART 1 — FINANCIAL INFORMATION

     ITEM 1 — FINANCIAL STATEMENTS

PROXYMED, INC. AND SUBSIDIARIES

The accompanying notes are an integral part of the consolidated financial statements.

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PROXYMED, INC. AND SUBSIDIARIES

The accompanying notes are an integral part of the consolidated financial statements.

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PROXYMED, INC. AND SUBSIDIARIES

The accompanying notes are an integral part of the consolidated financial statements.

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PROXYMED, INC. AND SUBSIDIARIES

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

     (5) Goodwill and Other Intangible Assets

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

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PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (unaudited), Continued

(10) Settlement of Liability

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

     Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided as a supplement to our consolidated financial statements on this Form 10-Q and notes thereto and those included in Part IV starting on Page F-7 of our Form 10-K for the year ended December 31, 2003 and to provide an understanding of our results of operations, financial condition, and changes in financial condition. Our MD&A is organized as follows:

Introduction

     We believe we are the nation’s second largest provider-based electronic healthcare transaction services company. We provide connectivity services and related value-added products to physicians, payers, pharmacies, medical laboratories, and other healthcare providers and suppliers. Our services support a broad range of financial, clinical and administrative transactions, and are HIPAA-certified through Claredi, an independent certification and testing services company specializing in HIPAA compliance. To facilitate these services, we operate PhoenixTM, our secure national electronic information platform, which provides physicians and

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other healthcare providers with direct connectivity to one of the industry’s largest list of payers, the industry’s largest list of chain and independent pharmacies and the largest list of clinical laboratories. Our corporate headquarters is located in Atlanta, Georgia, and our products and services are provided from various operational facilities located throughout the United States. We also operate our clinical computer network and portions of our financial and real-time production computer networks from a secure, third-party co-location site located in Atlanta, Georgia. All of our revenues are generated domestically.

     Our primary strategy is focused on leveraging our leading position as an independent back-end connectivity provider to small physician offices. Through strategic relationships and partnerships with front-end solution providers, our goal is to drive more healthcare transactions through PhoenixTM while remaining neutral in the battle for the physician’s desktop. Additionally, we expect that there will be opportunities to increase revenues by cross-selling our existing products and services to our current customer base of physicians and other healthcare providers, as well as revenue opportunities from the development of new services from our development efforts, including Internet-based transaction services. We remain committed to developing additional capabilities and value-added products and services, and to expanding our back-end connectivity network. In conjunction with this philosophy, we have recently introduced ProxyMed.net, our new web portal for providers, and "PhoenixTM”, our new transaction processing platform which has been HIPAA-certified through Claredi. We have also added new services offerings for our payer customers through our acquisition of PlanVista Corporation (“PlanVista”) on March 2, 2004 for claims re-pricing services and First Data Corporation for a jointly marketed suite of services being offered under the brand name “FirstProxy.”

Acquisitions

     On December 31, 2002, we acquired all of the outstanding stock of MedUnite, Inc. (“MedUnite”) for $10 million in cash and an aggregate of $13.4 million principal amount of 4% convertible promissory notes. In addition, we paid approximately $6.7 million in transaction and exit related costs (which were originally estimated at $8.3 million). Interest on the convertible notes is payable in cash on a quarterly basis. The convertible promissory notes (now currently payable at a maturity value of $13.1 million after a claim setoff against the escrow in December 2003) are payable in full on December 31, 2008, and are convertible into an aggregate of 716,968 shares (originally 731,322 shares before the claim setoff) of our common stock if the former shareholders of MedUnite achieve certain revenue-based triggers over the next three and one-half year period. The shares of our common stock issuable upon conversion of the convertible notes were to be registered by us promptly after a conversion trigger event is met. The first threshold trigger was reached during the fourth quarter of 2003 and the convertible notes were reduced to $13.1 million at December 31, 2003 as a result of a claim against the escrow and we have filed a registration statement for these shares on Form S-3 which has not yet gone effective as of the date of this report. The operations of MedUnite are reflected with our operations for the twelve months ended December 31, 2003. Additionally, we spent much of the 2003 year integrating the operations of MedUnite into our existing operations, and currently the organizations are run and managed as one operating unit. As a result, meaningful separate results and statistics for MedUnite are no longer available.

