UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   ----------

                                   FORM 10-KSB

(Mark One)
[X]   ANNUAL REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
      OF 1934 [FEE REQUIRED]

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                                             -----------------

[ ]   TRANSACTION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE 
      ACT OF 1934 [NO FEE REQUIRED]

               FOR THE TRANSITION PERIOD FROM ________ TO ________

                         COMMISSION FILE NUMBER 0-22052
                                                -------

                                 PROXYMED, INC.
                                 --------------
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

            FLORIDA                                               65-0202059
            -------                                               ----------
(STATE OR OTHER JURISDICTION OF                               (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                              IDENTIFICATION NO.)

   2501 DAVIE ROAD, SUITE 230, FORT LAUDERDALE, FLORIDA           33317-7424
   -------------------------------------------------------------------------
         (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

                    ISSUER'S TELEPHONE NUMBER (954) 473-1001
                    ----------------------------------------

       SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT: NONE

         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:
                          COMMON STOCK, $.001 PAR VALUE

      Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. 
[X] Yes  [ ] No

      Check if there is no disclosure of delinquent filers in response to Items
405 of Regulation S-B in this form, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-KSB or any
amendment to this Form 10-KSB. [X]

      The issuer's revenues for the year ended December 31, 1996, its most
recent fiscal year, were $3,054,151.

      The aggregate market value of the voting stock held by non-affiliates
computed using $7.25 per share, the closing price of the Common Stock on March
25, 1997, was approximately $61,731,000.

      As of March 25, 1997, 9,673,396 shares of the issuer's common stock were
issued and outstanding.

<PAGE>

                                     PART I
                                     ------

                                     ITEM 1
                                     ------

                             DESCRIPTION OF BUSINESS
                             -----------------------


THE COMPANY

      ProxyMed, Inc. (together with its subsidiaries, the "Company"), is a
healthcare information technology company providing online transaction
processing services to physicians and other healthcare providers.

      The Company seeks to satisfy the connectivity needs of physicians and
other healthcare providers by providing one-stop shopping for online
transactions through ProxyNet(/trademark/), its national healthcare information
network. To provide these services, the Company has established and is
continuing to develop and upgrade a physical network infrastructure and data
center currently located at the Company's Fort Lauderdale, Florida,
headquarters.

      The Company believes that the majority of its future revenues will be
generated by recurring fees on ProxyNet(/trademark/) and by the sale of
subscriptions to clinical databases. The cornerstone of the Company's
distribution strategy is its Electronic Commerce Partner ("ECP") program which
partners with leading physician office management information system ("POMIS")
vendors to provide seamless online connectivity to ProxyNet from the systems
already in use by the vast majority of the physicians in the country.

      The Company was incorporated in Florida in 1989, and its executive offices
are located at 2501 Davie Road, Suite 230, Fort Lauderdale, Florida 33317-7424.
The Company's telephone number is (954) 473-1001.

BUSINESS OVERVIEW

      The healthcare industry generates billions of clinical and financial
transactions each year, including, but not limited to, prescriptions, lab orders
and results, radiology orders and results, claims, eligibility inquiries,
encounters and referrals. The Company believes that the healthcare industry lags
behind many other transaction intensive industries, such as travel and banking,
in the number of transactions processed electronically. For physicians to meet
the clinical and financial demands of managed care, the Company believes that
moving patient-centered clinical and financial data all along the continuum of
care electronically will become a business requirement. For this to be
accomplished, physicians, labs, pharmacies, hospitals, correctional
institutions, long term care facilities, home health providers and payors must
establish online connectivity to each other's information systems. The Company's
goal is to replace

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<PAGE>

paper and time intensive clinical and financial transactions between the various
participants in the healthcare system with automated online transactions.

      The healthcare marketplace continues to undergo changes from both the
payor and provider perspectives. Payors are undergoing substantial
consolidation, and the health maintenance organization ("HMO") model continues
to increase market penetration throughout the country. Providers also are
consolidating, and physician practice management ("PPM") companies continue to
grow and gain acceptance. While this structural change takes place, the
reimbursement methodology also has changed greatly, switching from a
fee-for-service, cost-plus manner to a prepaid, capitated or fixed fee system.

      Physicians control most healthcare decisions and so, in this role, they
are a focal point for numerous patient-related clinical and financial
transactions that are generated each year. The Company believes that each
physician, in order to efficiently and economically access and utilize the
needed clinical and financial information, eventually will subscribe to one
online content service providing access to all required data. The Company
believes that physicians will choose not to enter into long-term
subscriptions to multiple online content services. This is due to perceived
logistical inefficiencies in multiple online connections, administrative
reliance on multiple customer service organizations, and format and translation
problems associated with multiple vendors.

      The Company believes that the combination of the size of the market, the
amount of change currently taking place and the relative lack of penetration of
automation creates business opportunities for automation vendors, especially
those focused on online connectivity and the movement of clinical as well as
financial data.

      Currently, the Company provides physician to pharmacy connectivity for the
transfer of electronic prescription messages and physician to lab connectivity
for online ordering of tests and reporting of results. The Company is also
currently providing connectivity to radiology centers. In addition, the Company
currently provides a number of value-added services with its connectivity
offerings including message translation and database publishing and
distribution. These databases include a drug database, drug utilization review
("DUR"), formulary database and lab medical necessity database. The Company
believes that the integration of these services and a variety of other services
into a single source provider is what will differentiate the Company from other
connectivity and transaction service providers.

      The Company recognizes the relationships that existing POMIS vendors have
in providing access to the physician's office system. Instead of competing with
existing vendor relationships,

                                       3
<PAGE>

the Company offers an ECP program to these vendors which gives their software
systems access to ProxyNet directly from their applications without having to
integrate another stand-alone device. This "open architecture" approach allows
the Company to market its products, as well as hardware and maintenance
services, through established healthcare software companies and leverage their
large existing customer bases. To date, the Company has arrangements with 21
practice management software vendors with potential access to approximately
150,000 of the nation's approximately 500,000 prescribing physicians.

      Over the past two years, the Company has developed an online pharmacy
network. With its agreements with pharmacy software vendors and national chain
pharmacies, the Company has contracts which provide access to over 30,000 of the
approximately 50,000 pharmacies in the United States. Through the acquisition of
Clinical MicroSystems, Inc. ("CMS"), the Company has integrated its software
products and connectivity services with 23 of the 27 leading laboratory system
vendors. Currently, the lab network has over 100 participating hospital labs.

      The Company has not yet generated  material  recurring revenues from its
healthcare information  technology  operations,  and there can be no assurance
that  the  Company  will  ever  generate  such  revenues.   See  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

PRODUCTS AND SERVICES

      CLINICAL TRANSACTIONS

            PRESCRIPTIONS

            There were over 2 billion prescriptions filled in the United States
in 1996. This large and growing volume magnifies the inefficiencies of the
current system; however, it provides a business opportunity to the Company. A
large percentage of a pharmacy's labor cost is spent on processing new
prescription orders and obtaining authorizations from physicians for additional
refills. New prescription orders are usually handwritten and frequently
illegible or incomplete, requiring extensive labor in processing each order. The
refill authorization process typically has been performed completely via
telephone calls between pharmacy and physician, resulting in additional labor
expense and lost time by both pharmacies and physicians' offices.

            The Company's pharmacy transaction service replaces both the paper
prescription and the phone calls with a quick and efficient online transaction
between the physician's clinical management system and the pharmacy. This
transaction service saves both time and labor from the ordering process, as well
as providing more accurate and informative orders.

                                       4

<PAGE>

            The Company has been providing this service for over three years
and, because of this experience, has been able to establish a number of
value-added services which differentiate the Company from competing services.
These additional services include: a directory service allowing efficient
routing of transactions and quick notification of new participants on the
network; translation services which allow a physician's system using one message
format and identifier scheme to communicate with a pharmacy using a different
message format and identifier scheme; and communication protocol translation
allowing a physician using a communication protocol, such as RP/IP, to
communicate with a pharmacy using a different protocol, such as X.25.

            LABORATORY ORDERS AND RESULTS

            A large part of a medical lab's day-to-day operation is made up of
receiving and processing paper based orders from physicians and then
distributing paper based reporting of the test results performed back to the
physician. These test results play a large role in the physician's decisions on
current treatment options. As such, the more data rich and timely a result can
be delivered, the sooner and better informed a medical decision can be made.

            Through its acquisition of CMS on March 14, 1997, the Company has
acquired an online lab software product called "ClinScan", which allows labs to
receive orders online and to distribute test results online back to the ordering
physician, saving significant labor costs and providing better service to the
labs, the patients, and the physicians. CMS has been offering this service for
six years and has earned industry recognition as one of the leading providers of
this service. See "Acquisitions" below.

            RADIOLOGY ORDERS AND TRANSCRIBED RESULTS

            Through the acquisition of CMS, the Company is currently providing
connectivity between physicians and hospital-based radiology centers to
facilitate the dissemination of transcribed radiology results.

      CLINICAL INFORMATION SERVICES

      The Company offers clinical information services through subscriptions to
the following proprietary or licensed databases: (i) a drug database developed
by the Company containing over 5,000 drugs, which is updated periodically and
provides automatic generic equivalent substitution notifications; (ii) a set of
clinical drug databases ("DUR databases") which provide valuable information
relating to allergies, drug interactions and duplicate therapies, developed and
updated periodically by several unaffiliated parties, and offered by the Company
pursuant to sublicenses; and (iii) databases containing certain MCOs'

                                       5
<PAGE>

formularies and preferred drug lists published by the Company. All of these
databases are accessible through MS-DOS and Windows-based systems.

      SOFTWARE PRODUCTS AND SYSTEMS

The Company has developed various software products which are designed to
facilitate connectivity to and use of its transaction services through ProxyNet,
the Company's healthcare information network. Customers are able to access
ProxyNet and utilize the Company's network services either through the Company's
own products, or those of its ECP vendors' software products described above.
The Company's software products include the following: ProxyScript(/registered
trademark/) provides pharmacy management at the point of care, the prescribing
physician's office, and automates the generation, processing and management of
prescriptions; ProxyView(/trademark/) enables MCOs, including HMOs and PPMs, to
perform data repository and reporting functions from affiliated physicians; and
RxReceive(/trademark/) permits pharmacies to receive prescriptions
electronically. "ClinScan", a newly acquired product, allows labs to receive
orders online and to distribute test results online back to the ordering
physician. The Company has recently developed and introduced
ProxyCare(/trademark/), a prescription management and formulary compliance
system for use in assisted care living facilities, nursing homes and
correctional facilities.

