##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-K/A Amendment No. 1 FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Mark One)  þ
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 2004or  o
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________ to ________ Commission File Number000-22052 PROXYMED, INC. (Exact name of registrant as specified in its charter)
 Florida
    
    65-0202059(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1854 Shackleford Court, Suite 200, Atlanta, Georgia
    
    30093(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (770)-806-9918 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value(Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No Indicate by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. o Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange
Act Rule 12b-2). þ Yes o No The aggregate market value of the voting and non-voting common equity held by non-affiliates
of the registrant computed using $17.07 per share, the closing price of the registrants common
stock on the Nasdaq National Market as of the last business day of the registrants most recently
completed second fiscal quarter, was $90,445,875. As of March 11, 2005, 12,626,567 shares of the registrants common stock were issued and
outstanding. Documents Incorporated by Reference: Portions of the registrants definitive Proxy Statement
for its Annual Meeting of Shareholders to be held on or about June 1, 2005, are incorporated by
reference into Part III of this Annual Report on Form 10-K.




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##### 



Explanatory Note This Amendment No. 1 on Form 10-K/A, or Amendment No. 1, is being filed by ProxyMed, Inc. to
amend our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 filed with the
Securities and Exchange Commission, or SEC, on March 17, 2005. This Amendment No. 1 corrects two typographical errors in Item 15. Exhibits And Financial
Statement Schedules. Corrected data includes only the following:  
    In the Consolidated Balance Sheet, the number of authorized shares of the Company.
    In Note 15 to the Financial Statements, the amount of Cash Paid for Interest for 2004. The Exhibit Index is being supplemented to include a Letter
Agreement dated as of March 8, 2005, between the Company and
John D. Guinan (filed as Exhibit 10.46), which was inadvertently
omitted from the Annual Report. The complete text of Item 15 and the
Exhibit Index is included in this Amendment pursuant to
Rule 12b-15 promulgated under the Securities and Exchange Act of
1934, as amended (the Exchange Act). In
addition, Item 15 and the Exhibit Index include the
certifications required pursuant to Rules 13a-14(a)/15d-14(a) of the
Exchange Act, which have been re-executed and re-filed as of the date of
this Amendment. The certifications of our Chief Executive Officer and
Chief Financial Officer are attached to this Amendment as
Exhibits 31.1 and 31.2, respectively. This Amendment No. 1 does not update any other disclosures to reflect developments since the
original date of filing. Unaffected items have not been repeated in this Amendment No. 1, and no
other changes have been made.




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##### 



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Page(a
    )
    
    
    (1
    )
    
    The following financial statements are included in Part II, Item 8:Consolidated Financial Statements:Report of Independent Registered Public Accounting Firm
    
    
    F-2Report of Independent Registered Public Accounting Firm
    
    
    F-3Consolidated Balance Sheets  December 31, 2004 and 2003
    
    
    F-4Consolidated Statements of Operations  Years Ended December 31,
    
    
    F-52004, 2003 and 2002Consolidated Statements of Stockholders Equity  Years Ended
    
    
    F-6December 31, 2004, 2003 and 2002Consolidated Statements of Cash Flows  Years Ended December 31,
    
    
    F-72004, 2003 and 2002Notes to Consolidated Financial Statements
    
    
    F-8  F-48(2
    )
    
    The following schedule for the years 2004, 2003 and 2002 is
submitted herewith:Schedule II  Valuation and Qualifying Accounts  Years Ended
    
    
    F-49December 31, 2004, 2003 and 2002(3
    )
    
    Exhibits required to be filed by Item 601 of Regulation S-K as
exhibits to this Report are listed in the Exhibit Index appearing
on pages 60 through 65.




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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 Amendment No. 1 to Form 10-K for the year ended December 31,
2004 to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: March 30, 2005
    PROXYMED, INC.By:
    /s/ Kevin M. McNamaraKevin M. McNamaraInterim Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Kevin M. McNamara and Gregory J. Eisenhauer and each of them, his true and lawful
attorney-in-fact and agents, with full power of substitution and resubstitution for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments to this Report on
Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated. SIGNATURES
    
    TITLE
    
    DATE/s/ Kevin M. McNamara

Kevin M. McNamara
    
    Chairman of the Board and
Interim Chief Executive
Officer (principal
executive officer)
    
    March 30, 2005/s/Gregory J. Eisenhauer

Gregory J. Eisenhauer, CFA
    
    Executive Vice President
and Chief Financial Officer
(principal financial and
accounting officer)
    
    March 30, 2005/s/ William L. Bennett

William L. Bennett
    
    Director
    
    March 30, 2005/s/ Edwin M. Cooperman

Edwin M. Cooperman
    
    Director
    
    March 30, 2005/s/ Michael S. Falk

Michael S. Falk
    
    Director
    
    March 30, 2005/s/ Thomas E. Hodapp

Thomas E. Hodapp
    
    Director
    
    March 30, 2005/s/ Braden R. Kelly

Braden R. Kelly
    
    Director
    
    March 30, 2005/s/ Eugene R. Terry

Eugene R. Terry
    
    Director
    
    March 30, 2005




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##### 



PROXYMED, INC. AND SUBSIDIARIES Index to Consolidated Financial Statements and Schedule PAGEConsolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    F-2Report of Independent Registered Public Accounting Firm
    
    
    F-3Consolidated Balance Sheets  December 31, 2004 and 2003
    
    
    F-4Consolidated Statements of Operations  Years Ended December 31, 2004, 2003 and 2002
    
    
    F-5Consolidated Statements of Stockholders Equity  Years Ended December 31, 2004, 2003 and 2002
    
    
    F-6Consolidated Statements of Cash Flows  Years Ended December 31, 2004, 2003 and 2002
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8  F-48Schedule II  Valuation and Qualifying Accounts  Years Ended December 31, 2004, 2003, and 2002
    
    
    F-49




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of
ProxyMed, Inc.
Atlanta, Georgia We have audited the accompanying consolidated balance sheet of ProxyMed, Inc. and its subsidiaries
(the Company) as of December 31, 2004, and the related consolidated statements of operations,
stockholders equity, and cash flows for the year then ended. Our audit also included the
financial statement schedule listed in the Index at Item 15(a)(2) for the year ended December 31,
2004. These financial statements and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on the financial statements and
financial statement schedules based on our audit. The financial statements and financial statement
schedule of the Company for the years ended December 31, 2003 and 2002 were audited by other
auditors whose report, dated March 25, 2004, expressed an unqualified opinion on the financial
statements and financial statement schedule and included an explanatory paragraph that described
the adoption of Financial Accounting Standards Board Statement No. 142, Goodwill and Other
Intangible Assetsdiscussed in Note 9 to the financial statements. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of ProxyMed, Inc. and its subsidiaries as of December 31, 2004, and the
results of their operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the information set forth
therein for the year ended December 31, 2004. The accompanying consolidated
financial statements for the year ended December 31, 2004 have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 21 to the financial statements, the
Companys potential inability to pay certain current debt obligations when due raises substantial doubt
about its ability to continue as a going concern. Managements plans concerning these matters are described in Note 12(a). The financial statements do not include any adjustments that might result
from the outcome of this uncertainty. We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2004, based on the criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 16, 2005 expressed an unqualified opinion on
managements assessment of the effectiveness of internal control
over financial reporting and an unqualified opinion on the
effectiveness of the Companys internal control over financial
reporting. /s/ Deloitte &
Touche LLP Atlanta, Georgia
March 16, 2005 F-2




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##### 



REPORT OF INDEPENDENT
REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM To the Board of Directors and
theShareholders of ProxyMed, Inc. In our opinion, the consolidated financial statements
listed in the index appearing under Item 15(a)(l) on
page (57) present fairly, in all material
respects, the financial position of ProxyMed, Inc. and its subsidiaries
(the Company) at December 31, 2003 and the results of their operations and their cash flows
for each of the two years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item
15(a)(2) on page (57) presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of
the Companys management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion. As discussed in Note 8 to the consolidated financial statements, pursuant to the
adoption of Financial Accounting Standards Board Statement No. 142,
Goodwill and Other Intangible Assets, the
Company changed its method of accounting for goodwill in 2002. /s/ PricewaterhouseCoopers
LLP 
Fort Lauderdale, FloridaMarch 25, 2004 F - 3




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2004 and 2003
(amounts in thousands except for share and per share data) Assets
    
    2004
    
    
    2003Current assets:Cash and cash equivalents
    
    $
    12,374
    
    
    $
    5,333Accounts receivable  trade, net of allowance for
doubtful accounts of $3,168 and $882 respectively
    
    
    17,591
    
    
    
    10,434Other receivables
    
    
    312
    
    
    
    187Inventory, net
    
    
    1,775
    
    
    
    3,347Other current assets
    
    
    1,399
    
    
    
    1,908Total current assets
    
    
    33,451
    
    
    
    21,209Property and equipment, net
    
    
    4,801
    
    
    
    4,772Goodwill, net
    
    
    93,604
    
    
    
    30,775Purchased technology, capitalized software and
other intangible assets, net
    
    
    52,305
    
    
    
    15,884Restricted cash
    
    
    75
    
    
    
    291Other long-term assets
    
    
    167
    
    
    
    199Total assets
    
    $
    184,403
    
    
    $
    73,130Liabilities and Stockholders EquityCurrent liabilities:Notes payable and current portion of long-term debt
    
    $
    2,178
    
    
    $
    1,712Related
party debt - See Notes 12(a) and 21
    
    
    18,394
    
    
    
    Accounts payable and accrued expenses and other current liabilities
    
    
    13,637
    
    
    
    8,264Deferred revenue
    
    
    691
    
    
    
    721Income taxes payable
    
    
    215
    
    
    
    Total current liabilities
    
    
    35,115
    
    
    
    10,697Convertible notes
    
    
    13,137
    
    
    
    13,137Other long term debt
    
    
    206
    
    
    
    2,057Long-term deferred revenue and other long-term liabilities
    
    
    863
    
    
    
    1,461Total liabilities
    
    
    49,321
    
    
    
    27,352Commitments and contingencies  see Notes 18 and 19Stockholders equity:Series C 7% Convertible preferred stock  $.01 par value
Authorized 300,000 shares; issued 253,265 shares;
outstanding 2,000; liquidation preference $200
    
    
    
    
    
    
    Common stock  $.001 par value. Authorized 30,000,000 shares;
issued and outstanding 12,626,182 and 6,784,118 shares, respectively
    
    
    13
    
    
    
    7Additional paid-in capital
    
    
    239,255
    
    
    
    146,230Unearned compensation
    
    
    (113
    )
    
    
    Accumulated deficit
    
    
    (104,073
    )
    
    
    (100,273
    )Note receivable from stockholder
    
    
    
    
    
    
    (186
    )Total stockholders equity
    
    
    135,082
    
    
    
    45,778Total liabilities and stockholders equity
    
    $
    184,403
    
    
    $
    73,130
 The accompanying notes are an integral part of the consolidated financial statements. F-4




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 2004, 2003 and 2002
(amounts in thousands except for share and per share data) 2004
    
    
    2003
    
    
    2002Net revenues:Transaction fees, cost containment
services and license fees
    
    $
    73,538
    
    
    $
    51,813
    
    
    $
    28,455Communication devices
and other tangible goods
    
    
    16,708
    
    
    
    19,743
    
    
    
    21,72790,246
    
    
    
    71,556
    
    
    
    50,182Costs and expenses:Cost of transaction fees, cost containment services
and license fees excluding depreciation and amortization
    
    
    22,626
    
    
    
    15,917
    
    
    
    8,858Cost of laboratory communication devices and other tangible goods
excluding depreciation and amortization
    
    
    11,586
    
    
    
    16,504
    
    
    
    17,158Selling, general and administrative expenses
    
    
    48,023
    
    
    
    35,809
    
    
    
    20,152Depreciation and amortization
    
    
    9,763
    
    
    
    6,316
    
    
    
    2,636Loss on disposal of assets
    
    
    47
    
    
    
    111
    
    
    
    Litigation settlement
    
    
    175
    
    
    
    
    
    
    
    Write-off of impaired and obsolete assets
    
    
    
    
    
    
    541
    
    
    
    3892,220
    
    
    
    75,198
    
    
    
    48,842Operating income (loss)
    
    
    (1,974
    )
    
    
    (3,642
    )
    
    
    1,340Other income (expense), net
    
    
    134
    
    
    
    (496
    )
    
    
    265Interest income (expense), net
    
    
    (1,920
    )
    
    
    (862
    )
    
    
    345Income (loss) before income taxes
    
    
    (3,760
    )
    
    
    (5,000
    )
    
    
    1,950Provision for income taxes
    
    
    40
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (3,800
    )
    
    
    (5,000
    )
    
    
    1,950Deemed dividends and other charges
    
    
    
    
    
    
    
    
    
    
    612Net income (loss) applicable to common shareholders
    
    $
    (3,800
    )
    
    $
    (5,000
    )
    
    $
    1,338Basic weighted average shares outstanding
    
    
    11,617,601
    
    
    
    6,783,742
    
    
    
    6,322,086Basic earnings (loss) per share
    
    $
    (0.33
    )
    
    $
    (0.74
    )
    
    $
    0.21Diluted weighted average shares outstanding
    
    
    11,617,601
    
    
    
    6,783,742
    
    
    
    6,396,893Diluted earnings (loss) per share
    
    $
    (0.33
    )
    
    $
    (0.74
    )
    
    $
    0.21
 The accompanying notes are an integral part of the consolidated financial statements. F-5




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders Equity
Years Ended December 31, 2004, 2003 and 2002
(amounts in thousands except for share and per share data) Series C
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NotePreferred stock
    
    
    Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    receivableNumber
    
    
    Par
    
    
    Number
    
    
    Par
    
    
    Additional
    
    
    Unearned
    
    
    Accumulated
    
    
    fromof shares
    
    
    value
    
    
    of shares
    
    
    value
    
    
    paid-in capital
    
    
    Compensation
    
    
    deficit
    
    
    stockholder
    
    
    TotalBalances, December 31, 2001
    
    
    34,650
    
    
    $
    
    
    
    
    4,894,433
    
    
    $
    5
    
    
    $
    120,277
    
    
    $
    
    
    
    $
    (97,223
    )
    
    $
    (186
    )
    
    $
    22,873Sales of common stock, net
of expenses of $139
    
    
    
    
    
    
    
    
    
    
    1,569,366
    
    
    
    2
    
    
    
    24,884
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,886Common stock issued for acquired
business
    
    
    
    
    
    
    
    
    
    
    30,034
    
    
    
    
    
    
    
    600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600Conversions of Series C
preferred stock pursuant
to Conversion Offer
    
    
    (31,650
    )
    
    
    
    
    
    
    242,508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversions of Series C
preferred stock
    
    
    (1,000
    )
    
    
    
    
    
    
    6,666
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exchange of Series B warrants
into common stock
    
    
    
    
    
    
    
    
    
    
    34,500
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450Exchange of Series C warrants
into common stock
    
    
    
    
    
    
    
    
    
    
    1,190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    4,241
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,950
    
    
    
    
    
    
    
    1,950Balances, December 31, 2002
    
    
    2,000
    
    
    
    
    
    
    
    6,782,938
    
    
    
    7
    
    
    
    146,187
    
    
    
    
    
    
    
    (95,273
    )
    
