þ | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Florida | 65-0202059 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
1854 Shackleford Court, Suite 200, Atlanta, Georgia | 30093 | |
(Address of principal executive offices) | (Zip Code) |
1
Page | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
16 | ||||||||
28 | ||||||||
28 | ||||||||
29 | ||||||||
30 | ||||||||
31 | ||||||||
Certifications |
32 | |||||||
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO | ||||||||
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO | ||||||||
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO | ||||||||
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO |
2
(Unaudited) | ||||||||
June 30, | December 31, | |||||||
2005 | 2004 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 4,997 | $ | 12,374 | ||||
Accounts receivable trade, net of allowance of $2,581
and $3,168 respectively |
17,160 | 17,591 | ||||||
Other receivables |
2,132 | 312 | ||||||
Inventory, net |
1,455 | 1,775 | ||||||
Other current assets |
1,602 | 1,399 | ||||||
Total current assets |
27,346 | 33,451 | ||||||
Property and equipment, net |
4,596 | 4,801 | ||||||
Goodwill, net |
94,572 | 93,604 | ||||||
Purchased technology, capitalized software and
other intangible assets, net |
48,104 | 52,305 | ||||||
Restricted cash |
75 | 75 | ||||||
Other long-term assets |
135 | 167 | ||||||
Total assets |
$ | 174,828 | $ | 184,403 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Notes payable and current portion of long-term debt |
$ | 1,357 | $ | 2,178 | ||||
Related party debt |
| 18,394 | ||||||
Accounts payable and accrued expenses |
9,455 | 8,889 | ||||||
Accrued compensation costs |
4,778 | 4,748 | ||||||
Deferred revenue |
430 | 691 | ||||||
Income taxes payable |
2,161 | 215 | ||||||
Total current liabilities |
18,181 | 35,115 | ||||||
Convertible notes |
13,137 | 13,137 | ||||||
Other long-term debt |
11,670 | 206 | ||||||
Long-term deferred revenue and other long-term liabilities |
702 | 863 | ||||||
Total liabilities |
43,690 | 49,321 | ||||||
Commitments and contingencies (Note 9) |
||||||||
Stockholders equity: |
||||||||
Series C 7% Convertible preferred stock $.01 par value.
Authorized 300,000 shares; issued 253,265 shares;
outstanding 2,000 shares; liquidation preference $200 |
| | ||||||
Common stock $.001 par value. Authorized 30,000,000
shares; issued and outstanding 12,704,087 and
12,626,567 shares, respectively |
13 | 13 | ||||||
Additional paid-in capital |
239,928 | 239,255 | ||||||
Accumulated deficit |
(108,750 | ) | (104,073 | ) | ||||
Unearned compensation |
(53 | ) | (113 | ) | ||||
Total stockholders equity |
131,138 | 135,082 | ||||||
Total liabilities and stockholders equity |
$ | 174,828 | $ | 184,403 | ||||
3
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net revenues: |
||||||||||||||||
Transaction fees, cost containment
services and license fees |
$ | 17,984 | $ | 19,702 | $ | 37,182 | $ | 35,589 | ||||||||
Communication devices and other tangible goods |
2,797 | 4,947 | 5,313 | 9,565 | ||||||||||||
20,781 | 24,649 | 42,495 | 45,154 | |||||||||||||
Costs and expenses: |
||||||||||||||||
Cost of transaction fees, cost containment services and
license fees, excluding depreciation and amortization |
5,862 | 5,903 | 12,042 | 10,178 | ||||||||||||
Cost of laboratory communication devices and
other tangible goods, excluding depreciation and amortization |
1,511 | 3,909 | 3,013 | 7,928 | ||||||||||||
Selling,
general and administrative expenses |
12,564 | 12,472 | 25,189 | 22,875 | ||||||||||||
Depreciation and amortization |
2,569 | 2,629 | 5,166 | 4,479 | ||||||||||||
Write-off of impaired assets |
741 | | 741 | | ||||||||||||
23,247 | 24,913 | 46,151 | 45,460 | |||||||||||||
Operating income/(loss) |
(2,466 | ) | (264 | ) | (3,656 | ) | (306 | ) | ||||||||
Interest expense, net |
420 | 542 | 1,021 | 877 | ||||||||||||
Other income |
| (134 | ) | | (134 | ) | ||||||||||
Loss before income taxes |
(2,886 | ) | (672 | ) | (4,677 | ) | (1,049 | ) | ||||||||
Provision for income taxes |
| 100 | | 150 | ||||||||||||
Net loss |
$ | (2,886 | ) | $ | (772 | ) | $ | (4,677 | ) | $ | (1,199 | ) | ||||
Basic and diluted loss per share |
$ | (0.23 | ) | $ | (0.06 | ) | $ | (0.37 | ) | $ | (0.11 | ) | ||||
Basic and diluted weighted average shares outstanding |
12,664,516 | 12,625,260 | 12,645,455 | 10,597,996 | ||||||||||||
4
Six Months Ended June 30, | ||||||||
2005 | 2004 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (4,677 | ) | $ | (1,199 | ) | ||
Adjustments to reconcile net loss to net cash
provided by (used in) operations: |
||||||||
Depreciation and amortization |
5,166 | 4,479 | ||||||
Provision for doubtful accounts |
| 623 | ||||||
Gain on settlement of liability |
| (134 | ) | |||||
Write-off of impaired assets |
741 | | ||||||
Stock option compensation charges |
233 | 149 | ||||||
Changes in assets and liabilities: |
||||||||
Accounts and other receivables |
612 | 1,392 | ||||||
Inventory |
320 | (705 | ) | |||||
Other current assets |
184 | (47 | ) | |||||
Accounts payable and accrued expenses |
(2,479 | ) | (1,220 | ) | ||||
Accrued expenses of PlanVista paid by ProxyMed |
| (4,011 | ) | |||||
Deferred revenue |
(149 | ) | (45 | ) | ||||
Income taxes payable |
1,946 | | ||||||
Other current liabilities |
(155 | ) | (824 | ) | ||||
Net cash provided by (used in) operating activities |