ACQUISITIONS

      On March 14, 1997, the Company acquired the assets and business of CMS,
based in Babylon, New York, for a total of $6,000,000 payable in cash and
unregistered common stock. CMS, founded in 1987, is the developer of "ClinScan",
the nation's leading physician desktop lab ordering and results posting software
with approximately 3,000 physician users at approximately 1,800 sites in 26
states. CMS is also one of the nation's leading providers of online connectivity
to regional commercial labs and hospital-based labs with over 100 lab customers
receiving online orders from and transmitting results to physician offices. CMS
has achieved system integration with direct interfaces already developed for 23
of the 27 top lab information systems in the country. CMS also interfaces to
POMIS vendors, including "The Medical Manager", the most widely used physician
office management and clinical record system. See Note (3)(a) to the
Consolidated Financial Statements. CMS customers are primarily hospitals and
regional commercial labs who typically purchase a number of software licenses
for "ClinScan" and distribute the system at no charge to physicians who are high
volume customers of the lab. As a result, the efficiency of the ordering and
results communication process is increased for both the physicians and the lab.
The Company believes that ProxyNet represents an existing infrastructure through
which CMS can achieve its goal of providing an intranet offering of its services
to hospitals and integrated delivery networks and that 

                                       6

<PAGE>

this acquisition is consistent with its overall strategy designed to enable the
Company to become the nation's leading provider of online transaction sets. The
Company is continuing to review and analyze various other potential acquisitions
which fit within its strategic business plan. See Note (12) to Consolidated
Financial Statements.

SALES AND MARKETING

      The Company began marketing its healthcare information technology products
and services in April 1995. The Company markets these products and services to
(i) healthcare providers, including hospitals, emergency room facilities, POMIS
vendors and individual physician practices; (ii) health care payors, including
MCOs (primarily HMOs and their affiliated physicians) and traditional insurance
companies; (iii) chain and independent pharmacies; (iv) medical practice and
pharmacy management software companies that would like to offer electronic
prescription transmittal as part of their software packages; (v) online
transaction processing companies that would like to offer a prescription
software product in connection with their transaction processing services; and
(vi) pharmacy benefit management ("PBM") companies that do not have the
capability to provide doctors with electronic prescription transmittal.

      The Company markets or intends to market its healthcare information
technology products and services primarily through (i) medical practice and
pharmacy management software vendors, who will act as distributors by buying the
Company's products and services and reselling them through their own
comprehensive software packages; and (ii) direct sales by the Company's sales
and marketing staff, including its regional account executives. The Company also
exhibits at national and regional trade shows and advertises in several key
trade publications. The Company's relatively limited sales of these products and
services to date are attributable to direct sales; however, the Company believes
that a substantial portion of its future sales will be derived through its
electronic commerce partner program and other strategic relationships.

      The Company has developed many strategic relationships with providers of
information systems to physicians under its electronic commerce partner ("ECP")
program. As of March 25, 1997, the Company has entered into ECP agreements with
providers representing more than 150,000 physicians or 28% of the total
prescribing physicians in the United States. The Company's goal is to provide
one information access device on each physician's desktop which will prove both
practical and inexpensive. Each ECP incorporates the Company's clinical
functionality and other capabilities and databases directly into its own POMIS
vendors. The Company has 21 multi-year agreements with these POMIS and
electronic medical record ("EMR") vendors which provide the Company with access
for the licensing of the Company's databases and the electronic transmission of
secured transactions with 

                                       7

<PAGE>

physicians and connectivity to pharmacies, hospitals, labs, payors and MCOs over
ProxyNet. Under certain of these agreements, the Company and the POMIS and EMR
vendors may share ProxyNet transaction revenues.

      In addition, the Company markets to, and contracts with, pharmacy
providers to receive prescriptions which are electronically transmitted to their
pharmacies from physician providers. This market segment includes pharmacy
chains, independent pharmacy owners and pharmacy information system vendors. As
of March 25, 1997, the Company has 15 multi-year agreements with these pharmacy
providers which represent access to more than 30,000 of the over 50,000
pharmacies in the United States. The Company is in various stages of discussions
with other POMIS, EMR and pharmacy providers, and plans to have a substantial
number of these as its subscribers during 1997. Through the acquisition of CMS,
the Company has integrated its services with 23 of the 27 leading laboratory
system vendors. Currently, the lab network has over 100 participating hospital
labs. These products and services are designed by the Company to facilitate the
flow of healthcare information among these parties in order to provide them and
their patients with safe, efficient, confidential and cost effective healthcare.

      The Company also markets through certain other strategic relationships. In
May 1996, the Company signed an agreement with Medical Manager Corp. ("MMC"),
the owner and licensor of "The Medical Manager," the leading PPM software,
presently used by approximately 110,000 physicians throughout the United States.
The integration process has been completed, and the Company believes that MMC
will be offering the Company's products and services on a non-exclusive basis to
its customers during the second half of 1997, at which time the Company should
start deriving revenues from this relationship. See Note (3)(a) to the
Consolidated Financial Statements.

      In March 1996, the Company entered into a license agreement with Managed
Healthcare Affiliates ("MHA"), a pharmaceutical buying group whose members
consist of approximately 800 institutional pharmacies serving approximately
8,000 nursing homes with a total of approximately 1,000,000 beds, representing
over 50% of the total nursing home beds in the country. The agreement provides
that MHA shall have the limited exclusive right to market ProxyCare, the
Company's recently introduced prescription management and formulary compliance
system for use in the long-term healthcare sector, to all its member
institutional pharmacy customers, subject to MHA meeting certain minimum sales
performance standards. The Company is free to market ProxyCare to any non-MHA
member. The agreement expires December 31, 2001, with automatic renewal for
successive one-year periods, unless terminated by the terms of the agreement. In
return, the Company will pay MHA a commission of 10% of the net revenue received
by ProxyMed for licensing of ProxyCare and the per bed capitation fees received
from the subscribing 

                                       8

<PAGE>

institutional pharmacies and nursing homes. No commissions are payable to MHA
for any hardware, installation or training purchased.

      In February 1996, the Company signed a strategic marketing agreement with
Inteplex, Inc. and Bergen Brunswig Drug Company, both of which are wholly owned
subsidiaries of Bergen Brunswig Drug Corporation (collectively, "Bergen"), a
multi-billion dollar national pharmaceutical and medical supplies distributor.
Under the Bergen agreement, Bergen paid a one time, nonrefundable fee of
$1,000,000 for a nonexclusive limited license to market certain of the Company's
software products and electronic prescription transactions throughout the United
States. The term of the Agreement is for 12 months, and automatically renews for
successive 12 month periods unless terminated for cause. The Company is
prohibited from entering into similar arrangements for certain designated
products and services with certain of Bergen's principal competitors, including
other major national pharmaceutical and medical supplies distributors. Under the
Bergen agreement, the Company must pay Bergen 10% to 30% of all net sales (as
defined) of certain designated products and services, depending on the total
annual volume of such sales, including sales not resulting from Bergen
referrals. The Company has completed training of the Bergen sales people;
however, sales through Bergen so far have been disappointing and there can be no
assurance that they will improve significantly. See Note (3)(b) to the
Consolidated Financial Statements.

      In March 1996, the Company entered into a license agreement with Blue
Cross and Blue Shield of Massachusetts, Inc. ("BCBSM"), a large health insurance
provider based in Boston, Massachusetts, with over 2,000,000 members throughout
New England. Under this agreement (the "BCBSM Agreement"), BCBSM agreed to a
one-time license fee of $204,000 in exchange for which it received a right to
license and customize the Company's ProxyScript software to physicians,
including its approximately 12,000 affiliated physicians, on an exclusive basis
in Massachusetts, Vermont, New Hampshire, Maine and Rhode Island (the "States"),
and on a nonexclusive basis in Connecticut. BCBSM has announced its intention to
link ProxyScript licensees in the States through its Healthwire network. Under
the BCBSM Agreement, until March 1, 1998, the Company is barred from competing
in the States (except Connecticut) with BCBSM for the electronic prescription
business, and BCBSM is barred from competing with the Company's electronic
prescription business outside the States. See Note (3)(c) to the Consolidated
Financial Statements.

      The Company also plans to gain market penetration by selling its products
and services to MCOs, who may suggest or mandate use of a formulary compliance
system or some connection to ProxyNet to all of the physicians with whom they
contract.

      The development and marketing of the Company's healthcare technology
products and services is an emerging business and, as 

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<PAGE>

such, is subject to uncertainty as to demand and market acceptance for the newly
introduced products and services. Achieving market acceptance for the Company's
products and services requires significant marketing efforts and expenditure of
significant funds to create awareness and demand by pharmacies, physician
groups, managed care organizations and other potential customers.

PRODUCT DEVELOPMENT

      The Company believes that its future success will depend in large part on
its ability to enhance its current line of products and services, develop new
products and services, maintain technological competitiveness and satisfy an
evolving range of customers' requirements. The Company's product development
group is responsible for improving and upgrading existing products and services,
exploring applications of core technologies and incorporating new technologies
into the Company's products and services.

      The basic development of ProxyNet, ProxyScript and RxReceive occurred as
part of the Company's former drug dispensing operations, which were sold to
Eckerd Corporation in March 1995. The bulk of the development costs for those
products and services was accounted for as direct expenses of those operations,
as those products were provided to customers at no charge. Beginning in March
1995, the cost of modifying these products for sale to end users has been
capitalized. Also during 1995 and 1996, the Company engaged in significant
product development activity to ensure that it remains competitive in the
healthcare information technology market. The amount capitalized as of December
31, 1996 is $816,947. None of these costs have been borne by the Company's
customers. Research and development expense was approximately $177,000 in 1996
and was not material in 1995.

COMPETITION

      The Company faces competition from other healthcare information technology
companies and other specialty technology companies. Many of the Company's
competitors are significantly larger and have greater financial resources than
the Company. The area of prescription processing networks has been targeted by
many companies, including, but not limited to, International Business Machines
Corporation, MedE America Corporation, Envoy Corporation, National Data
Corporation and others. The Company is also aware that other transaction
processing companies have targeted healthcare information networks as a growth
market, which could in the future utilize their networks to process electronic
healthcare related transactions. Certain of these companies have announced pilot
programs. The Company is not aware of any significant competition to its online
lab ordering and results posting software programs. The Company believes that
the competition it faces and will face in the foreseeable future 

                                       10

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will be based primarily on product/service quality, customer support and
marketing. The Company believes that its products and services are more advanced
than the competing products and services currently available because the
Company's products and services have been developed and enhanced through actual
utilization by physicians and pharmacies over the past three years. The Company
believes that its ability to compete successfully in the healthcare information
technology market will depend upon its ability to offer a variety of integrated
products and services and to implement a national marketing campaign which
brings its products and services to the attention of its potential customer
base.