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     On March 2, 2004, we acquired PlanVista Corporation (“PlanVista”, a company that provides medical cost containment and business process outsourcing solutions for the medical insurance and managed care industries, as well as services for health care providers, including individual providers, preferred provider organizations and other provider groups) for 3,600,000 shares of our common stock issued to PlanVista shareholders valued at $68.4 million (based on the closing price of our common stock on March 2, 2004). We also assumed debt and other liabilities of PlanVista, and paid approximately $1.3 million in acquisition-related costs. Additionally, we raised $24.1 million in a private placement sale of our common stock to General Atlantic Partners, Commonwealth Associates and other parties to partially fund repayment of certain of PlanVista’s debts and other obligations outstanding at the time of the acquisition. The merger enables us to offer a new suite of products and services, provide new end-to-end services, increase sales opportunities with payers, strengthen business ties with certain customers, expand technological capabilities, reduce operating costs and enhance our public profile.

     Upon completion of the acquisition, each share of PlanVista’s outstanding common stock was cancelled and converted into the right to receive 0.08271 shares of our common stock and each holder of PlanVista series C preferred stock received 51.5292 shares of our common stock in exchange for each share of PlanVista series C preferred stock, representing approximately 23% of our common stock on a fully converted basis, and the holders of our outstanding stock, options and warrants retained approximately 77% of ProxyMed following the transaction. PlanVista’s operations are included in our Transaction Services segment commencing March 2004.

     In connection with this acquisition, our shareholders approved (1) an amendment to our articles of incorporation to increase the total number of authorized shares of the Company’s common stock from 13,333,333⅓ shares to 30,000,000 shares, (2) the issuance of 1,691,229 shares of our common stock at $14.25 per share in a private equity offering valued at $24.1 million (to retire a portion of debt of PlanVista and pay certain expenses associated with the merger), (3) the issuance of 3,600,000 shares of our common stock in connection with the merger, and (4) an amendment to our 2002 Stock Option Plan to increase the total number of shares available for issuance from 600,000 to 1,350,000.

Sale of Assets

     On June 30, 2004, we sold certain assets and liabilities of our Laboratory Communications Solutions segment that were used in our non-core contract manufacturing business to a new entity owned by a former executive of ProxyMed for $4.5 million in cash. Under terms of the sale agreement, we received $3.5 million in cash at closing and received the balance of $1.0 million in cash in July and August 2004 following the presentation of the final accounting. As part of the disposition, we have agreed to purchase certain component parts from the new owner for use in our Laboratory Communication Solutions business on a non-exclusive basis at a fixed price deemed to be at fair market value by management. Additionally, we have agreed to sublease a portion of our current facilities through April 2005 and provide certain administrative services to the former executive.

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As a result of the transaction, we recorded a loss on sale of assets of $0.1 million in the three months ended June 30, 2004. This loss includes the value of options to purchase 10,000 shares of the Company’s common stock granted to the former executive at an exercise price of $16.00 in July 2004 which was accrued at June 30, 2004.

For the remainder of 2004, the disposition of the contract manufacturing assets will reduce our revenues in our Laboratory Communications Solutions segment by approximately $4.6 million and increase our operating income by approximately $0.1 million as compared to our original forecasts.

Operating Segments

     We operate in two reportable segments that are separately managed: Transaction Services (formerly known as Electronic healthcare transaction processing) and Laboratory Communication Solutions. Transaction Services includes transaction, cost containment and other value-added services principally between physicians and insurance companies (Payer Services) and physicians and pharmacies (Prescription Services); and Laboratory Communication Solutions includes the sale, lease and service of communication devices principally to laboratories and the contract manufacturing of printed circuit boards (Laboratory Services). Commencing in March 2004, the operations of PlanVista are included in our Transaction Services segment (Medical Cost Containment Services). As a result of a re-alignment of our Corporate overhead functions (i.e., executives, finance, legal, human resources, facilities, insurance, etc.) in the second quarter of 2004, we now reporting these expenses as part of our Transaction Services segment.