1,742 | (1,542 | ) | |||||
Cash flows from investing activities: |
||||||||
Net cash acquired in acquisition |
| 782 | ||||||
Capital expenditures |
(1,223 | ) | (1,643 | ) | ||||
Capitalized software |
(272 | ) | (769 | ) | ||||
Collection of notes receivable |
| 68 | ||||||
Proceeds from sale of fixed assets |
| 3,500 | ||||||
Decrease in restricted cash |
50 | 81 | ||||||
Payments for acquisition-related costs |
| (887 | ) | |||||
Net cash (used in) provided by investing activities |
(1,445 | ) | 1,132 | |||||
Cash flows from financing activities: |
||||||||
Net proceeds from sale of common stock |
500 | 24,100 | ||||||
Proceeds from exercise of stock options and warrants |
| 8,759 | ||||||
Draws on line of credit |
17,809 | 4,900 | ||||||
Repayment of line of credit |
(6,139 | ) | (4,900 | ) | ||||
Payment of related party note payable |
(18,394 | ) | | |||||
Payment of notes payable, capital leases and long-term debt |
(1,450 | ) | (25,494 | ) | ||||
Net cash (used in) provided by financing activities |
(7,674 | ) | 7,365 | |||||
Net (decrease) increase in cash and cash equivalents |
(7,377 | ) | 6,955 | |||||
Cash and cash equivalents at beginning of period |
12,374 | 5,333 | ||||||
Cash and cash equivalents at end of period |
$ | 4,997 | $ | 12,288 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 921 | $ | 763 | ||||
Non-cash investing and financing information: |
||||||||
Issuance of 3.6 million shares of common stock for PlanVista acquisition |
$ | | $ | 59,800 | ||||
Increase in
purchase price of acquisition related to net settlement of
New York state tax liability |
$ | 968 | $ | | ||||
5
(a) | Basis of Presentation The accompanying unaudited consolidated financial statements of ProxyMed, Inc. and subsidiaries (ProxyMed or the Company) and the notes thereto have been prepared in accordance with the instructions of Form 10-Q and Rule 10-01 of Regulation S-X of the Securities and Exchange Commission (the SEC) and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America. However, such information reflects all adjustments (consisting 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, 2005 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 ProxyMeds Annual Report on Form 10-K/A for the year ended December 31, 2004 as filed with the SEC on March 31, 2005 (10-K/A). | ||
(b) | Revenue Recognition Revenue is derived from ProxyMeds Transaction Services and Laboratory Communication Solutions segments. | |
Revenues in the Companys Transaction Services segment are recorded as follows: |
| For revenues derived from insurance payers, pharmacies and submitters, such revenues are recognized on a per transaction basis or flat fee basis in the period the services are rendered. | ||
| Revenue from the Companys medical cost containment business is recognized when the services are performed and are recorded net of estimated allowances. These revenues are primarily in the form of fees generated from discounts the Company secures for payers that access the Companys provider network (see Note 1c). | ||
| Revenues associated with revenue sharing agreements are recorded as gross revenue on a per transaction basis or a percentage of revenue basis and may involve increasing amounts or percentages based on transaction or revenue volumes achieved. This treatment is in accordance with Emerging Issues Task Force Consensus No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent. |
Revenue from certain up-front fees is recognized ratably over three years, which is the expected life of the customer. This treatment is in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104). |
6
| Revenue from support and maintenance contracts is recognized ratably over the contract period. |
Revenues in the Companys Laboratory Communication Solutions segment are recorded as follows: |
| Revenue from support and maintenance contracts is recognized ratably over the contract period. | ||
| Revenues from the sale of inventory and manufactured goods is recognized when the product is delivered, price is fixed or determinable, and collectibility is probable. This treatment is in accordance with SAB No. 104. | ||
| Revenue from the rental of laboratory communication devices is recognized ratably over the period of the rental contract. |
(c) | Reserve for Revenue Adjustments, Doubtful Accounts and Bad Debt Estimates ProxyMed relies on estimates to determine the revenue adjustments, bad debt expense and the adequacy of the Companys reserve for doubtful accounts receivable. These estimates are based on ProxyMeds historical experience, including historical collection ratios, and the industry in which the customer operates. If the financial condition of a customer were to deteriorate, resulting in an impairment of its ability to make payments, additional allowances are made. | |
(d) | Net loss per share Basic net loss per share of common stock is computed by dividing net loss by the weighted average shares of common stock outstanding during the period. Diluted net loss per share reflects the potential dilution from the exercise or conversion of securities into common stock; however, the following shares were excluded from the calculation of diluted net loss per share because their effects would have been anti-dilutive: |
Six months ended June 30, | ||||||||
(unaudited) | 2005 | 2004 | ||||||