      The Company's ECP agreements for distribution of its products and
services, described above in "Sales and Marketing," are primarily non-exclusive.
The Company believes that the key to its competitive success will be its ability
to win the "race" with its competitors to control physicians' desktops by
offering a wider variety of online healthcare products and services. Once large
numbers of physicians are connected to and satisfied with ProxyNet and its
comprehensive array of services, the Company believes that it will be difficult
for competitors to dislodge the Company from these customers, notwithstanding
the nonexclusivity of the marketing arrangements with the ECPs. There can be no
assurance that the Company will be able to compete successfully and there can be
no assurance that the Company's sales and marketing programs and growth
strategies will be successful or that the Company will ever achieve
profitability.

INSTITUTIONAL PHARMACY BUSINESS

      The Company's wholly-owned subsidiary, ProxyCare, Inc., is a pharmacy
business operated by the Company since 1994 in South Florida that dispenses and
delivers unit dose oral prescription drugs to patients residing in long term
care facilities, primarily in assisted care living facilities in Dade, Broward
and Palm Beach counties. Prescriptions are delivered monthly to such facilities
utilizing a unique packaging system called "Medicine-On-Time", which is licensed
from an unaffiliated third party. The Company is considering whether ProxyCare,
Inc. fits within its long-term business plan; however, as of the date of this
Report, there are no understandings, commitments or agreements for the sale of
ProxyCare, Inc.

GOVERNMENT REGULATION

      The Company's products and services are not directly subject to
governmental regulations; however, the user base is subject to extensive and
frequently changing federal and state laws and regulations. A primary feature of
the Company's products and services is the ability to electronically transmit
(either by computer-to-facsimile or computer-to-computer) prescriptions from a
doctor's office to a pharmacy. The ability of a pharmacist to

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<PAGE>

fill an electronically transmitted prescription is governed by federal and state
law. The United States Drug Enforcement Agency ("DEA") oversees the handling of
certain classes of drugs called "controlled substances." The United States
Congress has approved the dispensing of prescriptions transmitted via facsimile
of original, signed prescriptions for controlled substances other than for
Schedule II drugs (narcotics). Neither Congress nor the DEA has specifically
addressed electronic transmission of computer-generated prescriptions for
controlled substances. No assurance can be given that Congress or the DEA will
accept this method of transmitting prescriptions for controlled substances in
the future.

      State boards of pharmacy oversee the handling of all classes of drugs
within their states. Although a majority of the states have approved the
dispensing of prescriptions transmitted via facsimile, less than 25% of the
states have pharmacy laws and regulations that permit the electronic dispensing
of prescriptions. Nonetheless, in a limited number of states where electronic
transmission of computer-generated prescriptions is not specifically addressed,
the state boards have generally taken the position that these prescriptions are
permissible.

      Other state laws which may affect the Company's ability to market in
certain states include certain state requirements that require licensure as
either a doctor or a pharmacy in order for a third party to send or receive a
prescription. A common carrier, such as a telephone company, is often excluded
from such requirements. The Company's ability to market in such states would
depend upon each state's willingness to deem the Company to be a common carrier
of such prescriptions, the assurance of which cannot be given.

      In addition to certain state licensing requirements, each state has
various laws protecting the confidentiality of patient medical information,
including prescription information. Although it is not uncommon for a third
party to have access to such information, such third party has an obligation to
maintain the confidentiality of such information and could be subject to
liability if that obligation is breached. The Company has procedures in place to
maintain the confidentiality of the information it receives as part of its
ProxyNet services; however, there can be no assurance that inadvertent
disclosure of information will not expose the Company to costly litigation.

      The Company's institutional pharmacy business must comply with the Florida
Pharmacy Act, rules of the Florida Board of Pharmacy, the Florida Drug and
Cosmetic Act and the Florida Comprehensive Drug Abuse Prevention and Control
Act. In addition, the Florida Department of Professional Regulation inspects the
Company's facilities to ensure compliance with all applicable laws and
regulations.

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<PAGE>

      Under federal laws and regulations, the Company's institutional pharmacy
business must comply with the Federal Food, Drug and Cosmetic Act and the
Federal Drug Abuse Act. These laws and regulations establish standards
concerning the labeling, packaging, advertising, and adulteration of
prescription drugs and the dispensing of controlled substances and prescription
drugs.

      The Company believes that it is in substantial compliance with all
material federal and state laws and regulations governing its operations and has
obtained all licenses necessary for the operation of its business. There can be
no assurance that the Company will not be materially adversely affected by
existing or new regulatory requirements or interpretations, including, but not
limited to, those restricting the electronic transmission of prescriptions.

INTELLECTUAL PROPERTY

      The Company regards certain features of its products, services and
documentation as proprietary, and relies on a combination of contract,
copyright, trademark and trade secret laws and other measures to protect its
proprietary information. As part of its confidentiality procedures, the Company
generally enters into nondisclosure agreements with its employees, distributors
and customers, and limits access to and distribution of its software, databases,
documentation and other proprietary information. The Company has no patents. The
Company has filed a federal trademark registration for ProxyScript, and intends
to file such applications for ProxyNet, RxReceive, ProxyView and ProxyCare. The
Company believes that because of the rapid pace of technological change in the
EDI industry, trade secret and copyright protection are less significant than
factors such as the knowledge, ability, experience and integrity of the
Company's employees, frequent product enhancements and the timeliness and
quality of support services.

      The Company is not aware that its products, services, trademarks or other
proprietary rights infringe the proprietary rights of third parties; however,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products available on the market increases and the
functions of those products further overlap, software developers may become
increasingly subject to infringement claims. Any such claims, with or without
merit, could result in costly litigation or might require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company.

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<PAGE>

EMPLOYEES

      As of March 25, 1997, the Company employed 75 full-time employees. The
Company is not and never has been a party to a collective bargaining agreement.
The Company considers its relationship with its employees to be good.

CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

      This report contains "forward-looking statements" within the meaning of
the federal securities laws. These forward-looking statements include, among
others, the Company's growth strategy based upon its interpretation of
healthcare industry trends and management's ability to successfully develop,
implement, market and sell its online transaction processing services to
physicians and other health care providers. Further, it assumes that the Company
will be able to successfully acquire or develop all of the necessary clinical
and financial transaction sets and integrate them into the Company's existing
products and services. Also important will be the ability of the Company to
develop and execute its strategic relationships, especially with the providers
of information systems to physicians under the Company's electronic commerce
partner program, and with pharmacy chains, independent pharmacy owners and
pharmacy information system vendors.


                                     ITEM 2
                                     ------

                             DESCRIPTION OF PROPERTY
                             -----------------------


      The Company leases approximately 12,000 square feet of space in a facility
in Fort Lauderdale, Florida, for its executive offices, pursuant to a lease
expiring in January 1999, at a monthly rent of $7,454.

      The Company's institutional pharmacy subsidiary, ProxyCare, Inc. leases
4,700 square feet of space in a facility in Davie, Florida, pursuant to a lease
expiring in August 1997 at a monthly rent of $2,894. The Company is also subject
to leases for two sites where it previously operated pharmacies. One of these
leases, in the amount of $1,457 per month, expires in August 1997, and the other
lease, in the amount of $941 per month, expires in October 1998.

      The Company's CMS division leases 1,500 square feet of space in a facility
in Babylon, New York, pursuant to a lease expiring in June 1997 at a monthly
rent of $2,207.

      The Company's leases generally contain renewal options and require the
Company to pay costs such as property taxes, maintenance and insurance. The
Company considers its present facilities adequate for its operations and
believes that 

                                       14

<PAGE>

alternative and additional facilities are readily available in the event that a
particular lease is not renewed.


                                     ITEM 3
                                     ------

                                LEGAL PROCEEDINGS
                                -----------------


      The Company is not a party to any material legal proceedings.


                                     ITEM 4
                                     ------

               SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
               ---------------------------------------------------


      There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended December 31, 1996.

                                       15

<PAGE>


                                     PART II
                                     -------

                                     ITEM 5
                                     ------

             MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
             -------------------------------------------------------


      The Company's Common Stock trades on the National Market tier of the
Nasdaq Stock Market under the symbol "PILL." The following table sets forth the
high and low sale prices of the Common Stock for the periods indicated. The
Common Stock has traded on The Nasdaq National Market since November 8, 1996.
Previously, the Common Stock traded on the SmallCap tier of The Nasdaq Stock
Market.

                                     HIGH                    LOW
                                    ------                  -----

1995:
      First Quarter                 $ 5.00                  $3.17
      Second Quarter                  5.17                   3.67
      Third Quarter                   5.33                   3.67
      Fourth Quarter                  4.83                   3.00

1996:
      First Quarter                 $ 5.33                  $3.42
      Second Quarter                 17.92                   3.33
      Third Quarter                  15.67                   9.13
      Fourth Quarter                 10.75                   5.75

1997:
      First Quarter                 $ 9.50                  $7.25
        (through March 25, 1997)

      On March 25, 1997, the last reported sale price of the Common Stock was
$7.25 per share. As of March 25, 1997, there were approximately 120 holders of
record of the Common Stock. The Company believes that many of these holders of
record are in "street name" and that the number of individual shareholders is
over 2,500.

      The Company has not paid any dividends on its Common Stock. The Company
intends to retain all earnings for use in its operations and the expansion of
its business, and does not anticipate paying any dividends on the Common Stock
in the foreseeable future. The payment of dividends is within the discretion of
the Company's Board of Directors. Any future decision with respect to dividends
will depend on future earnings, future capital needs and the Company's operating
and financial condition, among other factors.

                                       16
<PAGE>

                                     ITEM 6
                                     ------

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                  ---------------------------------------------


GENERAL

      From inception until 1995, the Company's business was principally related
to the dispensing of prescription drugs through a variety of methods of
delivery, including retail and institutional pharmacies and its home infusion
therapy subsidiary. In the first quarter of 1995, management determined that the
Company's retail pharmacy business was undesirable, primarily due to the need
for substantial additional capital required to achieve the economies of scale
required for profitable operations, and decided to shift the emphasis of the
Company's business. As part of the retail pharmacy operations, the Company
provided at no charge to its customers certain of its healthcare information
technology products and services, which were favorably received. Management also
recognized a need for these products and services in the marketplace.
Consequently, the Company elected to pursue the commercialization of its
healthcare information technology products and services, and sold its retail
pharmacy and home infusion operations to Eckerd Corporation ("Eckerd") and
National Health Care Affiliates, Inc. ("NHCA") in March and September 1995,
respectively. In March 1997, the Company expanded its healthcare information
technology product offerings through the purchase of CMS, the developer of
ClinScan, a physician desktop lab ordering and results posting software used by
over 100 labs and approximately 3,000 physicians throughout the United States.