    
    (186
    )
    
    
    50,735Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    555
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Other, net
    
    
    
    
    
    
    
    
    
    
    625
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )Balances, December 31, 2003
    
    
    2,000
    
    
    
    
    
    
    
    6,784,118
    
    
    
    7
    
    
    
    146,230
    
    
    
    
    
    
    
    (100,273
    )
    
    
    (186
    )
    
    
    45,778Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    1,558
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Exercise of warrants
    
    
    
    
    
    
    
    
    
    
    549,279
    
    
    
    
    
    
    
    8,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,750Common stock issued for acquired
Business
    
    
    
    
    
    
    
    
    
    
    3,600,000
    
    
    
    4
    
    
    
    59,756
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    59,760Sales of common stock, net
    
    
    
    
    
    
    
    
    
    
    1,691,227
    
    
    
    2
    
    
    
    24,048
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,050Unearned compensation charge for options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295
    
    
    
    (295
    )
    
    
    
    
    
    
    
    
    
    
    Compensatory option charges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    182
    
    
    
    
    
    
    
    
    
    
    
    274Compensatory option charge included
in loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68Repayment of note receivable from shareholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186
    
    
    
    186Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,800
    )
    
    
    
    
    
    
    (3,800
    )Balances, December 31, 2004
    
    
    2,000
    
    
    $
    
    
    
    
    12,626,182
    
    
    $
    13
    
    
    $
    239,255
    
    
    $
    (113
    )
    
    $
    (104,073
    )
    
    $
    
    
    
    $
    135,082
 The accompanying notes are an integral part of the consolidated financial statements. F-6




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31, 2004, 2003 and 2002
(amounts in thousands except for share and per share data) 2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income (loss)
    
    $
    (3,800
    )
    
    $
    (5,000
    )
    
    $
    1,950Adjustments to reconcile net income (loss) to net cash
provided by operating activities:Depreciation and amortization
    
    
    9,763
    
    
    
    6,316
    
    
    
    2,636Provision for doubtful accounts
    
    
    858
    
    
    
    152
    
    
    
    38Provision for obsolete inventory
    
    
    92
    
    
    
    28
    
    
    
    Non-cash interest (income) expense
    
    
    (59
    )
    
    
    54
    
    
    
    Gain on settlement of liability
    
    
    (134
    )
    
    
    
    
    
    
    Write-off of obsolete and impaired assets
    
    
    
    
    
    
    541
    
    
    
    38Compensatory stock options and warrants
and stock compensation awards issued
    
    
    275
    
    
    
    
    
    
    
    Write-off of investment
    
    
    
    
    
    
    496
    
    
    
    Loss on disposal of fixed assets
    
    
    47
    
    
    
    111
    
    
    
    Changes in assets and liabilities, net of
effect of acquisitions and dispositions:Accounts and other receivables
    
    
    548
    
    
    
    (498
    )
    
    
    (1,445
    )Inventory
    
    
    (1,329
    )
    
    
    (601
    )
    
    
    747Other current assets
    
    
    465
    
    
    
    430
    
    
    
    (30
    )Accounts payable and accrued expenses
    
    
    124
    
    
    
    (1,173
    )
    
    
    (1,150
    )Accrued expenses of PlanVista paid by ProxyMed
    
    
    (4,011
    )
    
    
    
    
    
    
    Deferred revenue
    
    
    137
    
    
    
    222
    
    
    
    76Income taxes
    
    
    (418
    )
    
    
    
    
    
    
    Prepaid and
other, net
    
    
    (727
    )
    
    
    440
    
    
    
    (12
    )Net cash provided by operating activities
    
    
    1,831
    
    
    
    1,518
    
    
    
    2,848Cash flows from investing activities:Acquisition of businesses, net of cash acquired
    
    
    782
    
    
    
    
    
    
    
    (14,453
    )Acquisition of assets
    
    
    
    
    
    
    
    
    
    
    (700
    )Short term investments
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Redemption of short term investments
    
    
    
    
    
    
    
    
    
    
    15,000Capital expenditures
    
    
    (3,440
    )
    
    
    (2,601
    )
    
    
    (1,561
    )Capitalized software
    
    
    (909
    )
    
    
    (1,426
    )
    
    
    (445
    )Collection of notes receivable
    
    
    374
    
    
    
    120
    
    
    
    65Proceeds from sale of fixed assets
    
    
    4,526
    
    
    
    395
    
    
    
    Decrease in restricted cash
    
    
    215
    
    
    
    534
    
    
    
    Payments for acquisition-related costs
    
    
    (884
    )
    
    
    (6,623
    )
    
    
    (96
    )Net cash provided by (used in) investing activities
    
    
    664
    
    
    
    (9,601
    )
    
    
    (17,190
    )Cash flows from financing activities:Net proceeds from sale of common stock
    
    
    24,100
    
    
    
    
    
    
    
    24,886Proceeds from exercise of stock options and warrants
    
    
    8,766
    
    
    
    7
    
    
    
    450Draws on line of credit
    
    
    4,900
    
    
    
    
    
    
    
    Repayments of line of credit
    
    
    (4,900
    )
    
    
    
    
    
    
    Payment of note payable related to acquisition of business
    
    
    
    
    
    
    
    
    
    
    (7,000
    )Payment of
related party note payable
    
    
    (2,000
    )
    
    
    
    
    
    
    Payment of notes payable, long-term debt and capital leases
    
    
    (26,320
    )
    
    
    (2,969
    )
    
    
    (217
    )Net cash provided by (used in) financing activities
    
    
    4,546
    
    
    
    (2,962
    )
    
    
    18,119Net increase (decrease) in cash and cash equivalents
    
    
    7,041
    
    
    
    (11,045
    )
    
    
    3,777Cash and cash equivalents at beginning of year
    
    
    5,333
    
    
    
    16,378
    
    
    
    12,601Cash and cash equivalents at end of year
    
    $
    12,374
    
    
    $
    5,333
    
    
    $
    16,378
 The accompanying notes are an integral part of the consolidated financial statements. F-7




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued (1) Business and Summary of Significant Accounting Policies  (a)
    Business of ProxyMed  ProxyMed, Inc. (ProxyMed or the Company) is an
electronic healthcare transaction and cost containment processing services company
providing connectivity and related value-added products to physician offices, payers,
medical laboratories, pharmacies and other healthcare providers. ProxyMeds corporate
headquarters are located in Atlanta, Georgia and its products and services are provided
from various operational facilities located throughout the United States. The Company also
operates its clinical computer network and portions of its financial and real-time
production computer networks from a secure, third-party co-location site in Atlanta,
Georgia.(b)
    Principles of Consolidation  The consolidated financial statements include
the accounts of ProxyMed and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation.(c)
    Use of Estimates  The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.(d)
    Revenue Recognition Revenue is derived from the Companys Transaction
Services and Laboratory Communication Solutions segments.In its Transaction Services segment, the Company provides transaction and value-added
services principally between healthcare providers and insurance companies, and physicians
and pharmacies. Such transactions and services include Electronic Data Interchange (EDI)
claims submission and reporting, insurance eligibility verification, claims status
inquiries, referral management, electronic remittance advice, patient statement processing,
encounters, and cost containment transaction services including claims repricing and bill
renegotiation. In the Laboratory Communication Solutions segment, the Company sells, rents
and services intelligent remote reporting devices and provides lab results reporting through
its software products.Transaction Services revenues are derived from insurance payers, pharmacies and submitters
(physicians and other entities including billing services, practice management software
vendors, claims aggregators, etc.). Such revenues are recorded on either a per transaction
fee basis or on a flat fee basis (per physician, per tax ID, etc.) and are recognized in the
period the service is rendered. Agreements between the Company and payers or pharmacies are
for one to three years on a non-exclusive basis. Agreements with submitters are generally
for one year, renew automatically, and are generally terminable thereafter upon 30 to 90
days notice. Transaction fees vary according to the type of transaction and other factors,
including volume level commitments. F-8




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  Revenue from Medical Cost Containment business in the Transaction Services segment is
recognized when the services are performed and are recorded net of their estimated
allowances. These revenues are primarily in the form of fees generated from the discounts
the Company secures for the payers that access its provider network. The Company enters
into agreements with its healthcare payer customers that require them to pay a percentage of
the cost savings generated from the Companys network discounts with participating
providers. These agreements are generally terminable upon 90 days notice. Revenue from a
percentage of savings contract is generally recognized when the related claims processing
and administrative services have been performed. The remainder of the Companys revenue
from its Medical Cost Containment business is generated from customers that pay a monthly
fee based on eligible employees enrolled in a benefit plan covered by the Companys health
benefits payers clients.Also in the Transaction Services segment, certain transaction fee revenue is subject to
revenue sharing pursuant to agreements with resellers, vendors or gateway partners and is
recorded as gross revenues in accordance with EITF No. 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent. Such revenue sharing amounts are based on a per
transaction amount or a percentage of revenue basis and may involve increasing amounts or
percentages based on transaction or revenue volumes achieved.Revenue from certain up-front fees charged primarily for the development of EDI for payers
and the implementation of services for submitters in the Transaction Services segment is
amortized ratably over three years, which is the expected life of the customer, in
accordance with Staff Accounting Bulletin No. 104, Revenue Recognition (SAB No. 104).Revenue from support and maintenance contracts on the Companys products in both the
Transaction Services and Laboratory Communication Solutions segments is recognized ratably
over the contract period, which does not exceed one year. Such amounts are billed in
advance and established as deferred revenue.In the Companys Laboratory Communication Solutions segment, 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 in
accordance with SAB No. 104.Revenues from maintenance fees on laboratory communication devices are charged on an annual
or quarterly basis and are recognized ratably over the service period. Service fees may
also be charged on a per event basis and are recognized after the service has been
performed.Revenue from the rental of laboratory communication devices is recognized ratably over the
applicable period of the rental contract. Such contracts require monthly rental payments
and are for a one to three year term, then renewing on a month to month basis after the
initial term is expired. Contracts may be cancelled upon 30 days notice. A significant
amount of rental revenues are derived from contracts that are no longer under the initial
non-cancelable term. At the end of the rental period, the customer may return or purchase
the unit for fair market value. Upon sale of the revenue earning equipment, the gross
proceeds are included in net revenues and the undepreciated cost of the equipment sold is
included in cost of sales. F-9




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (e)
    Fair Value of Financial Instruments  Cash and cash equivalents, notes and
other accounts receivable, and restricted cash are financial assets with carrying values
that approximate fair value. Accounts payable, other accrued expenses and liabilities,
notes payable, and short-term and long-term debt are financial liabilities with carrying
values that approximate fair value. The notes payable bear interest rates that approximate market rates.(f)
    Cash and Cash Equivalents  The Company considers all highly liquid
investments with original maturities of three months or less to be cash equivalents. Cash
balances in excess of immediate needs are invested in bank certificates of deposit, money
market accounts and commercial paper with high-quality credit institutions. At times, such
amounts may be in excess of FDIC insurance limits. The Company has not experienced any
loss to date on these investments. Cash and cash equivalents used to support collateral
instruments, such as letters of credit, are reclassified as either current or long-term
assets depending upon the maturity date of the obligation they collateralize.(g)
    Reserve for Doubtful Accounts/Revenue Allowances/Bad Debt Estimates  The
Company relies on estimates to determine the bad debt expense and the adequacy of the
reserve for doubtful accounts receivable. These estimates are based on the Companys
historical experience and the industry in which it operates. If the financial condition of
its customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required. Additionally, in the Medical Cost
Containment business, the Company evaluates the collectibility of its accounts receivable
based on a combination of factors, including historical collection ratios.In circumstances where the Company is aware of a specific customers inability to meet its
financial obligations, it records a specific reserve for bad debts against amounts due to
reduce the net recognized receivable to the amount it reasonably believes will be collected.
For all other customers, the Company recognizes reserves for bad debts based on past
write-off history 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.(h)
    Inventory  Inventory, consisting of component parts, materials, supplies and
finished goods (including direct labor and overhead) used to manufacture laboratory
communication devices, is stated at the lower of cost (first-in, first-out method) or
market. Reserves for inventory shrinkage are maintained and are periodically reviewed by
management based on our judgment of future realization.(i)
    Property and Equipment  Property and equipment is stated at cost and includes
revenue earning equipment. Depreciation of property and equipment is calculated on the
straight-line method over the estimated useful lives generally over 2 to 7 years.
Leasehold improvements are amortized on the straight-line method over the shorter of the
lease term or the estimated useful lives of the assets.  F-10




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  Upon sale or retirement of property and equipment, the cost and related accumulated
depreciation are eliminated from the accounts and any resulting gains or losses are
reflected in operating expenses for the period. Maintenance and repair of property and
equipment are charged to expense as incurred. Renewals and betterments are capitalized and
depreciated. In accordance with Statement of Financial Accounting Standards (SFAS) No.
144, Accounting for Impairment or Disposition of Long-lived Assets, management
periodically reviews the Companys fixed assets for obsolescence, damage and impairment.
This review indicates whether the assets will be recoverable based on estimated future cash
flows on an undiscounted basis and determines if any impairment has
occurred.(j)
    Intangible AssetsGoodwill Goodwill is reviewed at least annually for impairment. In addition,
SFAS No. 142 requires that goodwill be tested for impairment at least annually
utilizing fair value methodology. We
completed our most recent annual test at December 31, 2004
utilizing cash flow-based market comparables in assessing fair value for our goodwill
impairment testing and we concluded that there was no impairment of
our goodwill. To the extent that future cash flows differ from those
projected in our analysis, fair value of the Companys goodwill
may be affected and may result in an impairment charge.Other Intangibles  Other acquired intangible assets, consisting of customer
relationships and provider networks, are being amortized on a straight-line or accelerated
basis over their estimated useful lives of 4.6 to 12 years.The Company reviews the carrying values of acquired technology and intangible assets if
the facts and circumstances suggest that they may be impaired. This
evaluation indicates whether assets will be recoverable based on
estimated future undiscounted cash flows. If the assets are not
recoverable, an impairment charge is recognized if the carrying value
exceeds the estimated fair value.Purchased Technology and Capitalized Software  The Company has recorded amounts
related to various software and technology that it has purchased or
developed for its own
internal systems use.Internal and external costs incurred to develop internal-use computer software during the
application development stage are capitalized. Application development stage costs
generally include software configuration, coding, installation to hardware and testing.
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, general and administrative expenses). Capitalized internal-use
software development costs are periodically evaluated by ProxyMed for indications that the
carrying value may be impaired or that the useful lives assigned may be excessive. This
evaluation indicates whether assets will be recoverable based on estimated future cash flows
on an undiscounted basis, and if they are not recoverable, an
impairment charge is recognized if the carrying value exceeds the
estimated fair value. F-11