Common shares excluded in the computation of net loss per share: |
||||||||
Stock Options |
31,803 | 95,198 | ||||||
(e) | Stock Based Compensation The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations in accounting for its stock-based compensation plans. The Company measures compensation expense related to the grant of stock options and stock- based awards to employees (including independent directors) in accordance with the provisions of APB No. 25. In accordance with APB No. 25, compensation expense, if any, is generally based on the difference between the exercise price of an option, or the amount paid for an award, and the market price or fair value of the underlying common stock at the date of the award or at the measurement date for variable awards. Stock-based compensation arrangements involving non-employees are accounted for under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, (SFAS No. 123) as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure (SFAS No. 148), under |
7
which such arrangements are accounted for based on the fair value of the option or award. | ||
Under SFAS No. 123, as amended by SFAS No. 148, compensation cost for the Companys stock-based compensation plans would be determined based on the fair value at the grant dates for awards under those plans. Had the Company adopted SFAS No. 123 in accounting for our employee stock option plans, its consolidated net loss and net loss per share for the three and six months ended June 30, 2005 and 2004 would have been adjusted to the pro forma amounts indicated as follows: |
In thousands except for per share data | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(unaudited) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Net loss, as reported |
$ | (2,886 | ) | $ | (772 | ) | $ | (4,677 | ) | $ | (1,199 | ) | ||||
Deduct: Total stock-based compensation expense determined
under fair value based method for all awards |
(492 | ) | (826 | ) | (1,084 | ) | (1,190 | ) | ||||||||
Addback charges already taken for intrinsic value of options |
138 | 42 | 233 | 57 | ||||||||||||
Pro forma net loss |
$ | (3,240 | ) | $ | (1,556 | ) | $ | (5,528 | ) | $ | (2,332 | ) | ||||
Loss per common share: |
||||||||||||||||
Basic and Diluted as reported |
$ | (0.23 | ) | $ | (0.06 | ) | $ | (0.37 | ) | $ | (0.11 | ) | ||||
Basic and Diluted pro forma |
$ | (0.26 | ) | $ | (0.12 | ) | $ | (0.44 | ) | $ | (0.22 | ) |
In May 2005, the Company granted its new CEO stock options to purchase 600,000 shares of ProxyMeds common stock at an exercise price of $6.45 per share. Pursuant to the aforementioned stock option agreements: 400,000 shares vest monthly over 4 years with 1/48 vesting each month. The other 200,000 shares have market triggers when the Companys common stock reaches market prices of $15, $20, $25 and $30 such that each 50,000 shares will vest when the closing price per share of the Companys common stock reaches and maintains each trigger amount for ten consecutive trading days. | ||
In December 2004, the Companys new Chairman and Interim CEO was granted stock options to purchase 75,000 shares of ProxyMeds common stock at an exercise price of $7.10 per share in connection with his consulting agreement with the Company. Such options expire in 10 years and vest ratably over the first 12 months. The total charge for these stock options is $172,800 and is being recorded ratably over the first twelve vesting months. In January 2005, the Interim CEO was granted stock options to purchase 25,000 shares of ProxyMeds stock at the market value on the date of issuance of $9.87 per share in his capacity as Chairman of the Board. These options expire in 10 years and vest ratably over the first 12 months. In May 2005, the Company terminated its consulting agreement with the Chairman of the Board. This event triggered acceleration of the vesting of the stock options under the consulting agreement. As a result, the Company recorded additional compensation expense of $86,600 for the period ended June 30, 2005. |
8
(f) | New Accounting Pronouncements In March 2005, the SEC issued Staff Accounting Bulletin (SAB) No. 107. This SAB provides guidance related to the application of SFAS No. 123(R), Shared-Based Payments (Revised 2004) for transactions with non-employees, the transition from nonpublic to public entity status, valuation methods, the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measure, first-time adoption of Statement 123(R) and disclosures in Managements Discussion and Analysis (MD&A) subsequent to adoption of Statement 123(R). The revised effective date of SFAS No. 123(R) is for annual reporting periods beginning after June 15, 2005. The adoption date for the Company is January 1, 2006. The Company has not completed the process of evaluating the impact that will result from adopting FASB Statement No. 123(R) and is therefore unable to disclose the impact that adoption will have on the Companys financial position and results of operations. | |