Results of Operations

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003.

     Net Revenues. Consolidated net revenues for the three months ended June 30, 2004 increased by $6.9 million, or 39%, to $24.6 million from consolidated net revenues of $17.7 million for the three months ended June 30, 2003. Net revenues classified by our reportable segments are as follows:

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     Net revenues in our Transaction Services segment increased by 55% over the 2003 period. This increase is primarily due to the acquisition of PlanVista, offset by declines in volumes of electronic claims and statements processed and additional revenue reserves required due to changes in the mix of our cost containment accounts receivable and a degradation in the aging of outstanding traditional accounts. While core transaction transactions growth is flat compared to the prior period (see below), revenue dollars have grown significantly due to the higher per transaction revenue attributable to our cost containment transactions compared to our traditional core transactions.

     For the 2004 period, approximately 75% of our revenues came from our Transaction Services segment compared to 68% from this segment for the 2003 period. For the remainder of 2004 and beyond, it is anticipated that our greatest growth will come from this segment.

     Laboratory Communication Solutions segment net revenues increased by 7% over the 2003 period. During the second quarter of 2004, we saw a recovery in sales of our laboratory communication devices compared to prior periods. We anticipate that a strengthening economy will help to improve revenue for our Laboratory Communications Solutions segment over the balance of the year. However, with the sale of certain assets and liabilities in this segment for our contract manufacturing business, we expect that revenues of approximately $4.6 million will be forgone for the remainder of 2004 based on our initial forecasts for this business.

     A summary of the number of transactions we processed for the periods presented is as follows:

     “Core” transactions represent all transactions except for encounters. Additionally, as a result of a continued review of our business, we have made changes to our transaction counts to insure that our transactions are counted on the same methodology for all purposes, whether internal or external. As a result, core transactions now include 14.7 million and 12.9 million transactions for the three months ended June 30, 2004 and 2003, respectively, primarily associated with an outsourcing contract that were previously excluded from our external reporting due to the nature of the business model for those transactions.

     “Cost containment” transactions represent the number of claims sent by our payer clients to be re-priced through our provider network.

     “Encounters” are an administrative reporting transaction for payers but do not generate revenue for the provider who must submit them. Accordingly, rather than submitting on a

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routine basis, most providers choose to periodically “catch up” on their submissions, creating monthly and quarterly swings in both the number of encounters we process and what percentage of our transaction mix they represent. Since encounters are at a significantly lower price point than claims, these swings make it difficult to easily analyze our quarter-over-quarter growth in our core business. In addition, we do not expect our encounter volume to grow on an annual basis, as payers are not expanding the capitated service model that is the foundation of encounters. Therefore, we believe that breaking out encounters shows more clearly our growth in core transactions, which are the growth engine for our Transaction Services segment.

     Cost of sales. Consolidated cost of sales decreased as a percentage of net revenues to 40% for the three months ended June 30, 2004 from 46% for the three months ended June 30, 2003. Cost of sales classified by our reportable segments is as follows:

     Cost of sales in our Transaction Services segment consists of transaction fees, provider network outsourcing (leasing) fees, services and license fees, third-party electronic transaction processing costs, certain telecommunication and co-location center costs, revenue sharing arrangements with our business partners, third-party database licenses, and certain travel expenses. Cost of sales as a percentage of revenues decreased to 32% in the 2004 period compared to 36% in the same period last year primarily due to a change in the mix of transaction types from higher cost patient statements to lower cost claim transactions, the loss of business from a low margin gateway partner (i.e. another clearinghouse that routes transactions through our network because they do not have a contract with a payer) during the latter half of the 2003 year, offset by the addition of higher margin medical cost containment services from our acquisition of PlanVista.

     With the filing of our financial statements for the 2003 fiscal year, we reclassified direct labor and manufacturing overhead from selling, general and administrative expenses to cost of tangible products sold to better reflect the production of tangible products. All prior periods have a similar reclassification. As a result, cost of sales in the Laboratory Communication Solutions segment includes hardware, third party software, consumable materials, direct manufacturing labor and indirect manufacturing overhead. Cost of sales as a percentage of revenues in this segment decreased to 64% for the three months ended June 30, 2004 from 68% for three months ended June 30, 2003 primarily due to increased sales of Report Tracker™, one of our lab results reporting products.