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  Purchased technology and capitalized software are being amortized on a straight-line basis
over their estimated useful lives of 1 to 12 years. Purchased technology and capitalized
software and related accumulated amortization are removed from the accounts when fully
amortized and are no longer being utilized.Research and Development  Software development costs incurred prior to the
application development stage are charged to research and development expense when incurred.
Research and development expense of approximately $2.3 million in 2004, $4.4 million in
2003, and $3.2 million in 2002 was recorded in selling, general and administrative expenses.(k)
    Income Taxes  Deferred income taxes are determined based upon differences
between financial reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences are expected to
reverse. Deferred tax assets are also established for the future tax benefits of loss and
credit carryovers. Valuation allowances are established for deferred tax assets when,
based on the weight of available evidence, it is deemed more likely than not that such
amounts will not be realized.(l)
    Net Income (Loss) Per Share  Basic net income (loss) per share is computed by
dividing net income (loss) applicable to common shareholders by the weighted average number
of shares of common stock outstanding during the period. Diluted net income (loss) per
share reflects the potential dilution from the exercise or conversion of securities into
common stock. The following schedule sets forth the computation of basic and diluted net
income (loss) per share for the years ended December 31, 2004, 2003 and 2002: In thousands except for share and per share data
    

2004
    
    
    2003
    
    
    2002Net income (loss) applicable to common shareholders
    
    $
    (3,800
    )
    
    $
    (5,000
    )
    
    $
    1,338Common shares outstanding:Weighted average common shares used in computing
basic net income (loss) per share
    
    
    11,617,601
    
    
    
    6,783,742
    
    
    
    6,322,086Plus incremental shares from assumed conversions:Convertible preferred stock
    
    
    
    
    
    
    
    
    
    
    13,833Stock options
    
    
    
    
    
    
    
    
    
    
    11,464Warrants
    
    
    
    
    
    
    
    
    
    
    49,510
    
    
    
    
    
    
    
    74,807Weighted average common shares used in computing
diluted net income (loss) per share
    
    
    11,617,601
    
    
    
    6,783,742
    
    
    
    6,396,893Net income (loss) per common share:Basic
    
    $
    (0.33
    )
    
    $
    (0.74
    )
    
    $
    0.21Diluted
    
    $
    (0.33
    )
    
    $
    (0.74
    )
    
    $
    0.21
  F-12




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  However, the following shares were excluded from the calculation of net loss per share in
the periods noted because their effects would have been anti-dilutive: 2004
    
    
    2003
    
    
    2002Convertible
preferred stock
    
    
    13,333
    
    
    
    13,333
    
    
    
    Stock options
    
    
    1,812,909
    
    
    
    1,426,670
    
    
    
    811,799Warrants
    
    
    900,049
    
    
    
    1,460,994
    
    
    
    318,7972,726,291
    
    
    
    2,900,997
    
    
    
    1,130,596
  For the year ended December 31, 2002, the shares noted above were excluded from the
calculation of diluted per share results because the exercise price of these options and
warrants was greater than the average market price of the Companys common stock during the
period.Additionally, 238,989 shares issuable upon conversion of $4.4 million in convertible notes
(as a result of meeting the first revenue threshold in the fourth quarter of 2003) issued in
connection with the Companys acquisition of MedUnite in December 2002 are excluded from the
calculation for years ended December 31, 2004 and 2003 because their effect would also be
anti-dilutive.(m)
    Stock-based Compensation  ProxyMed 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 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 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 Companys
stock-based compensation plans would be determined based on the fair value at the grant
dates for awards under those plans. The assumptions underlying the fair value calculations
of the stock option grants are presented in Note 15 Management has completed an analysis of
the weighted average duration (or actual life) of their stock options and concluded that as
of 2004, the appropriate estimated life is 6 years. Had the Company adopted SFAS No. 123 in
accounting for its stock option plans, the Companys consolidated net income (loss) and net
income (loss) per share for the years ended December 31, 2004, 2003 and 2002 would have been
adjusted to the pro forma amounts indicated as follows: F-13




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued In thousands except for per share data
    
    2004
    
    
    2003
    
    
    2002Net income (loss) applicable to common
shareholders, as reported
    
    $
    (3,800
    )
    
    $
    (5,000
    )
    
    $
    1,338Deduct: Total stock-based employee pro forma
compensation expense determined under fair
value based method for all awards, net of
related tax effects (1)
    
    
    (2,717
    )
    
    
    (4,378
    )
    
    
    (6,814
    )Addback charges already taken for
intrinsic value of options
    
    
    115
    
    
    
    
    
    
    
    Pro forma net loss
    
    $
    (6,402
    )
    
    $
    (9,378
    )
    
    $
    (5,476
    )Basic net income (loss) per common share:As reported
    
    $
    (0.33
    )
    
    $
    (0.74
    )
    
    $
    0.21Pro forma
    
    $
    (0.55
    )
    
    $
    (1.38
    )
    
    $
    (0.87
    )Diluted net income (loss) per common share:As reported
    
    $
    (0.33
    )
    
    $
    (0.74
    )
    
    $
    0.21Pro forma
    
    $
    (0.55
    )
    
    $
    (1.38
    )
    
    $
    (0.87
    )(1) The following ranges of assumptions were
used in the calculation of pro forma
compensation expense for the periods
presented:Risk-free interest rate
    
    
    3.8%-4.8%
    
    
    
    3.4%-4.4%
    
    
    
    3.9%-5.2%Expected life
    
    6 years
    
    10 years
    
    10 yearsExpected volatility
    
    
    75%-77%
    
    
    
    81%
    
    
    
    81%Dividend yield
    
    
    0%
    
    
    
    0%
    
    
    
    0%
  (n)
    New Accounting Pronouncements  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 Companys $13.1 million convertible notes may be required to be
included in the calculation of 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 trigger, such as the Companys convertible notes, and
therefore the impact to the Financial Statements is not determinable at this time. F-14




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  In December 2004, the FASB issued SFAS No. 123R, Shared-Based Payments (Revised 2004).
SFAS No. 123R is a revision of SFAS No. 123, Accounting for Stock-Based Compensation and
supercedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and its related guidance. SFAS No. 123R requires public entities to measure the
cost of employee services received in exchange for an award of equity instruments based on
the grant-date fair value of the award (with limited exceptions). That cost will be
estimated using option-pricing models adjusted for the unique characteristics of those
instruments and will be recognized and expensed over the period which an employee is
required to provide service in exchange for the award (usually the vesting period). Fair
value is based on market prices (if those prices are publicly available). If not available,
SFAS 123R does not specifically require the use of a particular model; however, the most
common models are the Black-Scholes model and lattice (binomial) models. Additionally,
modifications to an equity award after the grant date will require a compensation cost to be
recognized in an amount equal to the excess of the fair value of the modified award over the
fair value of the award immediately before the modification. The effective date of SFAS No.
123R is for interim and annual reporting periods beginning after
June 15, 2005. The Company has not completed the process of evaluating
the impact that will result from adopting FASB Statement
No. 123R and is therefore unable to disclose the impact that
adoption will have on its financial position and results of
operations. (2) Acquisition of Businesses  (a)
    PlanVista On March 2, 2004, the Company acquired all of the capital
stock of PlanVista Corporation, a publicly-held company located in Tampa, Florida and
Middletown, New York 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 ProxyMed common stock issued to PlanVistas shareholders. In addition, ProxyMed assumed
debt and other liabilities of PlanVista totaling $46.4 million, 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 ProxyMeds 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 Purchase Business Combination. Additionally, ProxyMed raised $24.1 million in a
private placement sale of 1,691,227 shares of its common stock to various entities
affiliated with General Atlantic Partners and Commonwealth Associates to partially fund
repayment of PlanVistas debts and other obligations outstanding at the time of the
acquisition. The acquisition enables the Company 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 its public profile.  F-15




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  The Company had previously entered into a joint marketing agreement with PlanVista for the
sale of PlanVistas services in June 2003. As part of that agreement, PlanVista granted the
Company a warrant to purchase 15% of the number of outstanding shares of PlanVista common
stock on a fully-diluted basis as of the time of exercise for $1.95 per share. The warrant
was exercisable immediately and expired in December 2003. The warrant was accounted for at
its cost under Accounting Principles Board Opinion No. 18, The Equity Method of Accounting
for Investments in Common Stock since it did not meet the conditions necessary to be
accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. Upon expiration of the warrant in December 2003, the Company recorded an
impairment loss in the amount $0.5 million (representing the initial value of the warrant,
calculated using a Black Scholes model) which was reflected in other expense in the
Companys consolidated statement of operations for the year ended December 31, 2003.Following consummation of the acquisition, PlanVistas common stock was delisted from the
Over the Counter Bulletin Board, and each share of PlanVistas outstanding common stock was
cancelled and converted into the right to receive 0.08271 of a share of the Companys common
stock and each holder of PlanVista series C preferred stock received 51.5292 shares of the
Companys common stock in exchange for each share of PlanVista series C preferred stock, all
of which represented approximately 23% of the Companys common stock on a fully converted
basis. The holders of the Companys outstanding stock, options and warrants at the date of
the acquisition of PlanVista retained approximately 77% of the Company after the
acquisition. F-16




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  An allocation of the purchase price is as follows. All items are considered final except
for the disputed New York State tax liability as discussed below: In thousandsCommon stock issued
    
    $
    59,760Acquisition-related costs
    
    
    1,328Other adjustments
    
    
    (642
    )Total purchase
price
    
    
    60,446Allocation of purchase price:Cash and cash equivalents
    
    
    (782
    )Accounts receivable, net
    
    
    (9,470
    )Other current assets
    
    
    (381
    )Property and equipment, net
    
    
    (658
    )Customer relationships
    
    
    (24,600
    )Provider network
    
    
    (16,200
    )Technology platforms
    
    
    (1,180
    )Other long-term assets
    
    
    (360
    )Accounts payable and accrued expenses
    
    
    9,612Income taxes payable
    
    
    633Notes payable, debt and other obligations
    
    
    44,889Other long-term liabilities
    
    
    880Goodwill
    
    $
    62,829
  As reported in the Companys Form 10-Q/A for the period ended March 31, 2004, the excess of
the consideration paid over the estimated fair value of net assets acquired in the amount of
$61.0 million was initially recorded as goodwill. Due to adjustments for settled
pre-acquisition contingencies of $0.7 million, potential exposure of other pre-acquisition
contingencies of $0.6 million, adjustments to accrued network fees of $0.4 million and other
net adjustments of $0.1 million recorded after the initial recording of the transaction, the
excess of the consideration paid over the estimated fair value of net assets acquired has
increased by $1.8 million to $62.8 million. Of this amount, the Company has determined that
$20.7 million is tax deductible goodwill.The weighted average useful life of the customer relationships is approximately 12.0 years,
the weighted average useful life of the provider network is 10.0 years, and the weighted
average useful life of the technology platforms is 4.5 years. The valuation of PlanVistas
provider network and technology platforms was based on managements estimates which included
consideration of a replacement cost methodology. The value of the customer relationships
was calculated on a discounted cash flow model.Additionally, the Company reduced the purchase price by
$0.6 million related to the marketing agreement with PlanVista
from June 2003 (shown as other adjustments in the
preceding purchase price allocation table). The results of
PlanVistas operations have been included in the Companys
consolidated financial statements since March 2004 in its Transaction
Services segment.At the time of its acquisition by the Company, PlanVista was involved in various lawsuits
and threatened litigation. To date, a significant number of these cases have been settled
or dismissed and resulted in $0.7 million charged to goodwill and $0.2 million charged to
expense in 2004. As of December 31, 2004, the unresolved pre-acquisition contingencies
include: (i) a lawsuit filed against a former subsidiary of PlanVista for which the Company
intends to vigorously defend itself but for which the Company has determined exposure to be
in a range of $0.6 million to $1.6 million and has accrued $0.6 million at December 31,
2004; (ii) a disputed $2.8 million New York State tax liability; and (iii) a class action suit in which
PlanVista is named defendant for which the Company is still evaluating the merits of the
case and cannot yet draw a conclusion as to the outcome. In the case of the New York
State tax dispute, any settlement paid would be charged to goodwill in accordance with EITF
No. 93-7, Uncertainties Related to Income Taxes in a Purchase Business Combination. F-17




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  The issuance of the 3,600,000 shares of Company common stock to the PlanVista stockholders
was registered under the Securities Act of 1933 pursuant to the Companys registration
statement on Form S-4 (File No. 333-111024) (the Registration Statement) filed with the
SEC and declared effective on February 2, 2004.In connection with this transaction, on March 1, 2004, the Companys shareholders approved
(1) an amendment to the Companys articles of incorporation to increase the total number of
authorized shares of the Companys common stock from 13,333,333 shares to 30,000,000 shares;
(2) the issuance of 1,691,227 shares of the Companys common stock at $14.25 per share in a
private equity offering valued at $24.1 million (to retire debt of PlanVista and pay certain
expenses associated with the merger); (3) the issuance of 3,600,000 shares of the Companys
common stock in connection with the PlanVista merger; and (4) an amendment to the Companys
2002 Stock Option Plan to increase the total number of shares available for issuance from
600,000 to 1,350,000. Additionally, one director of PlanVista was appointed to the
Companys board of directors to fill a vacancy left by a former ProxyMed director who
resigned in February 2003.All officers and employees of PlanVista, with the exception of PlanVistas Chief Financial
Officer, continued employment with the Company. In May 2004, PlanVistas Chief Executive
Officer announced his resignation and effective September 1, 2004, he became a consultant to
the Company. Under the terms of this agreement, he is allowed to continue to vest in the
stock options he received at the time of the acquisition of PlanVista (see Note 15). F-18




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  Additionally, certain officers, directors and employees of PlanVista were granted options to
purchase an aggregate of 200,000 shares of ProxyMed common stock at an exercise price of
$17.74 per share. Of these original options granted, 173,120 were to vest two-thirds on the
first anniversary date of the grant and one-third on the third anniversary date of the
grant. Since the exercise price was less than the market price as of the date of issuance,
the Company is recording periodic non-cash compensation charges over the vesting period of
the options based on the intrinsic value method. For the year ended December 31, 2004, the
Company recorded a non-cash compensation charge of $0.1 million for these options.
Subsequent to the original issuance of these options, 10,608 stock options have been
cancelled due to separation of employment with the Company. In addition, 68,543 granted to
the PlanVistas former Chief Executive Officer as a result of his resignation effective
September 1, 2004 have been modified due to his change in employment status (see Note 15).
The balance of 26,880 options was granted to PlanVistas former Chief Financial Officer in
connection with a consulting arrangement with him. Fifty percent of these options vested
immediately upon the change of control and 25% vest on each of the three month and six month
anniversaries of the change in control. The Company recorded a charge of approximately $0.1
million in compensation expense associated with this grant in the three months ended March
31, 2004 utilizing a Black-Scholes model using the following assumptions: risk-free interest
rate of 1.2%, expected life of 9 months, expected volatility of 42% and no dividend yield.The following unaudited pro forma summary presents the consolidated results of operations of
ProxyMed and PlanVista as if the acquisitions of these businesses had occurred on January 1,
2004 and on January 1, 2003. These pro forma results do not necessarily represent results that would have occurred
if the acquisition had taken place on that date, or of results that may occur in the future. In thousands except for per share data
    
    2004
    
    
    2003Revenues
    
    $
    95,914
    
    
    $
    104,644Cost of sales
    
    $
    35,655
    
    
    $
    40,867Selling, general and administrative expenses
    
    $
    50,373
    
    
    $
    49,282Operating income (loss)
    
    $
    (881
    )
    
    $
    1,429Interest expense, net
    
    $
    (2,227
    )
    
    $
    (2,064
    )Net loss
    
    $
    (3,114
    )
    
    $
    (1,516
    )Basic and diluted net loss
per share of common stock
    
    $
    (0.25
    )
    