In September 2004, the Financial Accounting Standards Board (FASB) issued EITF No. 04-8, Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share (EITF No. 04-8). EITF No. 04-8 addresses when the dilutive effect of contingently convertible debt instruments should be included in diluted earnings per share and requires that contingently convertible debt instruments are to be included in the computation of diluted earnings per share regardless of whether the market price or other trigger has been met. EITF No. 04-8 also requires that prior period diluted earnings per share amounts presented for comparative purposes be restated. EITF No. 04-8 is effective for reporting periods ending after December 15, 2004. As a result of the issuance of EITF No. 04-8, shares convertible from the Companys $13.1 million convertible notes may be required to be included in the calculation of the Companys earnings per share in periods of net income; however, the FASB has yet to reach a conclusion as to the effect of non-market price triggers on earnings per share calculations in situations where the instrument contains only non-market price triggers, such as the Companys convertible notes, and therefore the impact on the consolidated financial statements is not determinable at this time. | ||
In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. This Statement clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage) and requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal under ARB No. 43. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is evaluating the impact that adoption will have on the Companys results of operations. |
9
(2) | Acquisition of PlanVista | |
On March 2, 2004, the Company acquired all of the capital stock of PlanVista Corporation (PlanVista), a publicly-held company that provides medical cost containment and business process outsourcing solutions, including claims repricing services, for the medical insurance and managed care industries, as well as services for healthcare providers, including individual providers, preferred provider organizations and other provider groups, for 3,600,000 shares of the Companys common stock issued to PlanVistas shareholders. In addition, the Company assumed debt and other liabilities of PlanVista, and incurred $1.3 million in acquisition related expenses. The value of these shares was $59.8 million based on the average closing price of ProxyMeds common stock for the day of and the two days before and after the announcement of the definitive agreement on December 8, 2003 in accordance with EITF No. 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination. Additionally, the Company raised $24.1 million in a private placement sale of the Companys common stock to various entities affiliated with General Atlantic Partners and Commonwealth Associates to partially fund repayment of PlanVistas debts and other obligations outstanding at the time of the acquisition. | ||
The Company recently withdrew a tax appeal with the State of New York involving the tax years December 31, 1999 through December 31, 2001 and is seeking a negotiated resolution with the State of New York. The tax liability is $3.1 million and it includes interest and penalties through June 30, 2005. The Company has entered into an agreement in principle with a third party to be reimbursed for 70% of the liability ultimately agreed to with the State of New York, but not to exceed $2 million. The Company had accrued a tax liability of $100,000 as of December 31, 2004 related to this tax appeal. As a result of the foregoing, the Company adjusted PlanVistas purchase price allocation and increased Goodwill by $967,908 to $63.8 million in June 2005 (see Note 4(a)). | ||
The following unaudited pro forma summary presents the consolidated results of operations of both the Company and PlanVista as if the acquisition had occurred on January 1, 2004. The 2004 results include $2.8 million of revenue from the manufacturing assets sold in June 2004. These pro forma results do not necessarily represent results that would have occurred if the acquisition had taken place on January 1, 2004, or of results that may occur in the future. |
Six Months Ended | ||||
In thousands except for per share data | June 30, | |||
(unaudited) | 2004 | |||
Revenues |
$ | 50,822 | ||
Net loss |
$ | (863 | ) | |
Basic and diluted net loss
per share of common stock |
$ | (0.07 | ) |
See Note 2 of the Audited Consolidated Financial Statements on ProxyMeds 2004 Form 10-K/A for complete detail pertaining to the PlanVista acquisition. |
10
(3) | Inventory |
Inventory consists of the following as of the dates indicated: |
In thousands | (unaudited) | |||||||
June 30, | December 31, | |||||||
2005 | 2004 | |||||||
Materials, supplies and component parts |
$ | 588 | $ | 651 | ||||
Work in process |
21 | 32 | ||||||
Finished goods |
846 | 1,092 | ||||||
$ | 1,455 | $ | 1,775 | |||||
(4) | Goodwill and other Intangible Assets | |
(a) | Goodwill - The changes in the carrying amounts of goodwill, net, for the period ending June 30, 2005 by operating segment are as follows: |
Laboratory | ||||||||||||
Transaction | Communications | |||||||||||
In thousands | Services | Solutions | Total | |||||||||
Balance as of December 31, 2004 |
$ | 91,502 | $ | 2,102 | $ | 93,604 | ||||||
Adjustment to Goodwill during the period |
968 | | 968 | |||||||||
Balance as of June 30, 2005 (unaudited) |
$ | 92,470 | $ | 2,102 | $ | 94,572 | ||||||
In June 2005, the Company adjusted goodwill in the purchase price allocation of the PlanVista acquisition related to the New York State tax liability (see Note 2). | ||