     Selling, General and Administrative Expenses. Consolidated SG&A increased for the three months ended June 30, 2004 by $3.3 million, or 36%, to $12.4 million from consolidated SG&A of $9.1 million for the three months ended June 30, 2003. Consolidated SG&A expenses as a percentage of consolidated revenues decreased to 50% for the 2004 period compared to 51%

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in the same period last year. SG&A expenses classified by our reportable segments are as follows:

     Transaction Services segment SG&A expenses for the three months ending June 30, 2004 increased 43% over the same period last year primarily due to the addition of SG&A expenses from PlanVista for a full quarter in the 2004 period. Additionally, while we achieved significant reductions in expenses from our MedUnite acquisition over the course of 2003, these savings have been offset by increased expenditures related to our ongoing Sarbanes-Oxley Act of 2002 compliance in the 2004 period.

     Laboratory Communication Solutions segment SG&A expenses for the three months ended June 30, 2004 decreased by 6% over the same period last year and segment SG&A expenses as a percentage of segment net revenues decreased to 21% for the 2004 period compared to 24% for the same period last year. These decreases are primarily due to lower personnel costs in the 2004 period. For the remainder of the 2004 year, we expect the SG&A costs for our Laboratory Communication Solutions segment to decline by approximately $2.3 million due to the sale of contract manufacturing assets on June 30, 2004 based on our initial projections for the 2004 year.

     Depreciation and Amortization. Consolidated depreciation and amortization increased by $1.3 million to $2.6 million for the three months ended June 30, 2004 from $1.3 million for the same period last year. This increase was primarily due to approximately $1.1 million for the amortization of intangible assets acquired in the PlanVista acquisition. Depreciation and amortization classified by our reportable segments is as follows:

     (Gain) Loss on Disposal of Assets. In the three months ended June 30, 2004, we recorded a loss of $0.1 million related to the disposition of contract manufacturing assets in our Laboratory Communication Solutions segment that were sold to a former executive on June 30, 2004.

     Operating Loss. As a result of the foregoing, consolidated operating loss for the three months ended June 30, 2004 was $0.3 million compared to an operating loss of $0.9 million for the same period last year. Operating loss classified by our reportable segments is as follows:

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     Interest Expense, net. Consolidated net interest expense for the three months ended June 30, 2004 was $0.5 million compared to $0.2 million for the same period last year. This increase in expense is primarily due to the assumption of debt in conjunction with the PlanVista acquisition. Interest expense for the 2004 year is expected to be at levels above those in the prior year due to the senior debt acquired from PlanVista.

     Other Income. In the 2004 period, we settled a long-term liability assumed in our acquisition of MedUnite for $0.8 million. The liability was being carried at its present value of $0.9 million. The resulting gain of $0.1 million is reflected as other income. In the 2003 period, in conjunction with our distribution and marketing agreement with PlanVista signed in June 2003, we received a warrant to purchase up to 15% of the outstanding shares of PlanVista common stock on a fully-diluted basis. At the end of June 2003, the value of this warrant increased by $0.8 million.

     Net Loss. As a result of the foregoing, consolidated net loss for the three months ended June 30, 2004 was $0.8 million compared to net loss of $0.4 million for the same period last year.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003.

     Net Revenues. Consolidated net revenues for the six months ended June 30, 2004 increased by $10.0 million, or 29%, to $45.2 million from consolidated net revenues of $35.1 million for the six months ended June 30, 2003. Net revenues classified by our reportable segments are as follows:

     Net revenues in our Transaction Services segment for the six months ended June 30, 2004 increased by 42% over the comparable period in 2003. This increase is primarily due to the acquisition of PlanVista, offset by declines in volumes of electronic claims and statements processed and additional revenue reserves required due to changes in the mix of our cost containment accounts receivable and a degradation in the aging of outstanding traditional accounts. Core transaction transactions growth was up 3% compared to the prior period (see

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below), and revenue dollars have grown significantly due to the higher per transaction revenue attributable to our cost containment transactions compared to our traditional core transactions.