      The Company also owns and operates ProxyCare, Inc. ("ProxyCare"), its
institutional pharmacy subsidiary which dispenses prescription drugs to patients
in long-term care facilities; however, the Company is considering whether
ProxyCare fits within its long-term business plan. There are no understandings,
commitments or agreements at the date of this Report for the sale of ProxyCare.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996, COMPARED TO
YEAR ENDED DECEMBER 31, 1995

      NET SALES. Net sales for 1996 decreased by $4,568,652, or 60%, to
$3,054,151 from net sales of $7,622,803 in 1995. This decrease was primarily
attributable to the Eckerd and NHCA dispositions which occurred in 1995. The
combined net sales of these operations comprised 70% of the Company's net sales
in 1995. After eliminating the sales represented by these operations which were
sold, net sales for 1996 increased $774,453, or 34%, compared to the net sales
"as adjusted" for 

                                       17

<PAGE>

1995 of $2,279,698. This increase is due to the net effect of three factors.
First, the Company recognized revenue totaling $1,204,000 from two one-time
license fees in 1996 (Bergen and BCBSM), whereas no license fee revenue was
received in the 1995 period. Second, Bergen purchased $529,298 of computer
equipment containing the Company's software in 1996, which did not occur in
1995. Third, sales by the Company's remaining drug dispensing operations,
ProxyCare, decreased $1,108,292, or 50%, to $1,088,144 in 1996, compared to net
sales of $2,196,436 in 1995. This decrease was due primarily to the loss of
business from several customers, much of which was associated with the
operations sold to Eckerd. The Company believes that price fluctuations are not
a significant factor affecting ProxyCare's sales because of contractual fixed
pricing arrangements with many customers.

      GROSS PROFIT MARGIN. Gross profit margin for 1996 was 57% compared to a
gross profit margin of 32% for 1995. Gross profit margin, after deducting the
sales and cost of sales related to the operations sold to Eckerd and NHCA, was
57% for 1996 compared to 33% for 1995. This increase is due to the favorable
impact of the one-time license fee revenues received in the first quarter of
1996 from Bergen and BCBSM.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1996 increased by $979,081, or 19% to $6,032,021
from selling, general and administrative expenses of $5,052,940 for 1995. After
deducting selling, general and administrative expenses related to the operations
sold to Eckerd and NHCA, selling, general and administrative expenses for 1996
increased by $2,943,322, or 95%, over selling, general and administrative
expenses "as adjusted" for 1995 of $3,088,699. This increase is due to the net
effect of two factors. First, selling, general and administrative expenses for
ProxyCare decreased in 1996 by approximately 44% from the 1995 levels primarily
due to cost control measures instituted after the loss of certain customers in
1996. As a result of these measures, ProxyCare's selling, general and
administrative expenses as a percentage of sales was maintained at approximately
33% of net sales in 1996, compared to 29% in 1995. Second, other selling,
general and administrative expenses for the Company's other recurring
operations, as adjusted, increased by $3,223,833, or 132%, to $5,667,996 for
1996, compared to $2,444,163 for 1995, primarily due to the Company's efforts to
develop and market its new products and services. This increase primarily
resulted from the following: (i) additional payroll and related costs for sales,
product development, customer service, clinical pharmacy service and management
personnel related to the Company's new products and services ($1,742,000); (ii)
additional marketing expenses related to these products and services, including
marketing materials, attendance at national and local trade shows, expenses for
pilot programs for potential customers and travel costs ($420,000); (iii)
additional depreciation, amortization and computer costs 

                                       18

<PAGE>

related to new network equipment and capitalized software costs ($147,000); (iv)
additional consulting fees to various software and business consultants
($229,000); (v) charges related to certain compensatory stock options and
warrants issued in the second quarter of 1996, primarily related to the MMC
licensing agreement, as described in Note (3) of Notes to Consolidated Financial
Statements ($300,000); (vi) commissions including those under the Bergen
agreement ($79,000); (vii) additional stockholders' expenses related to the
Company's annual meeting and relations with institutional and other investors
($174,000); and (viii) net increases in various other selling, general and
administrative expenses ($133,000).

      INTEREST, NET. The Company earned net interest income for 1996 of
$436,569, whereas the Company incurred net interest expense for 1995 of
$151,625. This reflects the use of proceeds from the Eckerd and NHCA sales in
1995, and proceeds from the sale of equity securities in 1995 and 1996, to
retire all indebtedness, resulting in the elimination of interest expense. In
the second quarter of 1996, the Company retired all indebtedness, and since then
all available cash has been invested in interest-bearing money market accounts
and U.S. Treasury Notes.

      OTHER. The gain (loss) on sale of assets in 1996 and 1995 relates to the
sale of certain, but not all, of the assets related to the Company's HMO
prescription drug dispensing operations to Eckerd. Initially, a loss on the sale
was recorded in the first quarter of 1995, and contingent income was recorded in
subsequent periods based on the amount of prescription business retained by
Eckerd through September 30, 1996. Ultimately, the Company recognized a
cumulative gain on the sale of approximately $275,000. The extraordinary gain on
sale of subsidiary of $669,664 in 1995 relates to the sale of the business of
ProxyFusion, Inc. to NHCA. See Note 4 of Notes to Consolidated Financial
Statements for a description of these transactions.

      NET LOSS. As a result of the foregoing, the Company recorded a net loss of
$2,853,735 in 1996, as compared to a net loss of $2,848,887 in 1995. The Company
believes it is making progress in its electronic commerce partner and pharmacy
relationships, potential acquisitions (one of which was consummated in March
1997), and other plans to increase the usage of its healthcare information
technology products and services. However, the Company anticipates that it will
continue to incur significant operating losses until it generates a substantial
flow of recurring revenues from its products and services. There can be no
assurance that the Company will ever realize a significant level of recurring
revenues from the sale of its products and services or that revenues from these
operations, the operations of any businesses it may acquire or operations of
ProxyCare will ultimately result in significant reductions in losses or
achievement of profitability.

                                       19

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      In 1996, cash used in operating activities totaled $3,549,115. However,
primarily as a result of the sale of 3,367,500 shares of common stock in May
1996 which resulted in net proceeds of $13,041,309, the exercise of certain
stock options and warrants during 1996 which resulted in net proceeds of
$1,860,902, and the collection of amounts due from the operations sold in 1995
totaling $1,949,275, the Company had cash, cash equivalents and investments in
U.S. Treasury Notes totaling $12,029,056 as of December 31, 1996. These
available funds continue to be used for operations, for the further development
and marketing of the Company's new products and services, and for the
acquisition of equipment and other general corporate purposes.

      In August 1996, the Company completed the conversion of all of its Series
A Preferred Stock into Common Stock, which eliminated the payment of future cash
dividends on the Series A Preferred Stock. In addition, during 1996 the Company
paid off all of its interest-bearing debt obligations. As of December 31, 1996,
there were no material commitments for the purchase of property or equipment.

      During 1996, the Company obtained a revolving loan agreement with a bank
for borrowings of up to $5,000,000. Outstanding borrowings bear interest at the
prime rate less 3/4%, are due on demand and are collateralized by U.S. Treasury
Notes.

      Accounts receivable turnover for ProxyCare was 4.9 times in 1996 compared
to 5.8 times in 1995. Inventory turnover for ProxyCare was 3.8 times in 1996
compared to 6.9 times in 1995. Both of these indicators were adversely affected
by the decline in ProxyCare's 1996 sales as discussed above.

      On March 14, 1997, the Company acquired substantially all of the assets of
CMS, the developer of the ClinScan physician desktop lab ordering and results
posting software product. The purchase price consisted of the following:
$3,000,000 in cash and 125,786 shares of unregistered common stock paid at
closing, plus $2,000,000 in cash and common stock payable over a three year
period. The acquisition will be accounted for as a purchase. CMS reported net
sales of $1,758,645 and pre-tax income of $288,762 for the year ended December
31, 1996.

      As mentioned above, the Company expects to continue to incur significant
negative net cash flow from operations until it begins receiving substantial
recurring revenues from the sale of its healthcare information technology
products and services. Furthermore, while the Company presently has no material
commitments for capital expenditures, management is committed to the strategy of
investing funds in further marketing and development of its products and
services, and may pursue 

                                       20

<PAGE>

additional acquisitions which are deemed to be in accordance with its business
strategy and which may require substantial cash outlays. With the cash resources
received in 1996, management believes that the Company's current cash resources
are sufficient to support its planned operations through at least the first
quarter of 1998, although there can be no assurance that such resources in fact
will be sufficient. If additional acquisitions are identified, it is likely that
the Company will seek to raise funding for such acquisitions through the sale
and issuance of equity securities; however, there can be no assurance that such
equity financing will be available to the Company or will be available on terms
acceptable to the Company.


                                     ITEM 7
                                     ------

                              FINANCIAL STATEMENTS
                              --------------------


      The financial statements are included herein beginning at Page F-1.


                                     ITEM 8
                                     ------

                        CHANGES IN AND DISAGREEMENTS WITH
               ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
               ---------------------------------------------------


      The Company has not had any change in or disagreement with its accountants
on accounting and financial disclosures during its two most recent fiscal years
or any later interim period.

                                       21

<PAGE>

                                    PART III
                                    --------

                                     ITEM 9
                                     ------

          DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS
                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
                -------------------------------------------------


DIRECTORS AND EXECUTIVE OFFICERS

      The directors and executive officers of the Company are as follows:

       NAME                       AGE                 POSITION
       ----                       ---                 --------

Harold S. Blue(1)                  35        Chairman of the Board, Chief
                                               Executive Officer

John Paul Guinan(1)                36        President, Chief Operating
                                               Officer and Director

Gary N. Mansfield(1)               36        Executive Vice President -
                                               Corporate Development and
                                               Director

Bennett Marks(1)                   48        Executive Vice President -
                                               Finance, Chief Financial
                                               Officer and Director

Carol A. Dragan                    50        Executive Vice President -
                                               Operations

Frank M. Puthoff                   51        Executive Vice President -
                                               Chief Legal Officer and
                                               Secretary

Bruce S. Roberson                  48        Executive Vice President -
                                               Sales and Marketing

Harry A. Gampel                    77        Director

Samuel X. Kaplan(2)(3)             74        Director

Bertram J. Polan(2)(3)             45        Director

Eugene R. Terry(2)(3)              58        Director

--------------------------
(1)   Member of the Executive Committee, the Chairman of which is Mr. Blue.
(2)   Member of the Audit Committee, the Chairman of which is Mr. Polan.
(3)   Member  of the  Compensation  Committee,  the  Chairman  of which is Mr.
      Terry.