As a result of the Companys stock price decline, it performed a goodwill impairment test during the quarter. Based on its current forecasts, the Company determined that there was no impairment of Goodwill as of June 30, 2005. As the Companys new CEO completes the review of the future business plans, it will again test for impairment of Goodwill and there can be no assurance that the Company will not have impairment in the future. | ||
(b) | Other Intangible Assets The estimated useful lives and the carrying amounts of other intangible assets as of June 30, 2005 and December 31, 2004, by category, are as follows: |
In thousands | (unaudited) | |||||||||||||||||||||||||||
June 30, 2005 | December 31, 2004 | |||||||||||||||||||||||||||
Estimated | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||||||||||
Useful lives | Amount | Amortization | Net | Amount | Amortization | Net | ||||||||||||||||||||||
Capitalized software |
3 - 5 years | $ | 2,847 | $ | (1,058 | ) | $ | 1,789 | $ | 2,661 | $ | (769 | ) | $ | 1,892 | |||||||||||||
Purchased technology |
1 - 12 years | 10,353 | (5,533 | ) | 4,820 | 10,342 | (4,738 | ) | 5,604 | |||||||||||||||||||
Customer relationships |
4.6 - 12 years | 34,282 | (6,827 | ) | 27,455 | 34,283 | (4,324 | ) | 29,959 | |||||||||||||||||||
Provider network |
10 years | 16,200 | (2,160 | ) | 14,040 | 16,200 | (1,350 | ) | 14,850 | |||||||||||||||||||
$ | 63,682 | $ | (15,578 | ) | $ | 48,104 | $ | 63,486 | $ | (11,181 | ) | $ | 52,305 | |||||||||||||||
The estimates of useful lives of other intangible assets are based on historical experience, the industry in which the entity operates, or on contractual terms. If indications arise that would materially impact these lives, an impairment charge may be required and the |
11
corresponding useful lives may be reduced. Other intangible assets are being amortized on a straight-line basis. Amortization expense for the three and six months ended June 30, 2005 and 2004 was $1.9 million, $3.7 million, $1.8 million and $0.6 million, respectively. | ||
Revenues from a customer of the Laboratory Communications Solutions segment are projected to continue to decline in the future and an intangible asset related to the relationship of this customer was tested for recoverability during the quarter as a result of this continued projected decline in revenues. Subsequent testing using discounted cash flows indicated an impairment of the intangible asset and as a result the Company recorded a $741,000 charge during the second quarter ended June 30, 2005 to reflect this impairment. | ||
As the Companys new CEO completes the review of the future business plans, the Company will again test for impairment of intangibles assets and there can be no assurance that the Company will not have additional impairment in the future. | ||
As of June 30, 2005, estimated future amortization of other intangible assets is as follows: |
In thousands (unaudited) | ||||
2005 (remainder of year) |
$ | 3,631 | ||
2006 |
7,140 | |||
2007 |
6,711 | |||
2008 |
6,057 | |||
2009 |
4,925 | |||
2010 |
4,626 | |||
$ | 33,090 | |||
(5) | Debt Obligations | |
(a) | Senior Debt - On April 18, 2005, the Company closed a new three year, $15.0 million senior asset based facility which is secured by all assets of the combined entities with Wachovia Bank, N.A.. The loan is based on qualified accounts receivable and historical cash flows. It bears interest at LIBOR plus 2.7% and is paid monthly in arrears. The $15.0 million loan reduces to $12.5 million in June 2006 and is all due at maturity on April 17, 2008, absent an event of default. The Company used the proceeds from this facility and some of its cash to pay approximately $18.9 million which constituted all of the Companys previous senior related party debt obligation and notes outstanding to former directors of PlanVista including all accrued interest. | |
During the second quarter of 2005, the Company defaulted on a financial covenant under this credit facility. It subsequently obtained a waiver of this default and has renegotiated the covenant. | ||
(b) | Senior Debt As a result of the acquisition of PlanVista, ProxyMed assumed and guaranteed a $20.4 million secured obligation to PVC Funding Partners, LLC (an investment company related to Commonwealth Associates, LP and one of the Companys board members). This related party obligation was payable in monthly installments of |
12
$0.2 million and was scheduled to mature with a balloon payment of $17.6 million on May 31, 2005 and bore an interest rate of 10% (the obligation originally bore interest of 6% through November 2004), payable monthly in cash. This debt was paid in full on April 18, 2005. | ||
(c) | Convertible Notes On December 31, 2002, the Company issued $13.4 million in uncollateralized convertible promissory notes at 4% to the former shareholders of MedUnite as part of the consideration paid in the acquisition of MedUnite. Interest is payable quarterly in cash in arrears. The convertible promissory notes are payable in full on December 31, 2008 unless converted earlier upon the meeting of certain aggregate revenue triggers by the former shareholders. After an offsetting claim by ProxyMed in October 2003 in the amount of $0.3 million, the outstanding balance of these notes is $13.1 million. Additionally, as a result of the reduction in principal, the notes are now convertible into 716,968 shares of the Companys common stock subject to achieving certain revenue triggers. The first revenue trigger was met in the fourth quarter of 2003, however the second revenue trigger was not met in the second quarter of 2005. | |