     For the six months ended June 30, 2004 period, approximately 73% of our revenues came from our Transaction Services segment compared to 66% from this segment for the same period in 2003. For the remainder of 2004 and beyond, it is anticipated that our greatest growth will come from this segment.

     Laboratory Communication Solutions segment net revenues for the six months ended June 30, 2004 increased by 2% from the comparable 2003 period. Revenues in this segment will decline during the remainder of 2004 as a result of the asset sale discussed earlier in this report.

     A summary of the number of transactions we processed for the periods presented is as follows:

     “Core” transactions represent all transactions except for encounters. Additionally, as a result of a continued review of our business, we have made changes to our transaction counts to insure that our transactions are counted on the same methodology for all purposes, whether internal or external. As a result, core transactions now include 28.6 million and 24.4 million transactions for the six months ended June 30, 2004 and 2003, respectively, primarily associated with an outsourcing contract that were previously excluded from our external reporting due to the nature of the business model for those transactions.

     “Cost containment” transactions represent the number of claims sent by our payer clients to be re-priced through our provider network.

     “Encounters” are an administrative reporting transaction for payers but do not generate revenue for the provider who must submit them. Accordingly, rather than submitting on a routine basis, most providers choose to periodically “catch up” on their submissions, creating monthly and quarterly swings in both the number of encounters we process and what percentage of our transaction mix they represent. Since encounters are at a significantly lower price point than claims, these swings make it difficult to easily analyze our quarter-over-quarter growth in our core business. In addition, we do not expect our encounter volume to grow on an annual basis, as payers are not expanding the capitated service model that is the foundation of encounters. Therefore, we believe that breaking out encounters shows more clearly our growth in core transactions, which are the growth engine for our Transaction Services segment.

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     Cost of sales. Consolidated cost of sales decreased as a percentage of net revenues to 40% for the six months ended June 30, 2004 from 47% for the six months ended June 30, 2003. Cost of sales classified by our reportable segments is as follows:

     Cost of sales in our Transaction Services segment consists of transaction fees, provider network outsourcing (leasing) fees, services and license fees, third-party electronic transaction processing costs, certain telecommunication and co-location center costs, revenue sharing arrangements with our business partners, third-party database licenses, and certain travel expenses. Cost of sales as a percentage of revenues decreased to 31% in the 2004 period compared to 36% in the same period last year primarily due to a change in the mix of transaction types from higher cost patient statements to lower cost claim transactions, the loss of business from a low margin gateway partner during the latter half of the 2003 year, and higher margin medical cost containment services from our acquisition of PlanVista.

     Cost of sales in our Laboratory Communication Solutions segment includes hardware, third party software, consumable materials, direct manufacturing labor and indirect manufacturing overhead. Cost of sales as a percentage of revenues in this segment was 66% for both periods presented.

     Selling, General and Administrative Expenses. Consolidated SG&A increased for the six months ended June 30, 2004 by $3.7 million, or 19%, from consolidated SG&A of $19.2 million for the six months ended June 30, 2003. Consolidated SG&A expenses as a percentage of consolidated revenues decreased to 51% for the 2004 period compared to 55% in the same period last year. SG&A expenses classified by our reportable segments are as follows:

     Transaction Services segment SG&A expenses for the six months ended June 30, 2004 increased 23% over the same period last year primarily due to the addition of SG&A expenses from PlanVista for four months in the 2004 period. Additionally, while we achieved significant reductions in expenses from our MedUnite acquisition over the course of 2003, these savings have been offset by increased expenditures related to our ongoing Sarbanes-Oxley Act of 2002 compliance in the 2004 period.

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     Laboratory Communication Solutions segment SG&A expenses for the six months ended June 30, 2004 decreased by 3% over the same period last year primarily due to and segment SG&A expenses as a percentage of segment net revenues decreased to 22% for the 2004 period compared to 23% for the same period last year. These decreases are primarily due to lower personnel costs in the 2004 period.