    $
    (0.13
    )
 F-19




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (b)
    MedUnite  On December 31, 2002, the Company acquired all of the capital stock
of MedUnite, Inc., a privately-held company founded by seven of the nations largest health
insurers to provide healthcare claims processing services, for $10.0 million in cash, $13.4
million in 4% convertible promissory notes, and acquisition-related and exit costs of $6.7
million (originally estimated at $8.3 million at December 31, 2002). The purchase price
was allocated as follows: AsOriginally
    
    
    AsIn thousands
    
    Reported
    
    
    AdjustedCash paid
    
    $
    10,000
    
    
    $
    10,000Convertible debt issued
    
    
    13,400
    
    
    
    13,137Acquisition-related and exit costs
    
    
    8,321
    
    
    
    6,700Total purchase price
    
    
    31,721
    
    
    
    29,837Allocation of purchase price:Cash
    
    
    (879
    )
    
    
    (879
    )Other current assets
    
    
    (3,805
    )
    
    
    (3,770
    )Property and equipment
    
    
    (1,793
    )
    
    
    (1,913
    )Customer relationships
    
    
    (6,600
    )
    
    
    (6,600
    )Purchased technology
    
    
    (6,000
    )
    
    
    (6,000
    )Other long-term assets, including
restricted cash
    
    
    (1,033
    )
    
    
    (1,033
    )Current liabilities
    
    
    9,515
    
    
    
    9,638Other long-term liabilities
    
    
    1,233
    
    
    
    1,057Goodwill
    
    $
    22,359
    
    
    $
    20,337
  The excess of the consideration paid over the estimated fair value of net assets acquired in
the amount of $20.3 million was recorded as goodwill (originally recorded at $22.4 million
at December 31, 2002), none of which is deductible for income tax purposes (see Note 14).
The weighted average useful life of the customer relationships at acquisition was
approximately 10 years and the weighted average useful life of the purchased technology is
4.2 years. The valuation of MedUnites real-time processing platform was based on
managements estimates which included consideration of utilizing a replacement cost
methodology while the value of the customer relationships was calculated on a discounted
cash flow model. The results of MedUnites operations have been included in the Companys
consolidated financial statements since January 1, 2003 in its Transaction Services segment. F-20




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  The 4% convertible promissory notes are uncollateralized and mature on December 31, 2008.
Interest is payable quarterly in cash in arrears. The notes were convertible into an
aggregate of 731,322 shares of the Companys common stock (based on a conversion price of
$18.323 per share which was above the traded fair market value of the Companys common stock
at December 31, 2002) if the former shareholders of MedUnite achieve certain aggregate
incremental revenue based targets over a baseline revenue of $16.1 million with the Company
over the next three and one-half year period as follows: (i) one-third of the principal if
incremental revenues during the measurement period from January 1, 2003 through June 30,
2004 are in excess of $5.0 million; (ii) one-third of the principal if incremental revenues
during the measurement period from July 1, 2004 through June 30, 2005 are in excess of $12.5
million; and (iii) one-third of the principal if incremental revenues during the measurement
period from July 1, 2005 through June 30, 2006 are in excess of $21.0 million. Amounts in
excess of any measurement period will be credited towards the next measurement period;
however, if the revenue trigger is not met for any period, the ability to convert that
portion of the principal is lost. In the fourth quarter of 2003, the first revenue target
was met.Of the original $13.4 million in principal amount, $4.0 million was held in escrow until
December 31, 2003 as a source for limited indemnification conditions of the acquisition. In
the fourth quarter of 2003, the escrow agent accepted a claim of $0.4 million from ProxyMed.
This claim was settled with the Company via a cash payment of $0.1 million (paid out of
undistributed interest received) and an offset against the escrow of $0.3 million. As such,
the Company recorded an adjustment to goodwill. The escrow was released on December 31,
2003 and convertible notes totaling $3.7 million were distributed to the former shareholders
of MedUnite. The total amount of convertible notes as of December 31, 2004 is $13.1
million. Additionally, as a result of the reduction in principal, the notes are now
convertible into 716,968 shares of the Companys common stock subject to achieving the
revenue triggers.MedUnite had incurred significant losses since its inception and was utilizing cash
significantly in excess of amounts it was generating. As a result, at the time it was
acquired by ProxyMed, there were substantial liabilities and obligations (both known and
unknown at December 31, 2002) associated with the business. Subsequent to the acquisition
by ProxyMed, MedUnites senior management team was terminated along with approximately 20%
of the general workforce in an effort to eliminate duplicative positions and control these
costs. As a result of the workforce reduction, the company paid $2.2 million in severance
which was recorded as an adjustment to goodwill.As a result of the acquisition, all notes payable, convertible notes and related accrued
interest to MedUnites shareholders with a carrying value of $23.4 million (except for a
$2.3 million note payable issued to NDCHealth Corporation (NDCHealth) in August 2001, plus
$0.2 million of accrued interest on this note, and a $2.6 million note payable issued to NDC
on December 31, 2002, together known as the NDCHealth Debt) were cancelled. Additionally,
as part of the acquisition, NDCHealth released MedUnite from $4.0 million of the NDCHealth
Debt and agreed to amend certain existing MedUnite agreements in favor of future
relationships with ProxyMed to be entered into in good faith. The remaining $1.1 million
was included in accrued expenses at December 31, 2002 and ultimately refinanced under the
note payable described below in April 2003. F-21




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  Additionally, during 2003, the Company was successful entering into financing agreements
with certain major vendors of MedUnite as a means to settle $5.4 million in liabilities that
existed at December 31, 2002. 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 March 2003. Additionally, in
April 2003, the Company financed a net total of $2.0 million ($2.8 million in accounts
payable and accrued expenses offset by $0.8 million in accounts receivable) existing at
December 31, 2002 from MedUnite to NDCHealth by issuing an unsecured note payable over 24
months at 6%.Prior to its acquisition by ProxyMed, in April 2002, MedUnite had entered into a three-year
information technology services agreement to outsource certain hosting, system maintenance
and operation services. Actual service fees are based on the number of transactions
processed by the software being supported; however, MedUnite was committed to pay a minimum
annual service fee of $1.2 million. The Company cancelled this agreement in May 2003 and
paid a total of $1.1 million in July 2003.At the time MedUnite was acquired by ProxyMed, the Company decided to migrate off of a
software license used to operate MedUnites web portal. At that time, the Company was
liable to purchase software maintenance services from the supplier of that license in the
total amount of $1.8 million through mid-2005. Such amount was included in the
acquisition-related accrual for the MedUnite acquisition at December 31, 2002. However, the
Company reached agreement with the software vendor and settled this obligation for $0.9
million. Payments of $0.7 million were made in 2003 and the balance of $0.2 million was
paid in January 2004. F-22




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (3)
    Sale of AssetsOn June 30, 2004, the Company sold certain assets and liabilities of its Laboratory
Communication Solutions segment that were used in its non-core contract manufacturing
business to an entity formed by a former executive of the Company for $4.5 million in cash.
Under terms of the sale agreement, the Company received $3.5 million in cash at closing and
received the balance of $1.0 million in cash in July and August 2004 upon presentation of
final accounting.The Company believes the divested manufacturing assets were not a component of an entity
because the operations and cash flows could not be clearly distinguished, operationally and
for financial purposes, from the rest of the entity. Accordingly, pursuant to SFAS No. 144,
Accounting for the Impairment or Disposal of Long Lived Assets, failure to meet such a
condition precluded these assets from being presented as discontinued operations.As a result of the transaction, the Company recorded a loss on sales of assets of $0.1
million for the year ended December 31, 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 originally accrued at June 30, 2004.(4)
    Equity Transactions (a)
    Common Stock On April 5, 2002, the Company sold 1,569,366 shares of
unregistered common stock at $15.93 per share (the Primary Shares) in a private placement
to General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., Gapstar, LLC,
GAPCO GmbH & Co. KG. (the General Atlantic Purchasers), four companies affiliated with
General Atlantic Partners, LLC (GAP), a private equity investment fund and received net
proceeds of $24.9 million. In addition, the Company also issued two-year warrants for the
purchase of 549,279 shares of common stock exercisable at $15.93 per share (the GAP
Warrants). No placement agent was used in this transaction. The Company granted the
General Atlantic Purchasers and certain of their transferees and affiliates certain demand
and piggy back registration rights starting one year from closing. Additionally, in
connection with the transaction, a managing member of GAP was appointed as a director to
fill a vacancy on the Companys Board of Directors. F-23




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  As a result of the purchase of the Primary Shares, the General Atlantic Purchasers owned
approximately 23.4% of the then outstanding shares of the Companys common stock. At the
Companys Annual Meeting of Shareholders held on May 22, 2002, the shareholders of the
Company approved that the GAP Warrants may be exercised at any time after April 5, 2003, and
prior to April 5, 2004, pursuant to the original terms of the warrant. On March 25, 2004,
GAP exercised these warrants for $8.75 million in cash.In May 2002, the Company issued 30,034 shares of unregistered ProxyMed common stock (valued
at $0.6 million) in its acquisition of KenCom Communications & Services, Inc. (KenCom), a
privately-owned provider of laboratory communication solutions, and paid acquisition related
costs of $52,000. The number of shares of common stock issued was based on the average of
the closing prices of the Companys common stock for the five days immediately preceding the
closing.As more fully discussed in Note 2 (a), on March 2, 2004, the Company issued 3,600,000 shares
of its common stock in its acquisition of PlanVista. Additionally, ProxyMed raised $24.1
million in a private placement sale of 1,691,227 shares its common stock to various entities
affiliated with General Atlantic Partners and Commonwealth Associates to partially fund
repayment of PlanVistas debts and other obligations outstanding at the time of the
acquisition.(b)
    Series B Warrants  In December 2002, 34,500 of Series B Preferred warrants
were converted into an equivalent number of common shares for $0.5 million in cash. Since
December 31, 2002, no Series B Warrants are outstanding.(c)
    Series C Preferred Stock  On December 13, 2001, the Company offered to convert
its then outstanding Series C 7% Convertible Preferred Stock (the Series C Preferred)
into shares of common stock at a reduced conversion price (the Conversion Offer). For a
period of sixty days ending February 11, 2002, the holders of the Series C Preferred shares
were able to convert such shares at a reduced conversion price of $13.05 per share instead
of the original conversion price of $15.00. A deemed dividend charge of $0.6 million was
recorded in the first quarter of 2002 for conversions of 31,650 shares of Series C
Preferred into 242,508 shares of common stock consummated after the 2001 year-end.
Subsequent to the Conversion Offer, 1,000 shares of Series C Preferred were converted into
6,666 shares of common stock. As of both December 31, 2004 and 2003, there were 2,000
unconverted shares of Series C Preferred, which are convertible into 13,333 shares of
common stock.(d)
    Series C Warrants.  In 2002, 8,333 Series C Warrants were converted into 1,190
shares of common stock. As of both December 31, 2004 and 2003, Series C Warrants remain
outstanding to purchase 42,833 of shares of common stock. These remaining Series C
Warrants expire in June 2005. F-24




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##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (e)
    Other Warrants  In conjunction with a joint marketing agreement entered into
between the Company and a subsidiary of First Data Corporation (FDC), an electronic
commerce and payment services company, in July 2003, the Company issued to FDC a warrant
agreement under which FDC may be entitled to purchase up to 600,000 of the Companys common
stock at $16.50 per share. The ability of FDC to exercise under the warrant agreement is
dependent upon the Company achieving certain revenue-based thresholds under such joint
marketing agreement over a three and one-half year period. Additionally, in connection
with this agreement, four entities affiliated with GAP, current investors in the Company,
received an aggregate of 243,882 warrants, as a result of pre-emptive rights relating to
their investment in the Company in April 2002. The GAP warrant agreements are subject to
the same terms and conditions as those issued to FDC and are exercisable only if FDCs
right to exercise under its warrant agreement is perfected. At the time any of the revenue
thresholds is met, the Company may have to record a charge in its statement of operations
for the value of the FDC warrants. Both the FDC and GAP warrants expire in December 2006.Additionally, at December 31, 2004, there are 13,333 warrants exercisable at $149.40 through
June 2007 issued in connection with a 1997 business transaction consummated by ProxyMed.(f)
    Other  ProxyMed has remaining 1,555,000 authorized but unissued shares of
preferred stock, par value $0.01 per share, which is entitled to rights and preferences to
be determined at the discretion of the Board of Directors. F-25




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (5)
    Segment InformationProxyMed operates 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 value-added services
principally between healthcare providers and insurance companies (Payer Services and Medical
Cost Containment Services) and physicians and pharmacies (Prescription Services); and 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 its Corporate overhead
functions (i.e., executives, finance, legal, human resources, facilities, insurance, etc.) in
the second quarter of 2004, the Company is now reporting these expenses and assets as part of
its Transaction Services segment. International sales were attributable to the manufacturing
assets of the Laboratory Communication Solutions segment that were
sold on June 30, 2004. Due to the bundling of our products and
services, it is impractical to break revenue by product within each
segment. In thousands
    

Year
Ended December 31,2004
    
    
    2003
    
    
    2002Net revenues by operating segment:Transaction Services
    
    $
    71,304
    
    
    $
    46,673
    
    
    $
    22,439Laboratory Communication Solutions
    
    
    18,942
    
    
    
    24,883
    
    
    
    27,743$
    90,246
    
    
    $
    71,556
    
    
    $
    50,182Net revenues by geographic location:Domestic
    
    $
    90,140
    
    
    $
    70,340
    
    
    $
    49,500International (only in Laboratory Communication Solutions) (1)
    
    
    106
    
    
    
    1,216
    
    
    
    682$
    90,246
    
    
    $
    71,556
    
    
    $
    50,182Operating income (loss) by operating segment:Transaction Services
    
    $
    (3,115
    )
    
    $
    (920
    )
    
    $
    597Laboratory Communication Solutions
    
    
    1,938
    
    
    
    1,119
    
    
    
    3,535Corporate
    
    
    (797
    )
    
    
    (3,841
    )
    
    
    (2,792
    )$
    (1,974
    )
    
    $
    (3,642
    )
    
    $
    1,340Depreciation and amortization by operating segment:Transaction Services
    
    $
    8,718
    
    
    $
    4,754
    
    
    $
    1,581Laboratory Communication Solutions
    
    
    823
    
    
    
    1,369
    
    
    
    857Corporate
    
    
    222
    
    
    
    193
    
    
    
    198$
    9,763
    
    
    $
    6,316
    
    
    $
    2,636Capital expenditures and capitalized software by operating segment:Transaction Services
    
    $
    3,957
    
    
    $
    3,345
    
    
    $
    1,291Laboratory Communication Solutions
    
    
    392
    
    
    
    602
    
    
    
    693Corporate
    
    
    
    
    
    
    80
    
    
    
    22$
    4,349
    
    
    $
    4,027
    
    
    $
    2,006
 December 31,Total assets by operating
segment:
    
    2004
    
    
    2003
    
    
    2002Transaction Services
    
    $
    173,061
    
    
    $
    54,052
    
    
    $
    58,957Laboratory Communication Solutions
    
    
    11,342
    
    
    
    12,053
    
    
    
    12,904Corporate
    
    
    
    
    
    
    7,025
    
    
    
    16,843$
    184,403
    
    
    $
    73,130
    
    
    $
    88,704
   (1)
    