(d) | Notes Payable In March 2003, the Company restructured $3.4 million in accounts payable and accrued expenses acquired from MedUnite and outstanding at December 31, 2002 to one vendor by paying $0.8 million in cash and financing the balance of $2.6 million with an unsecured note payable over 36 months at 8% commencing in March 2003. At June 30, 2005, the balance of this note payable is $0.7 million. | |
In April 2003, the Company financed a net total of $2.0 million existing at December 31, 2002 from MedUnite to NDCHealth by issuing an unsecured note payable over 24 months at 6%. At June 30, 2005, the balance of this note payable is $0.5 million. | ||
(6) | Equity Transactions | |
During the three and six months ended June 30, 2005 the Company granted 672,500 and 711,500 stock options, respectively, at exercise prices between $6.45 and $10.35 per share to officers and employees. Such options are for ten-year terms and generally vest equally over three or four years following the date of the grant. | ||
(7) | Segment Information | |
ProxyMed operates in two reportable segments that are separately managed: Transaction Services and Laboratory Communication Solutions. Transaction Services includes transaction, cost containment and other value-added services principally between physicians and insurance companies (Payer Services and Submitter Services), and providers and pharmacies. Laboratory Communication Solutions includes the sale, lease and service of communication devices principally to laboratories and, through June 30, 2004, the contract manufacturing of printed circuit boards (Laboratory Services). As a result of a re-alignment of the Companys corporate overhead functions in the second quarter of 2004, ProxyMed now reports these expenses and assets as part of its Transaction Services segment. |
13
In thousands (unaudited) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Net revenues by operating segment: |
||||||||||||||||
Transaction Services |
$ | 17,599 | $ | 18,524 | $ | 36,206 | $ | 33,118 | ||||||||
Laboratory
Communication
Solutions |
3,182 | 6,125 | 6,289 | 12,036 | ||||||||||||
$ | 20,781 | $ | 24,649 | $ | 42,495 | $ | 45,154 | |||||||||
Net revenues by geographic location: |
||||||||||||||||
Domestic |
$ | 20,781 | $ | 24,591 | $ | 42,495 | $ | 45,048 | ||||||||
International (1) |
| 58 | | 106 | ||||||||||||
$ | 20,781 | $ | 24,649 | $ | 42,495 | $ | 45,154 | |||||||||
Operating income (loss) by operating segment: |
||||||||||||||||
Transaction Services |
$ | (2,426 | ) | $ | (960 | ) | $ | (4,202 | ) | $ | (163 | ) | ||||
Laboratory
Communication
Solutions |
(40 | ) | 696 | 546 | 954 | |||||||||||
Corporate |
| | | (1,097 | ) | |||||||||||
$ | (2,466 | ) | $ | (264 | ) | $ | (3,656 | ) | $ | (306 | ) | |||||
June 30, 2005 | December 31, 2004 | |||||||
Total assets by operating segment: |
||||||||
Transaction Services |
$ | 168,689 | $ | 173,061 | ||||
Laboratory Communication Solutions |
6,139 | 11,342 | ||||||
$ | 174,828 | $ | 184,403 | |||||
(1) | Laboratory Communication Solutions segment only. |
(8) | Income Taxes | |
As of June 30, 2005, ProxyMed had a net deferred tax asset of approximately $72.4 million, which was fully offset by a valuation allowance due to cumulative losses in recent years. Realization of the net deferred tax asset is dependent upon the Company generating sufficient taxable income prior to the expiration of the federal net operating loss carryforwards. The Company will adjust this valuation reserve if, during future periods, management believes the Company will generate sufficient taxable income to realize the net deferred tax asset. The provision for income taxes reported in the consolidated statement of operations for the three and six months ended June 30, 2004 of approximately $0.1 million was related primarily to state income taxes. | ||
(9) | Commitments and Contingencies | |
(a) | Litigation In December of 2001, Insurdata Marketing Services, Inc. (IMS) filed a lawsuit against HealthPlan Services, Inc. (HPS), a former subsidiary of the Companys PlanVista subsidiary, for unspecified damages in excess of $75,000. The complaint alleges that HPS failed to pay commissions to IMS pursuant to an arbitration award rendered in 1996. On January 10, 2005, the court granted summary judgment to IMS on issue of liability for the arbitration award. The Company has filed an appeal on the issue of liability, and continues to contest vigorously the amount of damages claimed by IMS. The Company has determined exposure to be in the range of $0.6 million to $1.6 million and has accrued $0.6 million at June 30, 2005 and December 31, 2004. |
14
In early 2000, four named plaintiffs filed a class action against Fidelity Group, Inc. (Fidelity), HPS, Third Party Claims Management, and others, for unspecified damages. The complaint stems from the failure of a Fidelity insurance plan, and alleges unfair and deceptive trade practices; negligent undertaking; fraud; negligent misrepresentation; breach of contract; civil conspiracy; and RICO violations against Fidelity, and its contracted administrator, HPS. Two principals of the Fidelity plan have been convicted of insurance fraud and sentenced to prison in a separate proceeding. The class has been certified and the case is proceeding in discovery. The Company is contesting the plaintiffs claims vigorously, but is unable to predict the outcome of the case or any potential liability. | ||