     Depreciation and Amortization. Consolidated depreciation and amortization increased by $1.8 million to $4.5 million for the six months ended June 30, 2004 from $2.7 million for the same period last year. This increase was primarily due to approximately $1.4 million for the amortization of intangible assets acquired in the PlanVista acquisition. Depreciation and amortization classified by our reportable segments is as follows:

     (Gain) Loss on Disposal of Assets. In the six months ended June 30, 2004, we recorded a loss of $0.1 million related to the disposition of contract manufacturing assets in our Laboratory Communication Solutions segment that were sold to a former executive on June 30, 2004. As a result of the consolidation of the ProxyMed and MedUnite offices in Atlanta in February 2003, the Company recorded $0.1 million in losses during the six months ended June 30, 2003 primarily related to the disposition of certain assets owned and leased that were acquired in the acquisition of MDP Corporation in 2001.

     Operating Loss. As a result of the foregoing, consolidated operating loss for the six months ended June 30, 2004 was $0.3 million compared to operating loss of $3.2 million for the same period last year. Operating loss classified by our reportable segments is as follows:

     Interest expense, net. Consolidated net interest expense for the six months ended June 30, 2004 was $0.9 million compared to $0.4 million for the same period last year. This increase in expense is primarily due to the assumption of debt in conjunction with the PlanVista acquisition. Interest expense for the 2004 year is expected to be at levels above those in the prior year due to the senior debt acquired from PlanVista.

     Other Income. During the six months ended June 30, 2004, we settled a long-term liability assumed in the acquisition of MedUnite for $0.8 million. The liability was being carried

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at its present value of $0.9 million. The resulting gain of $0.1 million is reflected as other income. In the 2003 period, in conjunction with our distribution and marketing agreement with PlanVista signed in June 2003, we received a warrant to purchase up to 15% of the common stock of PlanVista on a fully-diluted basis. At the end of June 2003, the value of this warrant increased by $0.8 million.

     Net Loss. As a result of the foregoing, consolidated net loss for the six months ended June 30, 2004 was $1.2 million compared to net loss of $2.8 million for the same period last year.

Liquidity and Capital Resources

     In the six months ended June 30, 2004, net cash used in operating activities totaled $1.5 million, and included $4.0 million to pay certain acquisition-related expenses of PlanVista outstanding as of the effective date of the acquisition. Cash used for investing activities totaled $1.1 million and consisted primarily of $0.8 million in net cash acquired from PlanVista and $3.5 million received from the sale of our contract manufacturing assets offset by $0.9 million in costs related to the acquisitions of PlanVista and MedUnite and $2.4 million in capital expenditures and capitalized software. Cash provided by financing activities totaled $7.4 million and consisted of a private placement of our common stock, an exercise of warrants for $8.8 million, and repayments of notes payable, other long-term debt, and payments related to capital leases (including $23.4 million for the retirement of debts and other obligations of PlanVista upon the consummation of the acquisition).

     In the six months ended June 30, 2003, cash used by operating activities was $0.6 million. Cash used in investing activities was $6.4 million. During this period, we paid $5.2 million in costs related to our December 2002 acquisition of MedUnite, $1.9 million for fixed assets and capitalized software, and freed up a net of $0.4 million from restricted cash as we terminated our MedUnite lease in San Diego. Cash used in financing activities was $1.2 million for repayments of notes payable, other long-term debt, and payments related to capital leases. These activities were principally financed through available cash resources.

     We had cash and cash equivalents totaling $12.3 million as of June 30, 2004 compared to $8.2 million at June 30, 2003. These available funds will be used for operations, strategic acquisitions, 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.

     On March 2, 2004, we acquired PlanVista through the issuance of 3,600,000 shares of our common stock (valued at $68.4 million). In addition, we raised an additional $24.1 million in a private placement sale of our common stock and drew down $4.4 million on our asset-based line of credit. These funds, along with available cash resources, were used to satisfy $27.4 million of PlanVista’s debt and other obligations outstanding as of the effective time of the acquisition.

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     At the current time, we do not have any material commitments for capital expenditures.