      HAROLD S. BLUE has been Chairman of the Board and Chief Executive Officer
of the Company since February 1993, and has been a director since August 1991.
He served as interim President and Chief Operating Officer from March 1994 to
June 1995. From August 1991 until February 1993, Mr. Blue served as Vice
President of the Company. From July 1992 until February 1995, Mr. Blue served as
Chairman of the Board and Chief 

                                       22

<PAGE>

Executive Officer of Health Services, Inc., a physician practice management
company, which was sold to Inphynet in 1995. From June 1979 to February 1992,
Mr. Blue was the President and Chief Executive Officer of Budget Drugs, Inc., a
retail discount pharmacy chain comprised of six stores located in South Florida.
From September 1984 to August 1988, Mr. Blue founded and was the Executive Vice
President of Best Generics Incorporated, a generic pharmaceutical distribution
company. In August 1988, Best Generics was sold to Ivax Corporation, a
publicly-traded pharmaceutical manufacturer. Mr. Blue served as a member of the
Board of Directors of Ivax for approximately two years before resigning, and
continued to serve as a consultant to Ivax pursuant to a consulting agreement
that expired in August 1993. He is currently a director of AccuMed
International, Inc., a publicly traded company which manufactures and markets
diagnostic screening products for clinical laboratories.

      JOHN PAUL GUINAN has been the President and a director of the Company
since June 1995 and was an Executive Vice President of the Company from July
1993 until June 1995. From March 1993 to June 1993, Mr. Guinan was the Chief
Executive Officer and co-founder of ProxyScript, Inc. (f/k/a Medical Containment
Systems, Inc.), which the Company acquired in June 1993. From 1989 until April
1993, Mr. Guinan founded and developed two companies: The Desktop Professionals,
Inc., a company which supplied automation systems to South Florida professional
offices; and POSitive Thinking, Inc., a software development company which
specialized in point of sale systems.

      GARY N. MANSFIELD has been a director of the Company since June 1995 and
has been an Executive Vice President of the Company since July 1993. From March
1993 to June 1993, Mr. Mansfield was the Executive Vice President and co-founder
of ProxyScript, Inc. From January 1991 to March 1993, Mr. Mansfield co-founded
and developed POSitive Thinking, Inc. Mr. Mansfield also served on the Board of
Directors of Best Generics Incorporated prior to that company being sold to Ivax
Corporation.

      BENNETT MARKS has been Executive Vice President - Finance, Chief Financial
Officer and a director of the Company since October 1993. From May 1991 to
October 1993, Mr. Marks was Vice President - Finance and a director of FiberCorp
International, Inc., a public company engaged in the manufacturing and marketing
of network management systems for use by telecommunication companies. From 1981
to April 1991, Mr. Marks was an audit partner with KPMG Peat Marwick, an
international accounting and consulting firm. While with KPMG Peat Marwick, Mr.
Marks was the partner on audits of numerous public companies and served as an
Associate SEC Reviewing Partner. He also served as the Administrative Partner in
Charge of KPMG Peat Marwick's West Palm Beach office. Mr. Marks is a certified
public accountant.

                                       23

<PAGE>

      CAROL A. DRAGAN joined the Company in October 1996 and serves as the
Company's Executive Vice President - Operations. From November 1995, she served
as a healthcare and information technology consultant. From June 1995 to
November 1995, she was Executive Vice President and General Manager of the
Pharmacy Division of MedE America Corporation, which merged with General
Computer Corporation in June 1995. From January 1993 to September 1994, she was
Vice President Corporate Development of General Computer Corporation and from
October 1994 to June 1995, its President and Chief Executive Officer and served
in other executive positions there from January 1991. From November 1989 to
January 1991, she was Vice President, Integrated Systems for Telxon Corporation,
a manufacturer of portable hardware and software systems.

      FRANK M. PUTHOFF was appointed Executive Vice President, Chief Legal
Officer and Secretary of the Company in August 1996. From July 1994, he was Vice
President, General Counsel and Secretary for Miami Subs Corporation. Between
July 1990 and July 1994, he held several management positions with Ground Round
Restaurants, Inc., serving most recently as Senior Vice President, General
Counsel and Secretary.

      BRUCE S. ROBERSON was appointed Executive Vice President - Sales and
Marketing of the Company in October 1996. From June 1994 to October 1996, he
served as Vice President - Sales and Marketing for Health Care Information for
National Data Corporation. From December 1993 to June 1994, he was Director of
Business Development for First Consulting Group and from September 1990 to
December 1993, he was Vice President of Sales and Marketing for IBAX Healthcare,
a joint venture of International Business Machine Corp. and Baxter
International, Inc. From 1988 to September 1990, he was manager of the Florida
operations of the American Express Health Systems Group and from June 1984 to
November 1988, he was Senior Sales Executive of McDonald Douglas Health Systems
Company.

      HARRY A. GAMPEL has been a director of the Company since February 1996.
Mr. Gampel has over 36 years of experience in commercial and residential real
estate development in the Northeastern United States and Florida as Chairman of
Gampel Organization, Hollywood, Florida, and as President of Gampel Realty
Company, Hartford, Connecticut.

      SAMUEL X. KAPLAN has been a director of the Company since August 1995.
Since 1987, Mr. Kaplan has been a health care management consultant. He has also
been the President of U.S. Care, Inc., a California-based company which designs
and administers long-term care insurance programs, since 1987, when he founded
that company. In 1962, he founded U.S. Administrators, Inc., a health care
management company, which he served as President and Chairman until 1987.

                                       24

<PAGE>

      BERTRAM J. POLAN has been a director of the Company since August 1995. Mr.
Polan is the founder and President of Gemini Bio-Products, Inc., a
California-based supplier of biological products used in medical schools,
private medicine research institutes and the bio-technology industry, which he
founded in 1985. From 1973 to 1985, Mr. Polan was employed in various executive
capacities, most recently as vice president of sales and marketing, with North
American Biologicals, Inc., one of the world's largest independent providers of
human plasma products.

      EUGENE R. TERRY has been a director of the Company  since  August  1995.
Mr. Terry is a pharmacist  and the founder and Chairman of Bloodline,  Inc., a
New  Jersey-based  company  engaged in the blood services  business,  which he
founded in 1980. In 1971,  Mr. Terry founded Home  Nutritional  Support,  Inc.
("HNSI"),  one  of the  first  companies  established  in  the  home  infusion
industry.  In 1984,  HNSI was sold to Healthdyne,  Inc. HNSI was later sold to
the W.R.  Grace  Group.  From 1975 to 1984,  Mr.  Terry was also  founder  and
Chief Executive  Officer of Paramedical  Specialties,  Inc., a respiratory and
durable medical equipment company, which was also sold to Healthdyne, Inc.

      Directors are elected annually at the Company's annual meeting of
shareholders. Each director of the Company serves until his successor is elected
and qualified or until the earlier death, resignation, removal or
disqualification of the director. The officers are elected annually by the
directors.

      The Company has agreed, through August 5, 1998, if so requested by the
underwriter of the Company's initial public offering, to nominate and use its
best efforts to elect a designee of the underwriter as a director of the Company
or, at the underwriter's option, as a non-voting adviser to the Board of
Directors of the Company. No such nominee has been designated to date.

      The Company has "key person" life insurance policies on the lives of Mr.
Blue and Mr. Guinan in the amount of $1,000,000 each.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

      The Company has reviewed the Forms 3 and 4 and amendments thereto
furnished to it pursuant to Rule 16a-3(e) promulgated by the Securities and
Exchange Commission (the "SEC") under the Securities Exchange Act of 1934 (the
"Exchange Act") during the Company's fiscal year ended December 31, 1996, and
Form 5 and amendments thereto furnished to the Company with respect to such
year. Based solely on such review and the representations of each director and
executive officer, the Company is not aware of any failure to timely file a
required Form.

                                       25

<PAGE>

                                   ITEM 10
                                   -------

                            EXECUTIVE COMPENSATION
                            ----------------------


            The following table sets forth the compensation paid during the past
three fiscal years to the Company's Chief Executive Officer and the other three
most highly compensated executive officers of the Company with annual
compensation for such years over $100,000 (the "named executive officers"):
<TABLE>
<CAPTION>

                          SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------
                             ANNUAL COMPENSATION               AWARDS           PAYOUTS
                          ---------------------------   ---------------------   -------  
                                               OTHER                                        ALL
    NAME AND                                   ANNUAL   RESTRICTED    # OF                 OTHER
   PRINCIPAL                                  COMPEN-     STOCK      OPTIONS/     LTIP    COMPEN-
    POSITION        YEAR  SALARY(S)  BONUS     SATION    AWARD(S)      SARS      PAYOUTS  SATION
   ---------        ----  ---------  -----    -------   ----------   --------    -------  ------
<S>                 <C>    <C>        <C>    <C>            <C>      <C>          <C>       <C>   

Harold S. Blue      1996   100,983    --        --          --       150,000      --        --
Chairman and CEO    1995   60,000     --        --          --          --        --        --
                    1994   60,000     --        --          --          --        --        --

John Paul Guinan    1996   127,792    --        --          --        15,000      --        --
President and COO   1995   99,693     --        --          --       202,500      --        --
                    1994   55,481     --        --          --        15,000      --        --

Gary N. Mansfield   1996   102,147    --        --          --       150,000      --        --
Executive V.P.      1995   83,077     --        --          --        37,500      --        --
                    1994   42,923     --        --          --        15,000      --        --

Bennett Marks       1996   107,542    --     10,625(1)      --        86,250      --        --
Exec. V.P.          1995   100,000    --     15,000(1)      --        15,000      --        --
and CFO             1994   90,000     --     15,000(1)      --          --        --        --
---------------------------------------------------------------------------------------------
<FN>
-----------------------
(1)   Mr. Marks received a non-accountable expense allowance of $15,000 (net of 
      taxes) per year through September 15, 1996.
</FN>
</TABLE>

      The following table provides information on stock option grants during
fiscal year 1996 to each of the named executive officers:

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                INDIVIDUAL GRANTS
------------------------------------------------------------------------------
                                      % OF TOTAL
                                     OPTIONS/SARS
                     NUMBER OF        GRANTED TO      EXERCISE OR
                   OPTIONS/SARS       EMPLOYEES        BASE PRICE   EXPIRATION
      NAME            GRANTED       IN FISCAL YEAR     ($/SHARE)       DATE
      ----         ------------     --------------    -----------   ----------