In 2004, the Company filed a tax appeal in the State of New York contesting a Notice of Deficiency issued by the State of New York to PlanVista. The notice involved taxes claimed to be due for the tax years ending December 31, 1999 through December 31, 2001. The amount due, including interest and penalties, through June 30, 2005 is $3.1 million. The Company recently withdrew the tax appeal and is seeking a negotiated resolution with the State of New York. The Company has entered into an agreement in principle with a third party to be reimbursed for 70% of the liability ultimately agreed to with the State of New York, but not to exceed $2 million. | ||
(b) | Other In connection with the Companys June 1997 acquisition of its PreScribe technology used in its Prescription Services business, the Company would be obligated to pay up to $10 million to the former owner of PreScribe in the event of a divestiture of a majority interest in ProxyMed, or all or part of the PreScribe technology. | |
In connection with the Companys December 2002 acquisiton of MedUnite, Inc., the Company signed an agreement with NDCHealth (NDC), restructuring a liability owed by MedUnite to NDC in the amount of $4 million, in exchange for $4 million of additional consideration in one or more commercial arrangements between NDC and ProxyMed. The agreement also states that both parties will negotiate in good faith other potential commercial arrangements, in the event that NDC does not receive at least $4 million from such arrangements by December 31, 2005. | ||
(c) | Leases In January 2005, the Company renewed its Corporate office lease in Atlanta, Georgia for an additional 5 year term, commencing May 1, 2005 through April 30, 2010. The base lease payments for the renewal term total $2.2 million. In May 2005, the Company negotiated a reduction of $0.7 million of the base lease payments in lieu of leasehold improvements. | |
(d) | Employment Agreements The Company entered into employment agreements with certain executives and other members of management that provide for cash severance payments if these employees are terminated without cause. The Companys aggregate commitment under these agreements is $1.4 million at June 30, 2005. | |
(10) | Other Events | |
On May 11, 2005, ProxyMed announced that John G. Lettko joined ProxyMed as Chief Executive Officer. Additionally, on June 9, 2005, ProxyMed announced the resignation of Nancy J. Ham as President and Chief Operating Officer. |
15
16
17
Three Months Ended June 30, | ||||||||||||||||||||||||
% of Net | % of Net | |||||||||||||||||||||||
In thousands (unaudited) | 2005 | Revenues | 2004 | Revenues | Change $ | Change % | ||||||||||||||||||
Net revenues: |
||||||||||||||||||||||||
Transaction Services |
$ | 17,599 | 84.7 | % | $ | 18,524 | 75.2 | % | $ | (925 | ) | -5.0 | % | |||||||||||
Laboratory Communication
Solutions |
3,182 | 15.3 | % | 6,125 | 24.8 | % | (2,943 | ) | -48.0 | % | ||||||||||||||
20,781 | 100 | % | 24,649 | 100 | % | (3,868 | ) | -15.7 | % | |||||||||||||||
Cost of sales: |
||||||||||||||||||||||||
Transaction Services |
5,688 | 27.4 | % | 5,895 | 23.9 | % | 207 | 3.5 | % | |||||||||||||||
Laboratory Communication
Solutions |
1,685 | 8.1 | % | 3,917 | 15.9 | % | 2,232 | 57.0 | % | |||||||||||||||
7,373 | 35.5 | % | 9,812 | 39.8 | % | 2,439 | 24.9 | % | ||||||||||||||||
Selling, general and
administrative expenses: |
||||||||||||||||||||||||
Transaction Services |
11,911 | 57.3 | % | 11,208 | 45.5 | % | (703 | ) | -6.3 | % | ||||||||||||||
Laboratory Communication
Solutions |
654 | 3.1 | % | 1,264 | 5.1 | % | 610 | 48.3 | % | |||||||||||||||
12,565 | 60.5 | % | 12,472 | 50.6 | % | (93 | ) | -0.75 | % | |||||||||||||||
Write-off of impaired assets |
||||||||||||||||||||||||
Transaction Services |
| 0.0 | % | | 0.0 | % | | |||||||||||||||||
Laboratory Communication
Solutions |
741 | 3.6 | % | | 0.0 | % | (741 | ) | ||||||||||||||||
741 | 3.6 | % | | 0.0 | % | (799 | ) | |||||||||||||||||
Depreciation and amortization: |
||||||||||||||||||||||||
Transaction Services |
2,426 | 11.7 | % | 2,382 | 9.7 | % | (44 | ) | -1.8 | % | ||||||||||||||
Laboratory Communication
Solutions |
143 | 0.7 | % | 247 | 1.0 | % | 104 | 42.1 | % | |||||||||||||||
2,569 | 12.4 | % | 2,629 | 10.7 | % | 60 | 2.3 | % | ||||||||||||||||
Operating income (loss): |
||||||||||||||||||||||||
Transaction Services |
(2,426 | ) | -11.7 | % | (961 | ) | -3.9 | % | (1,465 | ) | -152.4 | % | ||||||||||||
Laboratory Communication
Solutions |
(40 | ) | -0.2 | % | 697 | 2.8 | % | (737 | ) | -105.7 | % | |||||||||||||
(2,466 | ) | -11.9 | % | (264 | ) | -1.1 | % | (2,202 | ) | -834.1 | % | |||||||||||||
Interest expense, net |
420 | 2.0 | % | 542 | 2.2 | % | 122 | 22.5 | % | |||||||||||||||
Other income |
| (134 | ) | (134 | ) | |||||||||||||||||||
Loss before income taxes |
(2,886 | ) | (672 | ) | (2,214 | ) | ||||||||||||||||||
Provision for income taxes |
| 100 | 100 | |||||||||||||||||||||
Net loss |
$ | (2,886 | ) | $ | (772 | ) | $ | (2,114 | ) | |||||||||||||||
18
Three Months Ended June 30, | ||||||||||||||||
In thousands (unaudited) | 2005 | 2004 | Change | % Change | ||||||||||||