    All amounts are transacted in US Dollars F-26




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued (6) Investment in Warrant In June 2003, the Company entered into a joint marketing and distribution agreement with
PlanVista to provide the Companys electronic healthcare transaction processing services and
PlanVistas network access and repricing service product as an integrated package to existing
and prospective payer customers. As part of the agreement, PlanVista granted the Company a
warrant to purchase 15% of the number of outstanding shares of PlanVista common stock on a
fully-diluted basis as of the time of exercise for $1.95 per share. The warrant was exercisable
immediately and expired in December 2003. The warrant was being accounted for at its cost under
Accounting Principles Board Opinion No. 18, The Equity Method of Accounting for Investments in
Common Stock since it did not meet the conditions necessary to be accounted for under SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. Upon expiration of the
warrant in December 2003, the Company recorded an impairment loss in the amount $0.5 million
(representing the initial value of the warrant and calculated using a Black Scholes model) which
is reflected in other expense in the Companys consolidated statement of operations for the year
ended December 31, 2003. Additionally, the initial value of the warrant of approximately $0.5 million along with
additional amounts of $0.4 million received by the Company under the agreement was being
amortized as a reduction of cost of sales over 36 months. Amortization related to these items
was $0.1 million and $0.2 million for the years ended December 31, 2004 and 2003, respectively.
Upon the consummation of its acquisition of PlanVista on March 2, 2004, the Company wrote off
the $0.6 million of remaining unamortized amount as part of the purchase price of the
acquisition (see Note 2(a)).  (7)
    Inventory Inventory at December 31 consists of the following: In thousands
    
    2004
    
    
    2003Materials, supplies and component parts
    
    $
    651
    
    
    $
    2,021Work in process
    
    
    32
    
    
    
    590Finished goods
    
    
    1,098
    
    
    
    7441,781
    
    
    
    3,355Less: Obsolescence reserve
    
    
    (6
    )
    
    
    (8
    )$
    1,775
    
    
    $
    3,347
 F-27




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (8)
    Property and Equipment Property and equipment at December 31 consists of the following: EstimatedIn thousands
    
    2004
    
    
    2003
    
    
    useful livesFurniture, fixtures and equipment
    
    $
    1,763
    
    
    $
    2,394
    
    
    
    4 to 7 yearsComputer hardware and software
    
    
    10,132
    
    
    
    6,022
    
    
    
    2 to 5 yearsService vehicles
    
    
    139
    
    
    
    211
    
    
    5 yearsLeasehold improvements
    
    
    1,087
    
    
    
    986
    
    
    Life of leaseRevenue earning equipment
    
    
    1,302
    
    
    
    1,243
    
    
    
    3 to 5 years14,423
    
    
    
    10,856Less: accumulated depreciation
    
    
    (9,622
    )
    
    
    (6,084
    )Property and equipment, net
    
    $
    4,801
    
    
    $
    4,772
 Depreciation expense was $3.3 million in 2004, $3.1 million in 2003, and $1.8 million in 2002.
Accumulated depreciation for revenue earning equipment at December 31, 2004 and 2003 was $0.3
million and $0.6 million, respectively. (9) Goodwill and Other Intangible Assets  (a)
    Goodwill  The Company adopted the provisions of SFAS No. 142, Goodwill and
Other Intangible Assets effective January 1, 2002. 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 the adoption of SFAS No. 142, we
completed our annual tests at December 31, 2004 and 2003 utilizing
techniques including a market value analysis. No impairment charges were recorded as a
result of these tests. F-28




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued The changes in the carrying amounts of goodwill, net, for 2004 by operating segment are as
follows: LaboratoryCommunicationIn thousands
    
    Transaction Services
    
    
    Solutions
    
    
    TotalBalance as of December 31, 2003
    
    $
    28,673
    
    
    $
    2,102
    
    
    $
    30,775Goodwill acquired during 2004
    
    
    62,829
    
    
    
    
    
    
    
    62,829Balance as of December 31, 2004
    
    $
    91,502
    
    
    $
    2,102
    
    
    $
    93,604
  (b)
    Other Intangible Assets  The carrying amounts of other intangible assets as of
December 31, 2004 and 2003 by category, are as follows: In thousands
    
    December 31, 2004
    
    
    December 31, 2003Carrying
    
    
    Accumulated
    
    
    
    
    
    
    Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Net
    
    
    Amount
    
    
    Amortization
    
    
    NetCapitalized software
    
    $
    2,661
    
    
    $
    (769
    )
    
    $
    1,892
    
    
    $
    1,193
    
    
    $
    (156
    )
    
    $
    1,037Purchased technology
    
    
    10,342
    
    
    
    (4,738
    )
    
    
    5,604
    
    
    
    9,721
    
    
    
    (3,221
    )
    
    
    6,500Customer relationships
    
    
    34,283
    
    
    
    (4,324
    )
    
    
    29,959
    
    
    
    9,793
    
    
    
    (1,446
    )
    
    
    8,347Provider network
    
    
    16,200
    
    
    
    (1,350
    )
    
    
    14,850
    
    
    
    
    
    
    
    
    
    
    
    $
    63,486
    
    
    $
    (11,181
    )
    
    $
    52,305
    
    
    $
    20,707
    
    
    $
    (4,823
    )
    
    $
    15,884
 As part of its acquisition of MedUnite (see Note 2(b)), the Company recorded $6.6 million in
customer relationships in the laboratory communication solutions
segment, and approximately $1.2 million and $4.8 million for the legacy and real-time
technology platforms, respectively. As part of its acquisition of PlanVista (see Note
2(a)), the Company recorded $24.6 million in customer relationships, $16.2 million for a
provider network, and $1.2 million in technology platforms, respectively. The valuations of
the provider network and technology platforms were based on managements estimates which
included consideration of a replacement cost methodology. The values of the customer
relationships were calculated on a discounted cash flow model. As a result of managements periodic review for impairment in accordance with SFAS No. 144,
the Company wrote off approximately $0.5 million in customer
relationships in the laboratory communication solutions segment and approximately $0.1 million in capitalized
software in the transaction services segment during the year ended December 31, 2003. The impairment
charges were included in write-off of impaired and obsolete assets in the accompanying consolidated statements of operations. F-29




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued Estimates of useful lives of other intangible assets are based on historical experience, the
historical experience of the entity from which the intangible assets were acquired, the
industry in which the Company operates, or on contractual terms. If indications arise that
would materially affect these lives, an impairment charge may be
required and useful lives may be reduced. Intangible
assets are being amortized over their estimated useful lives on either a straight-line or
other basis as follows: Estimateduseful livesCapitalized software
    
    3 - 5 yearsPurchased technology
    
    1 - 12 yearsCustomer relationships
    
    4.6 - 12 yearsProvider network
    
    10 years
  Amortization expense of other intangible assets was $6.5 million, $3.2 million, and $0.8
million for the years ended December 31, 2004, 2003 and 2002, respectively.  As of December 31, 2004, estimated future amortization expense of other intangible assets in
each of the years 2005 through 2009 is as follows: In thousands2005
    
    $
    7,3062006
    
    
    7,1652007
    
    
    6,8022008
    
    
    6,1882009
    
    
    5,094$
    32,555
  (10)
    Restricted CashAt December 31, 2003, restricted cash includes $0.2 million to support a letter of credit
used as collateral for a financed liability insurance policy. Since the letter of credit
expires in February 2005, this collateral (which has been
reduced to $50,000 at
December 31, 2004) is included in other current assets at December 31, 2004. F-30




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (11)
    Accounts Payable and Accrued ExpensesAccounts payable and accrued expenses at December 31 consist of the following:: In thousands
    
    2004
    
    
    2003Accounts payable
    
    $
    2,072
    
    
    $
    2,956Accrued payroll and related costs
    
    
    3,196
    
    
    
    1,860Accrued vendor rebates and network fees payable
    
    
    2,825
    
    
    
    1,198Accrued professional fees
    
    
    1,645
    
    
    
    418Acquisition related costs
    
    
    
    
    
    
    459Other accrued expenses
    
    
    3,899
    
    
    
    1,373Total accounts payable and accrued expenses
    
    $
    13,637
    
    
    $
    8,264
 Other accrued expenses include the current portion of capital leases payable, customer
deposits, estimated property and other non-income based taxes.  (12)
    Debt Obligations  (a)
    Senior Debt  As a result of the acquisition of PlanVista, the Company assumed
and guaranteed a $20.4 million secured obligation to PVC Funding
Partners, LLC, an owner of approximately 20% of the outstanding
common stock of the Company. This obligation is payable in
monthly installments of $0.2 million and matures with a balloon
payment of $17.6 million on
May 31, 2005. It originally bore an interest rate of 6%, payable monthly in cash, which
increased to 10% on December 1, 2004. Under the covenants of the senior debt obligation,
PlanVista (as a wholly-owned subsidiary) is limited in its ability to transfer cash to
ProxyMed (as the parent company). Additionally, the assets of PlanVista were not eligible
collateral for the Companys asset-based line of credit due to covenants of the senior
debt. At December 31, 2004, the balance of this senior debt is $18.4 million. As of March
8, 2005, the Company has executed a term sheet with our current bank to expand and extend its
current line of credit. Wachovia will receive first lien security on all ProxyMed assets
including all subsidiaries. The Company expects to satisfy the
obligation of the note it assumed as part of
the PlanVista acquisition through the proceeds of this expanded line of credit and its
current cash balances prior to the due date of the assumed note. F-31




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (b)
    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 its 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 the Company 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 Companys common stock subject to achieving the
revenue triggers. The first revenue trigger was met in the fourth quarter of 2003.(c)
    Notes Payable  In February 2003, the Company financed $0.3 million for a
certain liability insurance policy required for the MedUnite acquisition over 24 months at
5.25% to a third-party. As of December 31, 2004, this note had been paid in full, however,
due to timing provisions in the note, it is collateralized by a letter of credit in the
amount of $50,000 which is supported with restricted cash through February 2005 (see Note
10).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 December 31, 2004, the balance of
this note payable is $1.1 million.In April 2003, the Company financed a net total of $2.0 million ($2.8 million in accounts
payable and accrued expenses offset by $0.8 million in accounts receivable) existing at
December 31, 2002 from MedUnite to NDCHealth by issuing an unsecured note payable over 24
months at 6%. At December 31, 2004, the balance of this note payable is $0.8 million.As a result of the acquisition of PlanVista, the Company also assumed notes payable to two
former board members of PlanVista. The combined balance of these notes is $0.5 million at
December 31, 2004. One of these board members has been appointed as director of ProxyMed as
a result of the acquisition. These notes bear interest at prime plus 4% and a total of $0.2
million in interest is accrued at December 31, 2004. Both principal and interest were due
on December 1, 2004; however, repayment of principal and accrued interest are expressly
subordinated to prior payment of the Senior Debt which has not yet been paid and is due on
May 31, 2005. F-32




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  The Company also assumed an unsecured note payable that financed a certain liability policy
of PlanVista that was required as part of the acquisition. This note bears interest at 8.5%
and is payable to a third-party. As of December 31, 2004, the balance of this note had been
paid in full.(d)
    Revolving Credit Facility  In December 2003, the Company entered into a $12.5
million asset-based line of credit with its commercial bank maturing the earlier of (1)
December 2004 or (2) six months prior to the maturity date of the senior debt assumed in
the acquisition of PlanVista (which currently matures in May 2005) unless such debt can be
repaid or refinanced. In December 2004, the bank agreed to extend the maturity date of
this line of credit through February 28, 2005. With extensions granted from the commercial
bank, this line of credit has now been extended through April 30, 2005. Borrowings under
such facility are subject to eligible cash, accounts receivable, and inventory and other
conditions and excluded the assets and borrowing capacity of PlanVista. Borrowings will
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.) Interest was payable monthly. Costs
related to this facility totaling $0.1 million were being amortized as interest expense
over a one-year period through November 2004.As of March 8, 2005, the Company has executed a term
sheet with its commercial bank to expand and
extend its current line of credit. However, this is not a commitment
by the bank to lend. The bank will receive first lien security on all
ProxyMed assets including all subsidiaries. The Company expects to
satisfy the obligations of the note it
assumed as part of the PlanVista acquisition through the proceeds of this expanded line of
credit and its current cash balances prior to the due date of the assumed note (see Note
12(a)). However, the Company cannot be assured that this will occur. F-33




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued Debt as of December 31 consists of the following: In thousands
    
    2004
    
    
    2003Related
party debt
    
    $
    18,394
    
    
    $
    Convertible debt
    
    
    13,137
    
    
    
    13,137Notes payable
    
    
    2,384
    
    
    
    3,76933,915
    
    
    
    16,906Less: current maturities
    
    
    (20,572
    )
    
    
    (1,712
    )$
    13,343
    
    
    $
    15,194
  As of December 31, 2004, debt payments over the next several years are as follows. The
amounts assume no conversion of the convertible notes: In thousands2005
    
    $
    20,5722006
    
    
    2062007
    
    
    2008
    
    
    13,137$
    33,915
 F-34




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (13)
    Income TaxesThe income tax provision for the years ended December 31 is as follows: In thousands
    
    2004
    
    
    2003
    
    
    2002Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    40
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    Deferred:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Income tax provision
    
    $
    40
    
    
    $
    
    
    
    $
    
 This
income tax provision differs from the amount computed by applying the statutory federal income tax rate to
the net loss reflected on the Consolidated Statements of Operations in the three years ended
December 31 due to the following: In thousands
    
    2004
    
    
    2003
    
    
    2002Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Federal income tax benefit at statutory rate
    
    $
    (1,278
    )
    
    
    (34.0
    )%
    
    $
    (1,700
    )
    
    
    (34.0
    )%
    
    $
    663
    
    
    
    34.0
    %State income tax benefit
    
    
    (133
    )
    
    
    (3.5
    )
    
    
    (174
    )
    
    
    (3.5
    )
    
    
    80
    
    
    
    4.1Non-deductible items
    
    
    (90
    )
    
    
    (2.4
    )
    
    
    205
    
    
    
    4.1
    
    
    
    21
    
    
    
    1.1Increase (decrease) in valuation allowance
    
    
    1,541
    
    
    
    41.1
    
    
    
    1,669
    
    
    
    33.4
    
    
    
    (764
    )
    
    
    (39.2
    )Total provision
    
    $
    40
    
    
    
    1.2
    %
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    
    
    %
 The significant components of the deferred tax asset account are as follows at December 31,
2004 and 2003: In thousands
    
    2004
    
    
    2003Net operating losses  Federal
    
    $
    69,110
    
    
    $
    35,674Net operating losses  State
    
    
    8,048
    
    
    
    4,155Depreciation and amortization
    
    
    
    
    
    
    5,070Capitalized start up costs
    
    
    3,951
    
    
    
    6,447Other  net
    
    
    3,889
    
    
    
    681Total deferred tax assets
    
    
    84,998
    
    
    
    52,027Less valuation allowance
    
    
    (71,054
    )
    
    
    (52,027
    )Net deferred tax assets
    
    
    13,944
    
    
    
    Deferred tax liabilityDepreciation and amortization
    
    
    (13,944
    )
    
    
    Net deferred tax assets
    
    $
    
    
    
    $
    
 Based on the weight of available evidence, a valuation allowance has been provided to offset
the entire net deferred tax asset amount. F-35