Harold S. Blue        150,000            17%              3.50       04/03/01

John Paul Guinan       15,000             2%              6.94       11/10/06

Gary N. Mansfield     150,000            17%              3.50       04/03/01

Bennett Marks          30,000             3%              6.94       11/10/06
                       56,250             6%              3.50       04/12/01
------------------------------------------------------------------------------


      The following table sets forth certain information concerning unexercised
options held by each of the named executive officers:

                                       26

<PAGE>
<TABLE>
<CAPTION>

             AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                         AND FY-END OPTION/SAR VALUES
------------------------------------------------------------------------------------------------------
                                                                          
                                              NUMBER OF SECURITIES             VALUE OF UNEXERCISED
                                             UNDERLYING UNEXERCISED                 N-THE-MONEY             
                                            OPTIONS/SARS AT FY-END (#)      OPTIONS/SARS AT FY-END ($)
                                            --------------------------      --------------------------
                   # OF SHARES   VALUE
                     ACQUIRED   REALIZED
     NAME          ON EXERCISE    ($)       EXERCISABLE  UNEXERCISABLE      EXERCISABLE  UNEXERCISABLE
     ----          -----------  --------    -----------  -------------      -----------  -------------
<S>                    <C>        <C>         <C>           <C>               <C>           <C>               
Harold S. Blue         --         --          180,000         --              615,000          --
John Paul Guinan       --         --          172,500        45,000           492,375       141,975
Gary N. Mansfield      --         --           82,500       120,000           256,200       416,850
Bennett Marks          --         --          122,500        38,750           338,250        66,825
------------------------------------------------------------------------------------------------------
</TABLE>

      There were no awards made to a named executive officer in the last
completed fiscal year under any long-term incentive plan for performance to
occur over a period longer than one fiscal year.

COMPENSATION OF DIRECTORS

      Employee directors of the Company are not compensated for their services
as directors. The Company reimburses all directors for reasonable expenses
incurred in attending board meetings. In addition, non-employee directors
receive stock options under the 1995 Outside Plan (described below) upon the
directors' initial election or appointment to the Board of Directors. In 1995
and 1996, Messrs. Gampel, Kaplan, Polan and Terry, upon joining the Board, were
each granted options to purchase 75,000 shares of Common Stock at an exercise
price equal to the market price on the date of grant. These options were
immediately vested with respect to 22,500 shares, with installments of 22,500
and 30,000 shares vesting one and two years from the date of grant,
respectively. These options expire five years after the dates of grant.

EMPLOYMENT AGREEMENTS WITH THE NAMED EXECUTIVE OFFICERS

      On April 1, 1996, the Company entered into an Employment Agreement with
Mr. Blue for a period of three years, which is automatically extended from year
to year unless terminated by either party upon 60 days written notice. Mr. Blue
receives an annual base salary of $125,000 and is entitled to such bonuses as
may be awarded from time to time by the Board of Directors and to participate in
any stock option or bonus plans which the Company may now have or in the future
develop. Mr. Blue may be terminated for "cause," as defined in the Agreement. If
he is terminated for cause, he will be entitled to base salary earned, and he
will retain all vested stock options which shall remain exercisable for 90 days
after the date of termination. If he is terminated "without cause," then he will
be entitled to receive an amount equal to his base salary plus bonus, if any,
and continuation of health insurance for six months following termination. In
addition, the Agreement contains confidentiality and noncompetition covenants.
Messrs. Guinan and Mansfield are parties to employment agreements with the
Company which are 

                                       27

<PAGE>

substantially similar to Mr. Blue's, with their annual base salaries being
$125,000 and $115,000, respectively.

            In November 1996, the Company entered into an Employment Agreement
with Mr. Marks. The Agreement is for a three-year term and automatically extends
from year to year thereafter unless terminated by the Company upon 90 days
written notice or by the employee upon 30 days written notice prior to the end
of the initial term or any extension. Mr. Marks receives an annual base salary
of $125,000 and is entitled to such bonuses as may be awarded from time to time
by the Board of Directors and to participate in any stock option or bonus plans
which the Company may now have or in the future develop. Mr. Marks may be
terminated for "cause" as defined in the Agreement. If he is terminated for
cause, he will be entitled to base salary earned, and he will retain all vested
stock options which shall remain exercisable for 90 days after the date of
termination. If, upon 90 days prior written notice, he is terminated "without
cause," he will entitled to receive an amount equal to his base salary plus
bonus, if any, and continuation of health insurance for six months following
termination, plus any unvested options shall vest. In addition, the Agreement
contains confidentiality and noncompetition covenants.

STOCK OPTION PLANS

      The Board of Directors has adopted three stock option plans for its
employees, officers and outside directors: the 1993 Stock Option Plan (the "1993
Plan"); the 1995 Stock Option Plan (the "1995 Plan"); and the 1995 Outside
Director Stock Option Plan (the "1995 Outside Plan", and collectively with the
1993 Plan and the 1995 Plan, the "Plans"). The purpose of the Plans is to
provide certain directors, officers and key employees of the Company with a
greater personal interest in the success of the Company and to enhance the
ability of the Company to attract and maintain the services of qualified
personnel.

      The 1993 and 1995 Plans provide for the issuance of up to 600,000 shares
and 376,250 shares of Common Stock, respectively, upon exercise of options
designated as either "incentive stock options" or "non-qualified options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). The 1995 Outside Plan provides for the issuance of up to 300,000 shares
upon exercise of "non-qualified options." The Plans are administered by the
Compensation Committee of the Board of Directors, which determines, among other
things, the persons to be granted options under the Plans, the number of shares
subject to each option and the option price.

      With respect to the 1993 and 1995 Plans, the exercise price of any
incentive stock option may not be less than the fair market value of the shares
subject to the option on the date of grant; provided, however, that the exercise
price of any incentive stock option granted to an eligible employee who is or

                                       28

<PAGE>

will be the beneficial owner of more than 10% of the outstanding voting power of
the Company may not be less than 110% of the fair market value of the shares
underlying such options on the date of grant. Non-qualified options may not be
granted with exercise prices less than the fair market value of the shares
subject to the option on the date of grant. Incentive stock options may be
granted only to employees and no option granted under the 1993 Plan to an
employee may be exercised unless, at the time of exercise, the grantee is an
employee of the Company or a subsidiary or was an employee within the preceding
three months. In the event of death, options may be exercised during a twelve
month period following such event. The Company may grant an employee options for
any number of shares, except that the value of the shares subject to one or more
incentive stock options first exercisable in any calendar year may not exceed
$100,000 (determined at the date of grant). Options are not transferable, except
upon the death of the optionee. The 1993 and 1995 Plans have been approved by
the Company's shareholders. The Plans may be amended by the Board of Directors
from time to time; however, the number of shares covered by the 1995 Plan and
1993 Plan may not be changed, nor may certain other material amendments to those
Plans be made, without further shareholder approval.

      The term of each option granted under the Plans and the manner in which it
may be exercised is determined by the Compensation Committee, provided that no
option may be exercisable more than 10 years after the date of grant and, in the
case of an incentive stock option granted to an eligible employee who is or will
be the beneficial owner of more than 10% of the outstanding voting power of the
Company, no more than five years after the date of grant. Incentive stock
options under the 1993 and 1995 Plans may be granted during the 10-year period
following the dates of the Plans.

      See Note (10) of Notes to Consolidated Financial Statements for
information regarding options issued or available under the Plans.

LIABILITY AND INDEMNIFICATION OF
DIRECTORS AND OFFICERS OF THE COMPANY

      The Company has entered into Indemnification Agreements with each of its
directors and executive officers limiting their personal liability for monetary
damages for breach of their fiduciary duties as officers and directors, except
for liability that cannot be eliminated under the Florida Business Corporation
Act. The Florida Business Corporation Act provides that directors of a
corporation will not be personally liable for monetary damages for breach of
their fiduciary duty as directors, except for liability (i) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (ii) for any unlawful payment of a dividend or unlawful stock
repurchase or redemption, as provided in Section 607.0834 of the Florida
Business Corporation Act, (iii) for any 

                                       29

<PAGE>

transaction from which the director derived an improper personal benefit, or
(iv) for a violation of criminal law. The Restated Articles of Incorporation and
Bylaws of the Company also provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by Section 607.0831 of
the Florida Business Corporation Act, including circumstances in which
indemnification is otherwise discretionary. The Company has procured and
maintains a policy of insurance under which the directors and officers of the
Company are insured, subject to the limits of the policy, against certain losses
arising from claims made against such directors and officers.


                                   ITEM 11
                                   -------

                   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                            OWNERS AND MANAGEMENT
                            ---------------------


      The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of March 25, 1997, with respect to
(i) each person known to the Company to be the beneficial owner of more than 5%
of the Company's Common Stock, (ii) each director, (iii) each executive officer
named in the Executive Compensation chart, and (iv) all directors and officers
of the Company as a group:

NAME AND ADDRESS(1)                     # OF SHARES (2)          % OF CLASS
----------------                        ---------------          ----------

Harold S. Blue(3)                           912,532                  9.3

John Paul Guinan(4)                         172,500                  1.8

Gary N. Mansfield(5)                        207,000                  2.1

Bennett Marks(6)                            148,750                  1.5

Harry A. Gampel(7)                          273,558                  2.8

Samuel X. Kaplan(4)                          45,000                   *

Bertram J. Polan(8)                          52,500                   *

Eugene R. Terry(9)                           60,000                   *

Kingdon Capital Management Corporation      775,000                  8.0
152 West 57th Street
New York, NY 10019

Cramer Rosenthal McGlynn, Inc.              719,000                  7.4
520 Madison Avenue
New York, NY 10022

Weiss, Peck & Greer, L.L.C.                 558,000                  5.8
One New York Plaza
New York, NY 10004

All directors and officers                2,058,763                 19.5
as a group (18 persons)(10)

                                       30

<PAGE>

-----------------------------------
(1)   The address for each person, unless otherwise noted, is 2501 Davie Road,
      Suite 230, Fort Lauderdale, Florida 33317-7424.

(2)   In accordance with Rule 13d-3 of the Exchange Act, shares that are not
      outstanding, but that are subject to options, warrants, rights or
      conversion privileges exercisable within 60 days from March 14, 1997, have
      been deemed to be outstanding for the purpose of computing the percentage
      of outstanding shares owned by the individual having such right, but have
      not been deemed outstanding for the purpose of computing the percentage
      for any other person.

(3)   Includes 732,532 shares held of record, and 180,000 shares issuable upon
      the exercise of currently exercisable stock options.

(4)   Represents shares issuable upon the exercise of currently exercisable
      stock options.

(5)   Includes 49,500 shares held of record and 157,500 shares issuable upon the
      exercise of currently exercisable stock options.