     We currently anticipate spending to be approximately $1.3 million for various development projects scheduled to be undertaken by us in 2004 (originally estimated to be $1.0 million at the beginning of the current year). Additionally, we anticipate spending approximately $5.8 million (including $1.1 million at PlanVista) primarily for hardware and software costs related to enhancements to our technical infrastructure and administrative systems. Through June 30, 2004, we spent $2.4 million towards these projects. Furthermore, we expect to incur costs of approximately $1.5 million in 2004 in connection with the implementation of our internal control procedures mandated by the Sarbanes-Oxley Act of 2002 and with our financial system consolidation efforts.

     Our Sarbanes-Oxley Act of 2002 efforts to date have focused primarily on documentation of our financial and operational systems across our companies and to a lesser extent, testing these systems. We expect further focus on remediation and testing in the third quarter of 2004.

     We have also spent the better part of two years on our HIPAA compliance efforts that have caused us to incur significant costs. As a result of this effort, we now have over 90% of our total transaction volume migrated to a HIPAA compliant connection to our payer customers. However, on our submitter customer side, the majority of our providers continue to submit their transactions to us in legacy formats and rely on us to help provide HIPAA compliancy services on their behalf. Our continued efforts on the submitter side for HIPAA compliance will force us to continue to spend additional funds in the future.

     In December 2003, we closed on a $12.5 million asset-based line of credit with our commercial bank. Borrowing under such facility is subject to eligible cash, accounts receivable, and inventory and other conditions. Borrowings bear interest at the prime rate plus 0.5% or at LIBOR plus 2.25% (or LIBOR plus 0.75% in the case of borrowings against eligible cash only). As a result of our acquisition of PlanVista, we drew down $4.4 million against this line at the end of February 2004 (which was repaid in early March 2004) and had a $0.5 million draw outstanding as of March 31, 2004 that we repaid in April 2004. At this time, the assets of PlanVista are not eligible collateral for this line of credit due to covenants of the senior debt in place at PlanVista. Additionally, PlanVista (as a wholly-owned subsidiary) is limited in its ability to upstream cash to ProxyMed (as the parent company) due to additional covenants under this instrument.

     As noted above, with our acquisition of PlanVista on March 2, 2004, we utilized the $24.1 million in proceeds raised from our private placement, drew $4.4 million on our line of credit and used available cash to satisfy $27.4 million of PlanVista’s debt and other obligations and expenses outstanding as of the effective time of the acquisition. As a result of the acquisition, we acquired a cash flow positive company with $20.4 million in senior debt due in May 2005 (at an interest rate of 6% until December 2004 when the interest rate increases to 10%). While it is our intent to satisfy this debt either through refinancing, obtaining a senior line of credit or by raising equity capital, we will incur substantial additional cash interest charges until we do so. We may be unable to raise additional funds on acceptable terms or at all.

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     The following table represents our contractual cash obligations due over the next several years (including obligations of PlanVista). Operating leases are shown net of any sublease agreements.

     (1) Remaining quarters of 2004

     We believe that we have sufficient cash and cash equivalents on hand to fund our future operational requirements and capital expenditures, and a sufficient level of capital in order to fund specific research and development projects or to pursue smaller additional strategic acquisitions. Even with the positive cash flow expected to be generated from our operations, we anticipate that we will need to refinance the PlanVista debt, by either obtaining a new senior line of credit or raising capital in order to satisfy this debt on or before maturity. However, if we require additional funding in the future to satisfy any of our outstanding future obligations, or 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. 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. We evaluate our estimates on an ongoing basis.

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     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 of our Form 10-K for the year ended December 31, 2003.

     Revenue Recognition — Transaction Services fee revenue is recorded in the period the service is rendered. Certain transaction fee revenue may be subject to revenue sharing per agreements with resellers, vendors or gateway partners and are recorded as gross revenues. Revenues on cost containment services are recorded net of their estimated allowances. Revenue from sales of inventory 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. Revenue from certain up-front fees is amortized ratably over the expected life of the customer or contract. Revenue from hardware leases, network access and maintenance fees is recognized ratably over the applicable period.