Core transactions |
67,957 | 62,790 | 5,167 | 8 | % | |||||||||||
Encounters |
5,011 | 6,086 | (1,075 | ) | -18 | % | ||||||||||
72,968 | 68,876 | 4,092 | 6 | % | ||||||||||||
19
20
Six Months Ended June 30, | ||||||||||||||||||||||||
% of Net | % of Net | |||||||||||||||||||||||
In thousands (unaudited) | 2005 | Revenues | 2004 | Revenues | Change $ | Change % | ||||||||||||||||||
Net revenues: |
||||||||||||||||||||||||
Transaction Services |
$ | 36,206 | 85.2 | % | $ | 33,118 | 73.3 | % | $ | 3,088 | 9.3 | % | ||||||||||||
Laboratory Communication Solutions |
6,289 | 14.8 | % | 12,036 | 26.7 | % | (5,747 | ) | -47.7 | % | ||||||||||||||
42,495 | 100.0 | % | 45,154 | 100.0 | % | (2,659 | ) | -5.9 | % | |||||||||||||||
Cost of sales: |
||||||||||||||||||||||||
Transaction Services |
11,686 | 27.5 | % | 10,160 | 22.5 | % | (1,526 | ) | -15.0 | % | ||||||||||||||
Laboratory Communication Solutions |
3,369 | 7.9 | % | 7,946 | 17.6 | % | 4,577 | 57.6 | % | |||||||||||||||
15,055 | 35.4 | % | 18,106 | 40.1 | % | 3,051 | 16.9 | % | ||||||||||||||||
Selling, general and
administrative expenses: |
||||||||||||||||||||||||
Transaction Services |
23,882 | 56.2 | % | 20,246 | 44.8 | % | (3,636 | ) | -18.0 | % | ||||||||||||||
Laboratory Communication Solutions |
1,308 | 3.1 | % | 2,629 | 5.8 | % | 1,321 | 50.2 | % | |||||||||||||||
25,190 | 59.3 | % | 22,875 | 50.6 | % | (2,315 | ) | -10.1 | % | |||||||||||||||
Write-off of impaired assets: |
||||||||||||||||||||||||
Transaction Services |
| 0.0 | % | | 0.0 | % | | |||||||||||||||||
Laboratory Communication Solutions |
741 | 1.7 | % | | 0.0 | % | (741 | ) | ||||||||||||||||
741 | 1.7 | % | | 0.0 | % | (741 | ) | |||||||||||||||||
Depreciation and amortization: |
||||||||||||||||||||||||
Transaction Services |
4,840 | 11.4 | % | 3,972 | 8.8 | % | (868 | ) | -21.9 | % | ||||||||||||||
Laboratory Communication Solutions |
326 | 0.8 | % | 507 | 1.1 | % | 181 | 35.7 | % | |||||||||||||||
5,166 | 12.2 | % | 4,479 | 9.9 | % | (687 | ) | -15.3 | % | |||||||||||||||
Operating income (loss): |
||||||||||||||||||||||||
Transaction Services |
(4,202 | ) | -9.9 | % | (1,260 | ) | -2.8 | % | (2,942 | ) | -233.5 | % | ||||||||||||
Laboratory Communication Solutions |
546 | 1.3 | % | 954 | 2.1 | % | (408 | ) | -42.8 | % | ||||||||||||||
(3,656 | ) | -8.6 | % | (306 | ) | -0.7 | % | (3,350 | ) | -1094.8 | % | |||||||||||||
Interest expense, net |
1,021 | 2.4 | % | 877 | 1.9 | % | (144 | ) | -16.4 | % | ||||||||||||||
Other income |
| (134 | ) | -0.3 | % | (134 | ) | |||||||||||||||||
Loss before income taxes |
(4,677 | ) | (1,049 | ) | (3,628 | ) | ||||||||||||||||||
Provision for income taxes |
| 150 | 150 | |||||||||||||||||||||
Net loss |
$ | (4,677 | ) | $ | (1,199 | ) | $ | (3,478 | ) | |||||||||||||||
21
Six Months Ended June 30, | ||||||||||||||||
In thousands (unaudited) | 2005 | 2004 | Change | % Change | ||||||||||||
Core transactions |
137,709 | 126,583 | 11,126 | 9 | % | |||||||||||
Encounters |
10,927 | 16,053 | (5,126 | ) | -32 | % | ||||||||||
148,636 | 142,636 | 6,000 | 4 | % | ||||||||||||
22
23
| For revenues derived from insurance payers, pharmacies, and submitters, such revenues are recognized on a per transaction basis or flat fee basis in the period the services are rendered. | |
| Revenue from our medical cost containment business is recognized when the services are performed and are recorded net of estimated allowances. These revenues are primarily in the form of fees generated from discounts we secure for payers that access our provider network. | |
| Revenues associated with revenue sharing agreements are recorded on a per transaction basis or a percentage of revenue basis and may involve increasing amounts or percentages based on transaction or revenue volumes achieved. This treatment is in accordance with Emerging Issues Task Force No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent. | |
| Revenue from certain up-front fees is recognized ratably over three years, which is the expected life of the customer. This treatment is in accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104). | |
| Revenue from support and maintenance contracts is recognized ratably over the contract period. |
| Revenue from support and maintenance contracts is recognized ratably over the contract period. |
24
| Revenues from the sale of inventory and manufactured goods is recognized when the product is delivered, price is fixed or determinable, and collectibility is probable. This treatment is in accordance with SAB No. 104. |
| Revenue from the rental of laboratory communication devices is recognized ratably over the period of the rental contract. |
25
26
27
28
29
31.1 | Certification by John G. Lettko, Chief Executive Office, pursuant to Exchange Act Rules 13a-14 and 15d-14.31.2. | ||
31.2 | Certification by Gregory J. Eisenhauer, Chief Financial Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14. | ||
32.1 | Certification by John G. Lettko, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | Certification by Gregory J. Eisenhauer, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
30
PROXYMED, INC. | |||||
Date: August 9, 2005
|
By: | /s/ John G. Lettko | |||
John G. Lettko | |||||
Chief Executive Officer | |||||
Date: August 9, 2005
|
By: | /s/ Gregory J. Eisenhauer | |||
Gregory J. Eisenhauer, CFA | |||||
EVP and Chief Financial Officer |
31