(6)   Includes 7,500 shares held of record, and 141,250 shares issuable upon the
      exercise of currently exercisable stock options.

(7)   Includes 228,558 shares held of record, and 45,000 shares issuable upon
      the exercise of currently exercisable stock options.

(8)   Includes 7,500 shares held of record, and 45,000 shares issuable upon
      exercise of currently exercisable stock options.

(9)   Includes 15,000 shares held of record, and 45,000 shares issuable upon
      exercise of currently exercisable stock options.

(10)  Includes 1,158,829 shares held of record, and 899,934 shares issuable upon
      the exercise of currently exercisable stock options.


                                   ITEM 12
                                   -------

                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
                ----------------------------------------------


      Mr. Blue was a principal shareholder in three medical centers which were
customers of the Company's former drug dispensing business in 1995. Dr. Steven
Fox, a former director of the Company, was a principal shareholder in two
medical centers which were also customers of the Company's former drug
dispensing business in 1995. The Company received a total of approximately 4% of
its revenues in 1995 from these five medical centers.

      In July 1995, Mr. Blue purchased 8,000 shares of the Company's Series A
Preferred Stock at an aggregate price of $200,000 pursuant to the Company's
private placement of such stock. Such Preferred Stock was converted into 75,232
shares of Common Stock in August 1996 pursuant to the terms of the Preferred
Stock.

                                       31

<PAGE>


                                   PART IV
                                   -------

                                   ITEM 13
                                   -------

                   EXHIBITS, LISTS AND REPORTS ON FORM 8-K
                   ---------------------------------------


(a)   EXHIBITS

            Exhibits required to be filed by Item 601 of Regulation S-B as
      exhibits to this Report are listed in the Exhibit Index appearing on pages
      34 and 35.

(b)   REPORTS ON FORM 8-K

            No Form 8-K reports were filed by the Company with the Securities
      and Exchange Commission during the quarter ended December 31, 1996.

                                       32

<PAGE>

                                    SIGNATURE


      In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated:  March 26, 1997                    PROXYMED, INC.


                                          By: /s/ HAROLD S. BLUE
                                              ---------------------------------
                                              Harold S. Blue, Chairman of the
                                              Board and Chief Executive Officer


      In accordance with the Exchange Act, 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/ HAROLD S. BLUE         Chairman of the Board and Chief       March 26, 1997
---------------------       Executive Officer (principal
Harold S. Blue              executive officer)          
                           

/s/ JOHN PAUL GUINAN       President, Chief Operating            March 26, 1997
---------------------       Officer and Director
John Paul Guinan           


/s/ GARY N. MANSFIELD      Executive Vice President-             March 26, 1997
---------------------       Corporate Development and Director
Gary N. Mansfield                    


/s/ BENNETT MARKS          Executive Vice President-             March 26, 1997
--------------------        Finance, Chief Financial Officer
Bennett Marks               and Director (principal financial
                            and accounting officer)

/s/ HARRY A. GAMPEL        Director                              March 26, 1997
----------------------
Harry A. Gampel


/s/ SAMUEL X. KAPLAN       Director                              March 26, 1997
----------------------
Samuel X. Kaplan


/s/ BERTRAM J. POLAN       Director                              March 26, 1997
----------------------
Bertram J. Polan


/s/ EUGENE R. TERRY        Director                              March 26, 1997
----------------------
Eugene R. Terry

                                       33

<PAGE>

                                EXHIBIT INDEX
                                -------------


EXHIBIT NO.       DESCRIPTION
-----------       -----------

  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).

 10.1             License Agreement between the Company and Blue Cross and Blue
                  Shield of Massachusetts, Inc., dated March 1, 1996
                  (incorporated by reference to Exhibit 3.1 of the Registration
                  Statement on Form SB-2, File No. 333-2678).

 10.2             Strategic Marketing Agreement among the Company, IntePlex,  
                  Inc. and Bergen Brunswig Drug Company dated February 1, 1996
                  (incorporated by reference to Exhibit 1 of Form 8-K, File No.
                  0-22052, reporting an event dated February 1, 1996).

 10.3             Agreement for Acquisition of Stock between the Company and
                  National Health Care Affiliates, Inc. dated September 6, 1995
                  (incorporated by reference to Exhibit 1 of Form 8-K, File No.
                  0-22052, reporting an event dated August 28, 1996).

 10.4             Asset Purchase Agreement between the Company and Eckerd
                  Corporation (incorporated by reference to Exhibit 1 to the
                  Form 8-K, File No. 0-22052, reporting an event dated February
                  7, 1995).

 10.5             Employment Agreement between the Company and Harold S. Blue
                  (incorporated by reference to Exhibit 3.1 of the Registration
                  Statement on Form SB-2, File No. 333-2678).

 10.6             Employment Agreement between the Company and John Paul Guinan
                  (incorporated by reference to Exhibit 3.1 of the Registration
                  Statement on Form SB-2, File No. 333-2678).

 10.7             Employment Agreement between the Company and Bennett Marks
                  dated November 11, 1996.

 10.8             Employment Agreement between the Company and Carol Dragan
                  dated November 11, 1996.

                                       34

<PAGE>

EXHIBIT NO.       DESCRIPTION
-----------       -----------

 10.9             Employment Agreement between the Company and Glenn Gilchrist
                  dated March 14, 1997.

 10.10            Asset Purchase Agreement between the Company and Clinical
                  MicroSystems, Inc. and Glenn Gilchrist (incorporated by
                  reference to Exhibit 1 of Form 8-K, File No. 000-22052 
                  reporting an event dated March 14, 1997).

 10.11            Employment Agreement between the Company and Frank M. Puthoff
                  dated November 11, 1996.

 10.12            Amended 1993 Stock Option Plan (incorporated by reference to 
                  Exhibit A of the Company's Proxy Statement for its 1994 Annual
                  Meeting of Shareholders).

 10.13            1995 Stock Option Plan (incorporated by reference to 
                  Exhibit 3.1 of the Registration Statement on Form SB-2, File.
                  No. 333-2678)

 10.14            1995 Outside Director Stock Option Plan (incorporated by
                  reference to Exhibit 3.1 of the Registration Statement on Form
                  SB-2, File No. 333-2678).

 10.15            Employment Agreement between the Company and Bruce Roberson
                  dated October 17, 1996 (incorporated by reference to Exhibit
                  10.1 of the 10-QSB for the period ending September 30, 1996).

 10.16            Form of Indemnification Agreement for All Officers and
                  Directors (incorporated by reference to Exhibit 10.3 of the
                  10-QSB for the period ending September 30, 1996).

 21               Subsidiaries of the Registrant (incorporated by reference to 
                  Exhibit 3.1 of the Registration Statement on Form SB-2, File
                  No. 333-2678).

 23               Consent of Independent Auditors.

 27               Financial Data Schedule

                                       35

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                         PAGE
                                                                         ----

Report of Independent Accountants                                        F-2

Consolidated Financial Statements:

   Consolidated Balance Sheet - December 31, 1996                        F-3

   Consolidated Statements of Operations - Years Ended
      December 31, 1996 and 1995                                         F-4

   Consolidated Statements of Stockholders' Equity -
      Years Ended December 31, 1996 and 1995                             F-5

   Consolidated Statements of Cash Flows - Years
      Ended December 31, 1996 and 1995                                   F-6

   Notes to Consolidated Financial Statements                         F-7 - F-15

                                      F-1

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders of
ProxyMed, Inc.

We have audited the accompanying consolidated balance sheet of ProxyMed, Inc.
and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ProxyMed, Inc. and
subsidiaries as of December 31, 1996, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.


/s/ COOPERS & LYBRAND L.L.P.
----------------------------
Coopers & Lybrand L.L.P.

Miami, Florida
February 25, 1997, except for Note 12 as to which
     the date is March 14, 1997

                                      F-2

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1996

            ASSETS
            ------

Current assets:
   Cash and cash equivalents                                        $ 6,020,358
   Investment in U.S. Treasury Notes                                  6,008,698
   Accounts receivable - trade, net of allowance
      for doubtful accounts of $17,000                                  650,600
   Other receivables                                                    165,345
   Inventory                                                            195,964
   Other current assets                                                 164,963
                                                                    -----------
      Total current assets                                           13,205,928
Property and equipment, net                                           1,069,662
Capitalized software costs, net                                         795,479
Goodwill, net                                                           597,637
Other assets                                                             26,349
                                                                    -----------

      Total assets                                                  $15,695,055
                                                                    ===========

   LIABILITIES AND STOCKHOLDERS' EQUITY
   ------------------------------------

Current liabilities:
   Accounts payable and accrued expenses                                664,750
   Deferred revenue                                                     115,000
                                                                    -----------
      Total current liabilities                                         779,750
                                                                    -----------

Commitments and contingencies (Notes 10 and 11)

Stockholders' equity:
   Common stock - $.001 par value. Authorized 20,000,000
      shares; issued and outstanding 9,541,610 shares                     9,542
   Additional paid-in capital                                        25,944,057
   Accumulated deficit                                              (11,038,294)
                                                                    -----------
      Total stockholders' equity                                     14,915,305
                                                                    -----------

      Total liabilities and stockholders' equity                    $15,695,055
                                                                    ===========
See accompanying notes.

                                      F-3

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1996 AND 1995


                                                        1996            1995
                                                    -----------      ----------

Net sales                                           $ 3,054,151       7,622,803
                                                    -----------      ----------

Costs and expenses:
   Cost of sales                                      1,327,423       5,196,745
   Selling, general and administrative
      expenses                                        6,032,021       5,052,940
                                                    -----------      ----------
                                                      7,359,444      10,249,685
                                                    -----------      ----------

      Operating loss                                 (4,305,293)     (2,626,882)

Other income (expense):
   Gain (loss) on sale of assets (Note 4)             1,014,989        (740,044)
   Interest, net                                        436,569        (151,625)
                                                     ----------      ---------- 

      Loss before extraordinary item                 (2,853,735)     (3,518,551)

Extraordinary item - gain on sale of
   subsidiary, net of income tax
   effect (Note 4)                                         --           669,664
                                                    -----------      ----------

      Net loss                                       (2,853,735)     (2,848,887)

Dividends on cumulative preferred stock                  95,803         113,362
                                                    -----------      ----------

      Net loss applicable to
         common shareholders                        $(2,949,538)     (2,962,249)
                                                    ===========      ========== 


Loss per share of common stock:
   Loss before extraordinary item                   $      (.39)           (.75)
   Extraordinary gain                                      --               .14
                                                    -----------      ----------
      Net loss                                      $      (.39)           (.61)
                                                    ===========      ==========
See accompanying notes.