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued Total
net operating loss carryforwards at December 31, 2004 are
$225.2 million, of which $84.4
million and $54.5 million are attributed to the acquisitions of PlanVista and MedUnite,
respectively. These net operating losses will expire between 2013 and 2024. Due to the changes in
ownership control of the Company at various dates, as defined under Internal Revenue Code Section
382, net operating losses are limited in their availability to offset current and future taxable
income. The annual limitations range from $1.9 million to $11.5 million. The
net deferred tax assets increased during 2004 by $17.0 million due to the PlanVista
acquisition. As a result of the change in ownership of MedUnite, the deferred tax asset attributable to
MedUnites acquired net operating loss carryforward was adjusted by approximately $22 million,
which represents the amount of net operating loss that will expire unutilized. Total income tax payments during the year ended December 31, 2004 were $78,000 which includes
$53,600 related to PlanVista pre-acquisition periods. F-36




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued (14) Stock Options ProxyMed has various stock option plans for employees, directors and outside consultants,
under which both incentive stock options and non-qualified options may be issued. Under such
plans, options to purchase up to 2,031,017 shares of common stock may be granted. Options may be
granted at prices equal to the fair market value at the date of grant, except that incentive stock
options granted to persons owning more than 10% of the outstanding voting power must be granted at
110% of the fair market value at the date of grant. In addition, as of December 31, 2004, options
for the purchase of 400,407 shares to newly-hired employees remained outstanding. Stock options
issued by ProxyMed generally vest within three or four years or upon a change in control of the
Company, and expire up to ten years from the date granted. Stock option activity was as follows
for the three years ended December 31, 2004: Options
    
    
    
    
    
    
    Weighted averageavailable
    
    
    Options
    
    
    exercise pricefor grant
    
    
    outstanding
    
    
    of optionsBalance, December 31, 2001
    
    
    232,467
    
    
    
    829,771
    
    
    $
    31.22Options authorized
    
    
    608,000
    
    
    
    
    
    
    
    Options granted
    
    
    (330,847
    )
    
    
    330,847
    
    
    $
    16.89Options expired/forfeited
    
    
    65,422
    
    
    
    (76,063
    )
    
    $
    82.29Balance, December 31, 2002
    
    
    575,042
    
    
    
    1,084,555
    
    
    $
    23.27Options authorized
    
    
    
    
    
    
    
    
    
    
    Options granted
    
    
    (443,750
    )
    
    
    443,750
    
    
    $
    13.25Options exercised
    
    
    
    
    
    
    (556
    )
    
    $
    12.00Options expired/forfeited
    
    
    90,521
    
    
    
    (101,080
    )
    
    $
    36.09Balance, December 31, 2003
    
    
    221,813
    
    
    
    1,426,669
    
    
    $
    19.26Options authorized
    
    
    750,000
    
    
    
    
    
    
    
    Options granted
    
    
    (537,253
    )
    
    
    537,253
    
    
    $
    14.96Options exercised
    
    
    
    
    
    
    (1,558
    )
    
    $
    10.14Options expired/forfeited
    
    
    142,835
    
    
    
    (149,455
    )
    
    $
    30.80Balance, December 31, 2004
    
    
    577,395
    
    
    
    1,812,909
    
    
    $
    17.04
 The following table summarizes information regarding outstanding and exercisable options as of
December 31, 2004: Options outstanding
    
    
    Options exercisableWeighted averageremainingRange of exercise
    
    Number
    
    
    contractual
    
    
    Weighted average
    
    
    Number
    
    
    Weighted averageprices
    
    outstanding
    
    
    life (years)
    
    
    exercise price
    
    
    exercisable
    
    
    exercise price$7.10 - $15.00
    
    
    422,810
    
    
    
    8.5
    
    
    $
    9.87
    
    
    
    143,504
    
    
    $
    11.68$15.01 - $18.00
    
    
    777,908
    
    
    
    8.5
    
    
    $
    16.65
    
    
    
    264,144
    
    
    $
    16.43$18.01 - $23.00
    
    
    607,191
    
    
    
    6.2
    
    
    $
    21.55
    
    
    
    584,025
    
    
    $
    21.63$23.01 - $198.75
    
    
    5,000
    
    
    
    2.6
    
    
    $
    136.65
    
    
    
    5,000
    
    
    $
    136.651,812,909
    
    
    
    
    
    
    
    
    
    
    
    996,673
 F-37




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued The following table summarizes information regarding options exercisable as of December 31: 2004
    
    
    2003
    
    
    2002Number exercisable
    
    
    996,673
    
    
    
    825,448
    
    
    
    624,075Weighted average exercise price
    
    $
    19.40
    
    
    $
    22.73
    
    
    $
    26.64
 The
weighted average grant date fair value of options granted ($10.51 in 2004, $10.63 in 2003,
and $13.37 in 2002) was estimated using the Black-Scholes option pricing model with the following
weighted average assumptions: 2004
    
    
    2003
    
    
    2002Risk-free interest rate
    
    
    4.18
    %
    
    
    4.08
    %
    
    
    4.46
    %Expected life
    
    6.0 years
    
    10.0 years
    
    9.9 yearsExpected volatility
    
    
    76.2
    %
    
    
    80.8
    %
    
    
    81.0
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %
 In January 2002, 40,000 vested stock options for three resigning directors were amended to
allow for an extension of the exercise period through December 31, 2003. These options were never
exercised and expired as of December 31, 2003. Additionally, in January 2002, the Companys Board of Directors agreed to cancel up to 37,767
stock options with exercise prices ranging from $57.45 to $202.50 issued to current officers and
employees of the Company with the intent of reissuing the same number of options in the future at
the then current market price. In September 2002, the Company issued 36,867 stock options,
including 25,366 to the Companys then chief financial officer and three senior executives, at an
exercise price of $15.55 per share pursuant to this reissuance program. At the Companys Annual Meeting of Shareholders held on May 22, 2002, the shareholders
approved a new 2002 Stock Option Plan pursuant to which options to purchase 600,000 shares of
common stock may be issued to employees, officers and directors. Subsequent to December 31, 2003,
the Companys shareholders agreed to amend the 2002 Stock Option Plan to allow for the issuance of
up to 1,350,000 shares of common stock (see Note 2(a)). Additionally, in May 2002, the Companys non-employee directors were granted a total of 55,000
options at an exercise price of $20.20 to compensate the directors upon initial appointment to the
board, re-election to the board, and participation in sub-committees. Option grants for initial
appointment and subsequent re-election to the board vest equally over a three-year period. Options
for participation in sub-committees vest in full after three years but may be accelerated to vest
after each sub-committee meeting attended. In October 2002, 15,000 and 1,875 options with an
exercise price of $12.54 were granted to a newly appointed non-employee director for initial
appointment and sub-committee membership, respectively. Of the total sub-committee grants, 8,125
options were accelerated to vest on December 31, 2002, 2,500 options were forfeited by a resigning
director, and the remaining 6,250 sub-committee grants vested in 2003. F-38




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued In June 2002, the Companys Board of Directors authorized the issuance of stock options to
employees and officers of the Company as part of a structured retention and reward plan. Initially
in June 2002, 47,267 options were granted at an exercise price of $17.36 per share. Included in
these grants were a total of 25,000 options granted to the Companys chairman/chief executive
officer and president/chief operating officer. In September 2002, an additional 38,050 options
were granted to other employees and officers at an exercise price of $15.55 per share, including
14,100 stock options to the Companys former chief financial officer and one other senior
executive. These options are for a ten-year term and vest equally over a three-year period. Also in June 2002, the Companys Board of Directors authorized the issuance of stock options
to ProxyMeds executive and senior management as part of their compensation plan for the 2002 year.
As a result, 56,440 options were granted to the Companys chairman/chief executive officer and
president/chief operating officer at an exercise price of $17.36. In September 2002, 63,106
options were granted to the remaining executive and senior management at an exercise price of
$15.55 per share. All of these options are for a ten-year term, vest in full after five years and
contain a clause that enables the accelerated vesting of a portion or all of the options if
specific, pre-determined individual and company goals are met during the 2002 year. Of the 119,546
total options granted under the 2002 compensation plan discussed above, 80,194 options were
accelerated to vest on December 31, 2002 and the remaining 39,352 options will vest in 2007. In March 2003, the Company granted 36,000 stock options at exercise prices of $7.60 to $9.24
per share to certain employees of MedUnite and 10,000 stock options at an exercise price of $7.60
to an executive officer of ProxyMed. In April 2003, the six non-employee directors of ProxyMed were each granted 10,000 stock
options at an exercise price of $7.28 per share. Such options were granted pursuant to the
Companys approved stock option plans and are for a ten-year term and vest equally over three years
from the date of grant. Additionally, in May 2003, the Companys non-employee directors were
granted a total of 30,000 and 15,000 options at an exercise price of $10.63 to compensate the
directors upon re-election to the board and participation in sub-committees, respectively, pursuant
to guidelines adopted by the Companys Board of Directors in May 2002. The option grants for the
re-election to the board are for a ten-year term and vest equally over a three-year period.
Options for participation in sub-committees are for a ten year term and vest in full after five
years but a portion may be accelerated to vest after each sub-committee meeting attended. Of the
total sub-committee grants, 11,250 options were accelerated to vest on December 31, 2004 and the
remaining 3,750 sub-committee grants vested in 2004. In October 2003, the Compensation Committee approved grants of 125,000 and 50,000 stock
options at an exercise price of $15.90 per share to the Companys then current chairman/chief
executive officer and president/chief operating officer, respectively. Such options are for a
ten-year term and vest equally over three years from the date of grant. In connection with the commencement of employment of the Companys new chief financial officer
in December 2003, the Company granted this executive a total of 100,000 stock options at an
exercise price of $16.01 per share. Such options are for a ten-year term and vest equally over
three years from the date of grant. F-39




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued During the year ended December 31, 2004, the Company granted 360,373 stock options to officers
and employees at exercise prices between $7.18 and $20.05 per share. Such options are for a
ten-year term and generally vest equally over the three or four years following the date of the
grant. However, of these options, 173,120 options granted to employees of PlanVista upon its
acquisition by ProxyMed will vest two-thirds on the first anniversary date of the grant and
one-third on the third anniversary date of the grant. As described in Note 2(b), since these
options were granted at an exercise price of $17.74, which was below the $19.00 market price at the
time of issuance, the Company records periodic non-cash compensation charges over the vesting
period of the options based on the intrinsic value method. For the year ended December 31, 2004,
the Company recorded charges of $0.1 million for these options. In March 2004, 26,880 options at an exercise price of $17.74 per share were granted to
PlanVistas former chief financial officer in connection with a consulting arrangement with him.
Fifty percent of these options vested immediately upon the change of control and 25% will vest on
each of the three month and six month anniversaries of the change in control. The Company recorded
$0.1 million in compensation expense associated with this grant in the three months ended March 31,
2004 based on the Black-Scholes model using the following assumptions: risk-free interest rate of
1.2%, expected life of 9 months, expected volatility of 42% and no dividend yield. Additionally, in March 2004, 15,000 stock options at an exercise price of $17.50 per share
were granted to a new director upon appointment to the Companys board of directors as result of
the acquisition of PlanVista. Such options are for a ten-year term and vest equally over the three
years following the date of the grant. In June 2004, the Companys outside directors were granted a total of 35,000 and 15,000
options at an exercise price of $20.00 to compensate the directors upon re-election to the board
and for participation on a committee, respectively, pursuant to guidelines adopted by the Companys
Board of Directors in May 2002. Option grants for the re-election to the board are for a ten-year
term and vest immediately. Options for participation in committees are for a ten-year term and
vest in full after three years but a portion may be accelerated to vest after each committee
meeting attended. As of December 31, 2004, the 15,000 committee options granted for the 2004-2005
term were vested. As noted in Note 3, stock options to purchase 10,000 shares of the Companys common stock at
an exercise price of $16.00 were granted to a former executive of the Company who purchased the
Companys contract manufacturing assets on June 30, 2004. Such options were valued at $68,000 and
included in the loss on disposal of assets for the year ended December 31, 2004. These options are
for a three-year term and 5,000 options vest the end of each of next two years. F-40




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued As a result of PlanVistas former chief executive officers change in status and modification
to the original stock option award as described in Note 2(a), the Company is amortizing the $0.1
million value of these options as a non-cash compensation charge in its consolidated statement of
operations over the 30-month period of the agreement in proportion to the vesting schedule of the
stock options. The value of these options was computed utilizing a Black-Scholes model using the
following assumptions: risk-free interest rate of 2.8%, expected life of 2.5 years, expected
volatility of 65% and no dividend yield. Additionally, each reporting period the Company must
measure the value of these options and record any increase in value as a period charge. As of
December 31, 2004, the value of these options had decreased below their original value and no
charge is required to be recorded for the year ended December 31, 2004. In December 2004, the Companys new chairman and interim chief executive officer was granted
stock options to purchase 75,000 shares of the Companys common stock at an exercise price of $7.10
per share in connection with his consulting agreement with the Company. Such options
are for ten years and vest equally over the next 12 months at the rate of 6,250 per month. The
options will cease to vest if the consulting agreement is terminated. A compensation charge of
$14,400 for these stock options will be recorded after each monthly vesting amount based on a
Black-Scholes model using the following assumptions: risk-free interest rate of 2.9%, expected life
of 2 years, expected volatility of 55% and no dividend yield. Subsequently in January 2005, he was
granted stock options to purchase another 25,000 shares of the Companys common stock at $9.87 per
share in his capacity as chairman of the board. Such options are for ten years and vest equally
over the next twelve months at the rate of 2,083 per month. There is no compensation charge
associated with these options. F-41




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  (15)
    Supplemental Disclosure of Cash Flow Information Year Ending December 31,In thousands
    
    2004
    
    
    2003
    
    
    2002Cash paid for interest
    
    $
    1,875
    
    
    $
    932
    
    
    $
    63Acquisition of businesses:Common stock issued for businesses acquired
    
    $
    59,760
    
    
    $
    
    
    
    $
    600Debt issued for businesses acquired
    
    
    
    
    
    
    
    
    
    
    13,400Other acquisition costs accrued
    
    
    1,328
    
    
    
    
    
    
    
    8,382Other non-cash adjustments
    
    
    (642
    )
    
    
    
    
    
    
    Details of acquisitions:Working capital components, including cash acquired
    
    
    (388
    )
    
    
    
    
    
    
    4,609Property and equipment
    
    
    (658
    )
    
    
    
    
    
    
    (2,165
    )Goodwill
    
    
    (62,829
    )
    
    
    
    
    
    
    (24,837
    )Intangible assets acquired:Customer Relationships
    
    
    (24,600
    )
    
    
    
    
    
    
    (9,440
    )Purchased Technology
    
    
    (1,180
    )
    
    
    
    
    
    
    (6,395
    )Provider Network
    
    
    (16,200
    )
    
    
    
    
    
    
    Long-term debt
    
    
    44,889
    
    
    
    
    
    
    
    Other long-term liabilities, net
    
    
    520
    
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    (15,637
    )Cash acquired in acquisitions
    
    
    782
    
    
    
    
    
    
    
    1,184Net cash acquired from (used in) acquisitions
    
    $
    782
    
    
    $
    
    
    
    $
    (14,453
    )Disposition of assets:Detail of disposition:Working capital components, other than cash
    
    $
    3,742
    
    
    $
    
    
    