     Revenue from cost containment services are primarily in the form of fees generated from the discounts we provide for the payers that access our provider network. We enter into agreements with our healthcare payer customers that require them to pay a percentage of the cost savings generated from its network discounts with participating providers. These agreements are generally terminable upon 90 days notice. Operating revenue from a percentage of savings contract is generally recognized when claims processing and administrative services have been performed. The remainder of revenue from our cost containment services is generated from customers that pay a monthly fees based on eligible employees enrolled in a benefit plan covered by our health benefits payers’ clients. Revenue under such agreements is recognized when the services are performed.

     Goodwill — We adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” effective January 1, 2002. Under SFAS No. 142, goodwill is reviewed at least annually for impairment. SFAS No. 142 requires that goodwill be tested for impairment at the reporting unit level at adoption and at least annually thereafter, utilizing a “fair value” methodology versus an undiscounted cash flow method required under previous accounting rules. In accordance with our adoption of SFAS No. 142, we completed our most recent annual test at December 31, 2003 and 2002 utilizing various valuation techniques including a market value analysis. No impairment charges were recorded as a result of these tests.

     Capitalized Software Development and Research and Development — Costs incurred internally and fees paid to outside contractors and consultants during the application development stage of our internally used software products are capitalized. Costs of upgrades and major enhancements that result in additional functionality are also capitalized. Costs incurred for maintenance and minor upgrades are expensed as incurred. All other costs are expensed as incurred as research and development expenses (which are included in “Selling,

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general and administrative expenses”). Application development stage costs generally include software configuration, coding, installation to hardware and testing. Once the project is completed, capitalized costs are amortized over their remaining estimated economic life. Our judgment is used in determining whether costs meet the criteria for immediate expense or capitalization. We periodically review projected cash flows and other criteria in assessing the impairment of any internal-use capitalized software and take impairment charges as needed.

     Reserve for Doubtful Accounts/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 were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. Additionally, in our cost containment business, we evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we record a specific reserve for bad debts against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers, we recognize reserves for bad debts based on past write-off history, average percentage of receivables written off historically, and the length of time the receivables are past due. To the extent historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, loss experience could differ significantly, resulting in either higher or lower future provision for losses.

New Accounting Pronouncements

     There are no new accounting pronouncements that have an impact on our financials statements at this time.

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Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

     Statements contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report may contain information that includes or is based upon forward-looking statements within the meaning of the Securities Litigation Reform Act of 1995. Forward-looking statements present our expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They frequently are accompanied by words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. In particular, these include statements relating to: our ability to identify suitable acquisition candidates; our successful integration of PlanVista, MedUnite and any other future acquisitions; 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 ability to increase revenues and revenue opportunities; and our ability to meet expectations regarding future capital needs and the availability of credit and other financing sources.

     All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including any projections of earnings, revenues, synergies, accretion, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings, approvals and closings relating to the merger or other planned acquisitions; any statements concerning proposed new products, services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.

     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 perceived market opportunities; our assessment of the healthcare industry’s need, desire and ability to become technology efficient; market acceptance of our products and services; 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 starting on Page 23 and elsewhere in our Form 10-K for the year ended December 31, 2003, which we strongly urge you to read.

     Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Our future results and shareholder values may differ materially from those expressed in the forward-looking statements. Many of the factors that will determine these results and values are beyond our ability to control or predict. Shareholders are cautioned not to put undue reliance on any forward-looking statements. For those statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities

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Litigation Reform Act of 1995. We expressly disclaim any intent or obligation to update any forward-looking statements.

Available Information

     Our Internet address is www.proxymed.com. We make available free of charge on or through our Internet website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material was electronically filed with, or furnished to, the SEC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We own no derivative financial instruments or derivative commodity instruments. We derive no revenues from international operations and do not believe that we are exposed to material risks related to foreign currency exchange rates.

ITEM 4. CONTROLS AND PROCEDURES

     As of the end of the period covered by this report, the Company evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)), under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer. Based upon such evaluation, management has concluded that the Company’s disclosure controls and procedures are effective to ensure that the information the Company is required to disclose in reports that it files or submits under the Exchange Act is communicated to management, including, the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the Commission rules and forms.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders.

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Item 6. Exhibits and Reports on Form 8-K.

     (a) Exhibits:

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     (b) Reports on Form 8-K:

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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