    $
    Property and equipment, net
    
    
    757
    
    
    
    
    
    
    
    Net cash provided from disposition
    
    $
    4,499
    
    
    $
    
    
    
    $
    
 F-42




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued (16) Concentration of Credit Risk Substantially all of ProxyMeds accounts receivable are due from healthcare providers, such as
physicians and various healthcare institutional suppliers (payers, laboratories and pharmacies).
Collateral is not required. For
the years ended December 31, 2004 and 2003, approximately 8% and
15% of consolidated revenues,
respectively and for both periods 10% of revenues in the Transaction Services segment, were from NDCHealth, a
former shareholder of MedUnite. Additionally,
for the years ended December 31, 2004 and 2003 and 2002, approximately 9%, 12%
and 10% of consolidated revenues, and 45%, 34% and 18% of Laboratory Communication
segment revenues, respectively was from a single customer for the sale, lease and service of
communication devices. The potential loss of this customer would materially affect the Companys Laboratory
Communication Solutions segment operating results. (17) Employee Benefit Plans  (a)
    401(k) Savings Plan  ProxyMed has a 401(k) retirement plan for substantially
all employees who meet certain minimum lengths of employment and minimum age requirements.
Contributions may be made by employees up to the lessor of 60% of
their annual compensation, or the maximum IRS limit. Discretionary
matching contributions are approved or declined by the Companys board of directors each
year. There were no matching contributions during 2004, 2003 or 2002. Funding of
matching contributions each year may be offset by forfeitures from terminated employees.
As of December 31, 2004, there was approximately $0.3 million in available forfeitures that
the Company intends to use to offset future matching contributions. F-43




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued  At the
time the Company acquired PlanVista in March 2004 (see Note 2(a)), eligible PlanVista
employees were immediately able to participate in the ProxyMed 401(k) Plan. The Company has
filed a plan of termination for the PlanVista 401(k) Plan with the Internal Revenue Service.
As of the filing of this report, that termination request is still pending approval.(b)
    Self-Insurance  In July 2004, the Company commenced a program of
self-insuring its medical and dental insurance plans. Prior to this time, the Company
participated in several premium only plans with various insurance carriers. Under this
self-insurance arrangement, the Company pays a third-party administrator to handle claims
processing and other administrative functions. For medical and dental insurance claims,
the Company has purchased stop-gap coverage which limits its claims exposure on a per
employee basis. For disability insurance, there is no such limitation. For the year ended
December 31, 2004, the Company has accrued $1.3 million
towards its self-insurance exposure.
Through December 31, 2004, $0.9 million in claims have been paid, representing
approximately 69% of the amounts set aside for claims.(c)
    Deferred Compensation Plan  As part of our acquisition of PlanVista, the
Company has a deferred compensation plan with two former officers of PlanVista and its
predecessor companies. The deferred compensation, which together with accumulated interest
is accrued but unfunded, is distributable in cash after retirement or termination of
employment, and amounted to approximately $0.8 million at December 31, 2004. Both
participants began receiving such deferred amounts, together with interest at 12% annually,
at age 65. F-44




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued (18) 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 Companys 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 denied the Companys opposing
motion. 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
December 31, 2004.In early 2000, four named plaintiffs filed a class action against Fidelity Group, Inc.
(Fidelity), HPS a former subsidiary of the Companys
PlanVista subsidiary, 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 sent by the State of New York to PlanVista. The notice involved
taxes claimed to be due on a deconsolidated basis for the tax years ending December 31, 1999
through December 31, 2001 in an amount of $2.8 million. The Companys contends that
taxation on a consolidated basis is appropriate, and is vigorously pursuing its appeal.
However, the Company is unable to determine whether it will be successful or whether it will
be obligated to pay some or all of the alleged deficiencies.From time to time, the Company is a party to other legal proceedings in the course of its
business. The Company, however, does not expect such other legal proceedings to have a
material adverse effect on its business or financial condition.(b)
    Disputes  The Company accrued $0.4 million as a settlement of disputed
enrollment fees and rebate amounts to NDCHealth relating to periods before December 31,
2004. The Company has accrued this amount as an increase of cost of services in the
Transactions Services Segment for the year ended December 31, 2004(c)
    Other  In connection with the Companys 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. F-45




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued (19) Commitments and Other  (a)
    Leases  ProxyMed leases certain computer and office equipment used in its
transaction services business that have been classified as capital leases. The Company
also leases premises and office equipment under operating leases which expire on various
dates through 2010. The leases for the premises contain renewal options, and require
ProxyMed to pay such costs as property taxes, maintenance and insurance. At December 31,
2004, the present value of the capital leases and the future minimum lease payments under
non-cancelable operating leases with initial or remaining lease terms in excess of one year
(net of payments to be received under subleases) are as follows: Capital
    
    
    OperatingIn Thousands
    
    Leases
    
    
    Leases2005
    
    $
    5
    
    
    $
    1,6242006
    
    
    6
    
    
    
    1,4152007
    
    
    1
    
    
    
    1,4192008
    
    
    
    
    
    
    1,0142009
    
    
    
    
    
    
    781Total minimum lease payments
    
    
    12
    
    
    $
    6,253Less amount representing interest
    
    
    (1
    )Present value of
minimum lease payments
    
    $
    11
  The Company recognizes rent expense on a straight-line basis over the related lease term.
Total rent expense for all operating leases amounted to $2.5 million in 2004, $2.1 million
in 2003, and $1.5 million in 2002. The current portion of capital leases is included in
accounts payable and other accrued expenses and the long-term portion of capital leases is
included in other long-term liabilities in the balance sheet at December 31, 2004 and 2003.(b)
    Settlement of Contract Dispute  In September 2002, the Company favorably
settled a contract dispute in the amount of $0.3 million. The settlement resulted in the
issuance of a promissory note receivable to the Company, which was recorded at its present
value of $0.3 million. The present value of the promissory note, less legal expenses of
$34,000, was reported as other income in the year ended December 31, 2002. Under the terms
of the promissory note, payments of $25,000 were to be made each quarter over the next
three years starting October 2002. As of December 31, 2004, the note has been paid in
full.(c)
    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 Companys aggregate commitment under
these agreements is $1.4 million at December 31, 2004. F-46




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued (20) Related Party Transactions In April 1997, the Company made loans totaling $0.4 million to Mr. Blue, its former chairman
of the board and chief executive officer. The funds were advanced pursuant to two demand
promissory notes in the principal amounts of $0.3 million and $60,000, respectively, each bearing
interest at a rate of 73/4% per annum. On June 30, 2000, the Company amended the terms of these
notes whereby interest on the notes ceased to accrue subsequent to July 1, 2000 and the loan plus
accrued interest, totaling $0.4 million at June 30, 2000, would be payable in a balloon payment in
December 2001. At that time, the loans were collateralized with options to purchase 36,667 shares
of common stock granted to Mr. Blue under the Companys stock option plans. Prior to 2000, these
loans were included in other assets; as of December 31, 2001, all amounts owed under these loans
have been reclassified to stockholders equity. In December 2001, a payment of $0.3 million was received from Mr. Blue and applied against the
outstanding balance of the loans. The Company agreed to refinance the remaining $0.2 million
balance and a new promissory note was executed by Mr. Blue. This new note requires monthly
interest payments at prime rate plus 1%, established at the beginning of each calendar quarter, and
was payable in a balloon payment on or before December 31, 2003. The note was collateralized with
options to purchase 36,667 shares of common stock granted to Mr. Blue under the Companys stock
option plans (of which all but 10,000 expired on December 31, 2003 and the remaining options expire
in March 2004) along with additional warrants granted to Mr. Blue from various other public
companies. In January 2002, Mr. Blue resigned from the Companys Board of Directors and the
remaining Board members agreed to extend the exercise period of certain of the stock options of the
Company held as collateral for the note in an effort to maximize the potential for repayment. In June 2003, the Company again amended the promissory note executed in December 2001 by Mr.
Blue. The amendment extended the maturity date of the promissory for an additional twelve months
to December 31, 2004 and also allowed Mr. Blue to offset any principal owed with certain amounts
payable to Mr. Blue by the Company as a result of a finders fee arrangement with the Company.
Also at that time, Mr. Blue all interest was prepaid through the maturity date. In March 2004, the Company agreed to accept as collateral for this loan 9,250 shares of its
common stock that are being issued to Commonwealth Associates (Mr. Blues former employer) in
conjunction with the Companys acquisition of PlanVista. As a result, Mr. Blue and
the Company amended a previously existing stock pledge agreement to include these shares as
additional collateral. In case of default of payment by Mr. Blue, such shares will be liquidated
or returned to the Company for liquidation and the cash proceeds will be utilized to partially or
fully satisfy the loan depending upon the value of such stock at that time. The Company received
cash payments from Mr. Blue in July and December 2004 to pay all amounts due under this loan. As
of December 31, 2004, the notes have been collected in full. F-47




---



##### 



PROXYMED, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued In March 2001, a senior executive of the Company entered into an uncollateralized promissory
note for $45,400 for amounts previously borrowed from the Company. The promissory note calls for
minimum bi-weekly payments of $350 deducted directly from the executives payroll until the note is
paid in full on or before February 2006. The note is non-interest bearing but interest is imputed
annually based on the Internal Revenue Service Applicable Federal Rate at the time the note was
originated (4.98%). Under terms of the promissory note, if the executive is terminated without
cause, the note is due in full after nine months from the date of termination as long as the
scheduled bi-weekly payments continue to be made. As of December 31, 2004, the unpaid principal
balance of the note is approximately $6,000 and is included in other receivables. In June 2003, prior to its acquisition of PlanVista (see Notes 2(a) and 6), ProxyMed entered
into a joint distribution and marketing agreement with PlanVista. PlanVista was controlled by an
affiliate of Commonwealth Associates Group Holdings, LLC, whose principal, Michael Falk, is a
director of both ProxyMed and PlanVista. Additionally, one former senior executive of ProxyMed had
an immaterial ownership interest in PlanVista. As
described in Note 12 (a), the Company assumed and guaranteed a
$20.4 million secured obligation to PVC Funding Partners, LLC,
owner of approximately 20% of the outstanding common stock of
the Company. This obligation has a balance of approximately
$18.4 million at December 31, 2004. (21) Going Concern As
discussed in Note 12(a), the Company is currently negotiating
financing with Wachovia Bank, N.A. to provide funds to be used, with
existing cash balances, to make the May 31, 2005,
$17.8 million balloon payment to PVC Funding Partners, LLC, a
related party. If the Company is unsuccessful in arranging this
financing and is unable to make this balloon payment, the Company may
be unable to continue as a going concern. These consolidated
statements do no include any adjustments that might result from the
outcome of this uncertainty. (22) Quarterly Financial Data (unaudited) The following table summarizes the quarterly
consolidated statement of operations data for each of the eight
quarters in the years ended December 31, 2004 and 2003. The data
is derived from and is qualified by reference to ProxyMeds
audited financial statements, which appear elsewhere in this document. The
data set forth below should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our Consolidated
Financial Statements and related notes. 2004
Quarter Ended(1)in thousands except for share
and per share data:
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Net Revenues
    
    $
    20,504
    
    
    $
    24,649
    
    
    $
    22,511
    
    
    $
    22,582Operating loss
    
    $
    (43
    )
    
    $
    (264
    )
    
    $
    (450
    )
    
    $
    (1,217
    )Loss from continuing operations
    
    $
    (427
    )
    
    $
    (772
    )
    
    $
    (1,028
    )
    
    $
    (1,573
    )Net loss applicable to common shareholders
    
    $
    (427
    )
    
    $
    (772
    )
    
    $
    (1,028
    )
    
    $
    (1,573
    )Net loss per share (basic and diluted)
    
    $
    (0.05
    )
    
    $
    (0.06
    )
    
    $
    (0.08
    )
    
    $
    (0.12
    )Basic and diluted weighted average common shares outstanding
    
    
    8,570,731
    
    
    
    12,625,260
    
    
    
    12,626,066
    
    
    
    12,626,182
 2003
Quarter Ended(2)March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31(as restated)
    
    
    (as restated)
    
    
    (as restated)Net revenues
    
    $
    17,430
    
    
    $
    17,701
    
    
    $
    18,062
    
    
    $
    18,363Operating income (loss)
    
    $
    (2,278
    )
    
    $
    (913
    )
    
    $
    170
    
    
    $
    (621
    )Loss from continuing operations
    
    $
    (2,452
    )
    
    $
    (1,108
    )
    
    $
    (33
    )
    
    $
    (1,407
    )Net loss applicable to common shareholders
    
    $
    (2,452
    )
    
    $
    (1,108
    )
    
    $
    (33
    )
    
    $
    (1,407
    )Net loss per share (basic and diluted)
    
    $
    (0.36
    )
    
    $
    (0.16
    )
    
    $
    
    
    
    $
    (0.21
    )Basic and diluted weighted average common shares outstanding
    
    
    6,782,938
    
    
    
    6,782,938
    
    
    
    6,783,095
    
    
    
    6,784,118
 (1) Includes operations
of PlanVista from March 2, 2004.  F-48




---



##### 



PROXYMED, INC. AND SUBSIDIARIES SCHEDULE II  Valuation and Qualifying Accounts In thousands
    
    Allowance for Doubtful AccountsAdditionsYear ended
    
    Balance at
    
    
    Charged to
    
    
    Charged to
    
    
    
    
    
    
    Balance atDecember 31,
    
    beginning of year
    
    
    costs and expenses
    
    
    other accounts (1)(2)
    
    
    Deductions (3)
    
    
    end of year2004
    
    $
    882
    
    
    
    858
    
    
    
    7,138
    
    
    
    5,710
    
    
    $
    3,1682003
    
    $
    1,096
    
    
    
    152
    
    
    
    803
    
    
    
    1,169
    
    
    $
    8822002
    
    $
    228
    
    
    
    38
    
    
    
    1,008
    
    
    
    178
    
    
    $
    1,096
 (1) Includes amounts charged against revenue in 2002 ($346), 2003 ($803), and 2004 ($1,997)
(2) Includes amounts acquired through acquisitions in 2002 ($662), 2003 ($-0-), and 2004 ($5,141)
(3) Primarily write-off of bad debts and amounts charged against revenues, net of recoveries F-49




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##### 



EXHIBIT INDEX Exhibit No.
    
    Description2.1
    
    
    Agreement and Plan of Merger, dated as of December 5, 2003, by
and among the Registrant, Planet Acquisition Corp. and
PlanVista Corporation (incorporated by reference to Annex A of
the Registration Statement on Form S-4, File No. 333-111024).2.2
    
    
    Agreement and Plan of Merger and Reorganization dated December
31, 2002 between ProxyMed, Inc., Davie Acquisition Corp., and
MedUnite Inc. (incorporated by reference to Exhibit 2.1 of
Form 8-K File No. 000-22052, reporting an event dated December
31, 2002).2.3
    
    
    Asset Purchase Agreement dated July 30, 2002 between ProxyMed,
Inc. and MDIP, Inc. (incorporated by reference to Exhibit 2.1
of Form 8-K File No. 000-22052, reporting an event dated July
31, 2002).2.4
    
    
    Stock Purchase Agreement dated May 6, 2002 between ProxyMed,
Inc. and KenCom Communications & Services, Inc. (incorporated
by reference to Exhibit 2.1 of Form 8-K File No. 000-22052,
reporting an event dated May 6, 2002).2.5
    
    
    Stock and Warrant Purchase Agreement between ProxyMed and
General Atlantic Partners 74, L.P., GAP Coinvestment Partners
II, L.P., GAPCO GmbH & Co., KG and GapStar, LLC (incorporated
by reference to Exhibit 10.1 of Form 8-K, File No. 000-22052,
reporting an event dated March 26, 2002).2.6
    
    
    Asset Purchase Agreement dated June 28, 2004 between ProxyMed,
Inc., and Key Communications Services, Inc., and Key
Electronics, Inc. (incorporated by reference to Exhibit 2.1 of
Form 8-K File No. 000-22052, reporting an event dated July 30,
2004).3.1
    
    
    Articles of Incorporation, as amended (incorporated by
reference to Exhibit 3.1 of the Registration Statement on Form
SB-2, File No. 333-2678).3.2
    
    
    Bylaws, as amended (incorporated by reference to Exhibit 3.1
of the Registration Statement on Form SB-2, File No.
333-2678).3.3
    
    
    Articles of Amendment to Restated Articles of Incorporation of
the Registrant dated March 1, 2004 (incorporated by reference
to Exhibit 3.1 of Form 8-K File No. 000-22052, reporting an
event dated March 2, 2004).3.4
    
    
    Articles of Amendment to Articles of Incorporation of the
Registrant dated May 22, 2002 (incorporated by reference to
Exhibit 3.4 of Form 10-K for the period ended December 31,
2003).3.5
    
    
    Articles of Amendment to Articles of Incorporation of the
Registrant dated December 21, 2001 (incorporated by reference
to Exhibit 3.1 of Form 8-K File No. 000-22052, reporting an
event dated December 13, 2001).3.6
    
    
    Articles of Amendment to Articles of Incorporation dated
August 21, 2001 (incorporated by reference to Exhibit 2.2 of
Form 8-K, File No. 000-22052, reporting an event dated August
17, 2001).3.7
    
    
    Articles of Amendment to Articles of Incorporation dated July
25, 2001 (incorporated by reference to Exhibit 2.1 of Form
8-K, File No. 000-22052, reporting an event dated August 17,
2001).
 59




---



##### 



Exhibit No.
    
    Description3.8
    
    
    Articles of Amendment to Articles of Incorporation of the
Registrant dated July 7, 2000 (incorporated by reference to
Exhibit 3.8 of Form 10-K for the period ended December 31,
2003).3.9
    
    
    Articles of Amendment to Articles of Incorporation of the
Registrant dated June 15, 2000 (incorporated by reference to
Exhibit 3.4 of Form 10-Q/A for the period ended June 30,
2000).4.1
    
    
    Common Stock Purchase Warrants issued to First Data
Corporation (incorporated by reference to Exhibit 10.1 of Form
8-K, File No. 000-22052, reporting an event dated July 8,
2003).4.2
    
    
    Form of 4% Convertible Promissory Notes dated December 31,
2002 issued in connection with the Agreement and Plan of
Merger and Reorganization dated December 31, 2002 between
ProxyMed, Inc., Davie Acquisition Corp., and MedUnite, Inc.
(incorporated by reference to Exhibit 10.1 of Form 8-K File
No. 000-22052, reporting an event dated December 31, 2002).4.3
    
    
    Form of Common Stock Purchase Warrants issued to General
Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GAPCO GmbH & Co., KG and GapStar, LLC (incorporated by
reference to Exhibit 10.2 of Form 8-K, File No. 000-22052,
reporting an event dated March 26, 2002).4.4
    
    
    Form of Exchanged Warrant to Purchase Common Stock of the
Registrant dated May 4, 2000, issued to certain investors
(incorporated by reference to Exhibit 4.1 of Form 8-K, File
No. 000-22052, reporting an event dated May 4, 2000).4.5
    
    
    Form of New Warrant to Purchase Common Stock of the Registrant
dated May 4, 2000, issued to certain investors (incorporated
by reference to Exhibit 4.2 of Form 8-K, File No. 000-22052,
reporting an event dated May 4, 2000).4.6
    
    
    Form of Warrant to Purchase Common Stock of the Registrant
dated December 23, 1999, issued to certain investors
(incorporated by reference to Exhibit 4.1 of Form 8-K, File
No. 000-22052, reporting an event dated December 23, 1999).10.1
    
    
    Amended and Restated Registration Rights Agreement among the
Registrant, General Atlantic Partners 77, L.P., General
Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GAP Coinvestments III, LLC, GAP Coinvestments IV, LLC,
GapStar, LLC, GAPCO GmbH & Co. KG, PVC Funding Partners, LLC,
ComVest Venture Partners, L.P., Shea Ventures, LLC, and Robert
Priddy, dated March 2, 2004 (incorporated by reference to
Exhibit 4.1 of Form 8-K, File No. 000-22052, reporting an
event dated March 2, 2004).10.2
    
    
    Stock Purchase Agreement, dated as of December 5, 2003 among
the Registrant, General Atlantic Partners 77, L.P., GAP
Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co.
KG, PVC Funding Partners, LLC, ComVest Venture Partners, L.P.,
Shea Ventures, LLC, and Robert Priddy (incorporated by
reference to Exhibit 2.2 of the Registration Statement on Form
S-4, File No. 333-111024).10.3
    
    
    Registration Rights Agreement among the Registrant General
Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GapStar, LLC and GAPCO GmbH & Co. KG dated April 5, 2002
(incorporated by reference to Exhibit 10.3 of Form 8-K, File
No. 000-22052, reporting an event dated March 29, 2003).
 60




---



##### 



Exhibit No.
    
    Description10.4
    
    
    Registration Rights Agreement dated December 31, 2002 among
ProxyMed, Inc. and the holders of the 4% Convertible
Promissory Notes (incorporated by reference to Exhibit 10.2 of
Form 8-K File No. 000-22052, reporting an event dated December
31, 2002).10.5
    
    
    Form of Indemnification Agreement for all Officers and
Directors adopted May 22, 2002 (incorporated by reference to
Exhibit 10.55 of Form 10-K for the period ended December 31,
2002).10.6
    
    
    Registration Rights Agreement dated May 6, 2002 ProxyMed, Inc.
and Deborah M. Kennedy and Colleen Phillips-Norton
(incorporated by reference to Exhibit 10.1 of Form 8-K File
No. 000-22052, reporting an event dated May 6, 2002).10.7
    
    
    Registration Rights Agreement between ProxyMed and General
Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GapStar, LLC, and GAPCO GmbH & Co. KG (incorporated by
reference to Exhibit 10.3 of Form 8-K, File No. 000-22052,
reporting an event dated March 26, 2002).10.8
    
    
    Employment Letter between ProxyMed and Jeffrey L. Markle
effective March 2, 2004 (incorporated by reference to Exhibit
10.8 of Form 10-K for the period ended December 31, 2003).*10.9
    
    
    Employment Agreement between ProxyMed and Gregory J.
Eisenhauer dated December 8, 2003 (incorporated by reference
to Exhibit 10.9 of Form 10-K for the period ended December 31,
2003).*10.10
    
    
    Employment Agreement between ProxyMed and Tom Wohlford dated
May 13, 2003 (incorporated by reference to Exhibit 10.10 of
Form 10-K for the period ended December 31, 2003).*10.11
    
    
    Employment Agreement between ProxyMed and A. Thomas Hardy
dated December 31, 2001 (incorporated by reference to Exhibit
10.40 of Form 10-K for the period ended December 31, 2001).*10.12
    
    
    Employment Agreement between ProxyMed and Lonnie W. Hardin
dated March 29, 2001 (incorporated by reference to Exhibit
10.1 of Form 10-Q for the period ended March 31, 2001).*10.13
    
    
    Employment Agreement between ProxyMed and Timothy J. Tolan
dated January 23, 2001 (incorporated by reference to Exhibit
10.30 of Form 10-K for the period ended December 31, 2000).*10.14
    
    
    Amendment to Employment Agreement between ProxyMed and Timothy
J. Tolan effective January 1, 2004 (incorporated by reference
to Exhibit 10.15 of Form 10-K for the period ended December
31, 2003).*10.15
    
    
    Employment Agreement between ProxyMed and Michael K. Hoover
dated July 28, 2000 (incorporated by reference to Exhibit 99.1
of Form 10-Q for the period ended September 30, 2000).*10.16
    
    
    Amendment to Employment Agreement between ProxyMed and Michael
K. Hoover effective January 1, 2004 (incorporated by reference
to Exhibit 10.17 of Form 10-K for the period ended December
31, 2003).*10.17
    
    
    Employment Agreement between ProxyMed and Judson E. Schmid
dated September 29, 2000 (incorporated by reference to Exhibit
99.2 of Form 10-Q for the period ended September 30, 2000).*
 61




---



##### 



Exhibit No.
    
    Description10.18
    
    
    Employment Agreement between ProxyMed and Nancy J. Ham dated
October 2, 2000 (incorporated by reference to Exhibit 99.3 of
Form 10-Q for the period ended September 30, 2000).*10.19
    
    
    Amendment to Employment Agreement between ProxyMed and Nancy
J. Ham effective January 1, 2004 (incorporated by reference to
Exhibit 10.20 of Form 10-K for the period ended December 31,
2003).*10.20
    
    
    Employment Agreement between ProxyMed and John Paul Guinan
(incorporated by reference to Exhibit 3.1 of the Registration
Statement on Form SB-2, File No. 333-2678).*10.21
    
    
    Form of bonus letter offered to executive and senior
management on February 26, 2002 (incorporated by reference to
Exhibit 10.54 of Form 10-K for the period ended December 31,
2002).*10.22
    
    
    2002 Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.23 of Form 10-K for the period ended December
31, 2003).*10.23
    
    
    2001 Stock Option Plan (incorporated by reference to Exhibit B
of the Proxy Statement filed on June 22, 2001).*10.24
    
    
    2000 Stock Option Plan (incorporated by reference to Exhibit B
of the Proxy Statement filed on June 12, 2000).*10.25
    
    
    2000-1/2 Stock Option Plan (incorporated by reference to
Exhibit C of the Proxy Statement filed on June 12, 2000).*10.26
    
    
    1997 Stock Option Plan (incorporated by reference to Exhibit A
of the Proxy Statement filed on May 6, 1997).*10.27
    
    
    Amended 1993 Stock Option Plan (incorporated by reference to
Exhibit A of ProxyMeds Proxy Statement for its 1994 Annual
Meeting of Shareholders).*10.28
    
    
    1995 Stock Option Plan (incorporated by reference to Exhibit
3.1 of the Registration Statement on Form SB-2, File No.
333-2678).*10.29
    
    
    Subscription Agreement dated December 21, 2001 for the private
placement issuance of up to $8,000,000 of ProxyMed, Inc.
common stock (incorporated by reference to Exhibit 10.1 of
Form 8-K File No. 000-22052, reporting an event dated December
13, 2001).10.30
    
    
    Placement Agency Agreement dated December 18, 2001 between
ProxyMed, Inc. and Commonwealth Associates, L.P. for the
private placement issuance of up to $8,000,000 of ProxyMed,
Inc. common stock (incorporated by reference to Exhibit 10.2
of Form 8-K File No. 000-22052, reporting an event dated
December 13, 2001).10.31
    
    
    Conversion Agreement for Series C 7% Convertible Preferred
shareholder pursuant to conversion offer dated December 13,
2001 (incorporated by reference to Exhibit 10.3 of Form 8-K
File No. 000-22052, reporting an event dated December 13,
2001).
 62




---



##### 



Exhibit No.
    
    Description10.32
    
    
    Designation and Subscription Amendment Agreement for Series C
7% Convertible Preferred shareholder pursuant to conversion
offer dated December 13, 2001 (incorporated by reference to
Exhibit 10.4 of Form 8-K File No. 000-22052, reporting an
event dated December 13, 2001).10.33
    
    
    Loan and Security Agreement by and between ProxyMed, Key
Communications Service, Inc., MedUnite Inc. and Wachovia Bank,
National Association dated December 4, 2003 (incorporated by
reference to Exhibit 10.34 of Form 10-K for the period ended
December 4, 2003).*10.34
    
    
    Revolver Note dated December 4, 2003, issued in connection
with the Loan and Security Agreement by and between ProxyMed,
Key Communications Service, Inc., MedUnite Inc. and Wachovia
Bank, National Association dated December 4, 2003
(incorporated by reference to Exhibit 10.35 of form 10-K for
the period ended December 31, 2003).*10.35
    
    
    Patent and Trademark Security Agreement effective as of
December 4, 2003 between ProxyMed, Key Communications Service,
Inc., MedUnite Inc. and Wachovia Bank, National Association
(incorporated by reference to Exhibit 10.36 of Form 10-K for
the period ended December 31, 2003).*10.36
    
    
    Independent Contractor Agreement between ProxyMed and Kevin M.
McNamara dated December 21, 2004 (incorporated by reference to
Exhibit 99.1 of Form 8-K File No. 000-22052, reporting an
event dated December 21, 2004.10.37
    
    
    Employment Agreement between ProxyMed and David Edward Oles
dated April 14, 2004 (incorporated by reference to Exhibit
10.10 of Form 10-Q for the period ended March 31, 2004).*10.38
    
    
    Amendment to Employment Agreement between ProxyMed and Judson
E. Schmid dated June 2, 2004 (incorporated by reference to
Exhibit 10.2 of Form 10-Q for the period ended June 30,
2004).*10.39
    
    
    Consulting Agreement between ProxyMed and Philip S. Dingle
dated April 13, 2004 (incorporated by reference to Exhibit
10.3 of Form 10-Q for the period ended June 30, 2004).*10.40
    
    
    Letter Agreement dated July 14, 2004 between ProxyMed and
Gregory J. Eisenhauer (incorporated by reference to Exhibit
10.2 of Form 10-Q for the period ended September 30, 2004).*10.41
    
    
    Purchase Agreement dated June 27, 1997 by and between ProxyMed, Inc.
and Walgreen Co.10.42
    
    
    Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and Nancy
J. Ham10.43
    
    
    Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and
Lonnie J. Hardin10.44
    
    
    Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and
Gregory J. Eisenhauer10.45
    
    
    Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and
Jeffrey L. Markle10.46
    
    
    Letter Agreement dated March 8, 2005 between ProxyMed, Inc. and
John P. Guinan16
    
    
    Letter Regarding Change in Certifying Accountant dated August
16, 2004 from PricewaterhouseCoopers LLP to the Securities and
Exchange Commission (incorporated by reference to Exhibit 16.1
of Form 8-K File No. 000-22052, reporting an event dated
August 11, 2004).21
    
    
    Subsidiaries of the Registrant.23.1
    
    
    Consent of PricewaterhouseCoopers LLP.23.2
    
    
    Consent of Deloitte & Touche LLP.31.1
    
    
    Certification by Kevin M. McNamara, Interim Chief Executive
Officer, pursuant to Exchange Act Rules 13a-14 and 15d-14.
 63




---



##### 



Exhibit No.
    
    Description31.2
    
    
    Certification Gregory J. Eisenhauer, Chief Financial Officer,
pursuant to Exchange Act Rules 13a-14 and 15d-14.32.1
    
    
    Certification by Kevin M. McNamara, Interim 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.
 * Denotes management contract or compensating plan or arrangement. 64