                                      F-4

<PAGE>
<TABLE>
<CAPTION>

                       PROXYMED, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    YEARS ENDED DECEMBER 31, 1996 AND 1995


                                  PREFERRED STOCK              COMMON STOCK         
                                --------------------       --------------------     ADDITIONAL
                                  NUMBER        PAR         NUMBER         PAR        PAID-IN         ACCUMULATED
                                OF SHARES      VALUE       OF SHARES      VALUE       CAPITAL           DEFICIT           TOTAL
                                ---------      -----       ---------     ------     ----------       ------------      -----------
<S>                                <C>          <C>        <C>           <C>        <C>              <C>               <C>        
Balances, January 1, 1995             --        $--        4,782,674     $4,783     $ 8,666,924      $ (5,335,672)     $ 3,336,035

Sale of preferred stock, net
   of expenses of $318,781          95,000        950           --         --         2,055,269              --          2,056,219
Common stock issued for
   acquired businesses                --         --           33,171         33          86,032              --             86,065
Common stock and options
   issued for services                --         --           17,250         17          66,246              --             66,263
Preferred stock dividends             --         --             --         --          (102,075)             --           (102,075)
Conversion of preferred
   stock to common stock           (12,000)      (120)       112,500        113               7              --               --
Net loss                              --         --             --         --              --          (2,848,887)      (2,848,887)
                                   -------      -----      ---------     ------     -----------      ------------      -----------

Balances, December 31, 1995         83,000        830      4,945,595      4,946      10,772,403        (8,184,559)       2,593,620

Sale of common stock, net
   of expenses of $1,831,816          --         --        3,367,500      3,367      13,037,942              --         13,041,309
Exercise of stock options and
   warrants                           --         --          432,610        433       1,860,469              --          1,860,902
Common stock issued for
   services                           --         --           15,000         15          55,985              --             56,000
Compensatory stock options            --         --             --         --           300,172              --            300,172
Preferred stock dividends             --         --             --         --           (82,963)             --            (82,963)
Conversion of preferred
   stock to common stock           (83,000)      (830)       780,905        781              49              --               --
Net loss                              --         --             --         --              --          (2,853,735)      (2,853,735)
                                   -------      -----      ---------     ------     -----------      ------------      -----------

Balances, December 31, 1996           --        $--        9,541,610     $9,542     $25,944,057      $(11,038,294)     $14,915,305
                                   =======      =====      =========     ======     ===========      ============      ===========
</TABLE>

See accompanying notes.

                                      F-5

<PAGE>



                       PROXYMED, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                    YEARS ENDED DECEMBER 31, 1996 AND 1995

                                                      1996           1995
                                                  ------------    -----------
Cash flows from operating activities:
   Net loss                                       $(2,853,735)    (2,848,887)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
         Depreciation and amortization                322,588        297,883
         Common stock issued for services              56,000           --
         Compensatory warrants issued (Note 3)        300,172           --
         Amortization of covenant
           not-to-compete (Note 4)                    (80,000)       (20,000)
         (Gain) loss on sale of assets (Note 4)    (1,014,989)       740,044
         Gain on sale of subsidiary (Note 4)             --         (669,664)
         Provision for doubtful accounts                8,105         73,598
         Changes in assets and liabilities,
           net of effect of acquisitions
           and dispositions:
             Accounts receivable                     (203,113)       934,786
             Inventory                                 42,299         44,721
             Accounts payable and accrued
              expenses                                (58,102)    (3,505,399)
             Other changes                            (68,340)        58,244
                                                  -----------     ----------
      Net cash used in operating activities        (3,549,115)    (4,894,674)
                                                  -----------     ----------
Cash flows from investing activities:
   Purchases of U.S. Treasury Notes                (8,541,153)          --
   Maturities of U.S. Treasury Notes                2,532,455           --
   Proceeds from sale of dispensary assets          1,300,000      3,551,481
   Proceeds from sale of subsidiary                   649,275        892,363
   Capital expenditures                              (665,891)      (143,195)
   Capitalized software                              (570,557)      (246,390)
                                                  -----------     ----------
      Net cash provided by (used in)
       investing activities                        (5,295,871)     4,054,259
                                                  -----------     ----------

Cash flows from financing activities:
   Net proceeds from sale of equity
    securities (Note 2)                            13,041,309      2,056,219
   Proceeds from exercise of stock
    options and warrants                            1,860,902           --   
   Payment of notes payable,
    long-term debt and capital leases                (417,884)    (1,787,662)
   Payment of preferred stock dividends               (82,963)      (102,075)
                                                  -----------     ---------- 
       Net cash provided by
       financing activities                        14,401,364        166,482
                                                  -----------     ----------
Net increase (decrease) in cash                     5,556,378       (673,933)
Cash at beginning of period                           463,980      1,137,913
                                                  -----------     ----------
Cash at end of period                             $ 6,020,358        463,980
                                                  ===========     ==========

Supplemental disclosure of cash flow 
 information:
   Cash paid for interest                         $    31,123        292,310
                                                  ===========     ==========
   Common stock issued for businesses purchased   $      --           86,065
                                                  ===========     ==========
   Details of acquisitions and dispositions:
      Working capital components, 
       other than cash                            $      --        1,986,321
      Property and equipment                             --        1,748,111
      Intangible assets                                  --        1,002,239
      Other assets                                       --         (222,447)
      Net loss                                           --          (70,380)
                                                  -----------     ---------- 
         Net cash from acquisitions and 
          dispositions                            $      --        4,443,844
                                                  ===========     ==========
See accompanying notes.

                                      F-6

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      (a) BUSINESS OF THE COMPANY - The Company provides healthcare technology
products and on-line transaction processing services to physicians through their
existing practice management information systems, as well as connectivity to
various healthcare providers (such as pharmacies, hospitals and managed care
organizations) through ProxyNet, the Company's national healthcare information
network. In addition, the Company derives revenues from dispensing prescription
drugs to patients who are residing in long-term care facilities, and until their
sale in 1995, through dispensaries, by mail, and through infusion administered
in the patient's home (see Note 4). To date, the Company's nationwide services
have been provided from its operating facilities located in Florida. The
Company's operations are subject to extensive and evolving statutory and
regulatory framework on both the state and federal levels.

      (b) PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company 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 generally accepted accounting principles 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 financial statements and the reported amounts of revenues and expenses
during the reporting period. The development and distribution of the Company's
healthcare technology products and services is an emerging business and, as
such, is subject to uncertainty as to demand and market acceptance for the newly
introduced products and services. Achieving market acceptance for the Company's
products and services requires significant marketing efforts and expenditure of
significant funds to create awareness and demand by pharmacies, physician
groups, managed care organizations and other potential customers. As a result,
such factors can affect the Company's estimates of the recoverability and useful
lives of property and equipment, capitalized software costs and goodwill, among
other items, and actual results could differ from those estimates.

      (d) REVENUE RECOGNITION - Revenues from sales of software or software
licenses are recognized upon delivery of the software, or ratably upon the
completion of any significant Company obligations. Revenues from software
rentals are recognized over the rental period. Revenues from sales of computer
hardware are recognized upon shipment of the hardware. Revenues from the
Company's prescription drug dispensing activities are reported at net realizable
amounts from HMO providers and patients at the time the individual prescriptions
are filled or services are provided.

      (e) CASH, CASH EQUIVALENTS AND INVESTMENTS - The Company considers all
highly liquid investments with original maturities of three months or less to be
cash equivalents. Excess cash is invested in U.S. Treasury Notes, or in bank
certificates of deposit and money market accounts. As of December 31, 1996, the
carrying value of the Company's investment in U.S. Treasury Notes approximated
its fair market value.

                                      F-7

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      (f) INVENTORY - Inventory, which consists primarily of prescription drugs,
is stated at the lower of cost (first-in, first-out method) or market.

      (g) PROPERTY AND EQUIPMENT - Property and equipment is stated at cost.
Property and equipment under capital leases is stated at the present value of
minimum lease payments at the inception of the lease. Depreciation of property
and equipment is calculated on the straight-line method over the estimated
useful lives of the assets. Property and equipment held under capital leases and
leasehold improvements are amortized on the straight-line method over the
shorter of the lease term or the estimated useful lives of the assets.

      (h) CAPITALIZED SOFTWARE COSTS - Certain computer software costs are
capitalized in accordance with Statement of Financial Accounting Standards
("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," and are reported at the lower of unamortized cost
or net realizable value. Such costs are capitalized when they are related to a
product which has achieved technological feasibility or that has an alternative
future use, and are amortized on the straight-line method over two to five
years. Software development costs incurred prior to achieving technological
feasibility are charged to research and development expense when incurred.
Research and development expense was approximately $177,000 in 1996, and was not
material in 1995. Accumulated amortization of capitalized software costs at
December 31, 1996 is $21,468.

      (i) GOODWILL - Goodwill, which relates to the acquisition of the Company's
institutional pharmacy business, is amortized on the straight-line basis over 40
years. The recoverability of goodwill is assessed based upon an analysis of
estimated future cash flows on an undiscounted basis, as is permitted under SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Accumulated amortization of goodwill at December 31,
1996 is $38,088.

      (j) INCOME TAXES - The Company provides for income taxes pursuant to the
provisions of SFAS No. 109, "Accounting for 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 based
on the weight of available evidence.

      (k) NET LOSS PER SHARE - Net loss per share of common stock is computed by
dividing net loss applicable to common shareholders by the weighted average
shares of common stock outstanding during the year (7,660,383 shares and
4,816,980 shares for the years ended December 31, 1996 and 1995, respectively).
The effects of common stock equivalents and convertible preferred stock have not
been included in the computations as their effect would be anti-dilutive or
immaterial. In addition, the implementation of recently issued SFAS No. 128,
"Earnings Per Share," which is effective for periods ending after December 15,
1997, is not expected to have an impact on net loss per share as presented
herein.

                                      F-8


<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(2)  EQUITY SECURITIES

      (a) STOCK SPLIT - On June 6, 1996, the Board of Directors authorized a
three-for-two stock split on the Company's common stock payable July 8, 1996 to
shareholders of record on June 24, 1996. All applicable share and per share data
have been retroactively adjusted for the stock split.

      (b) COMMON STOCK OFFERING - In 1996, the Company raised net proceeds of
$13,041,309 in an underwritten offering to the public of 3,367,500 shares of
common stock at a price of $4.42 per share. As part of the transaction, the
Company issued warrants to purchase 300,000 shares of common stock to the
underwriter, which are exercisable through May 7, 2001 at a price of $5.63 per
share.

      (c) PREFERRED STOCK OFFERING - In 1995, the Company raised net proceeds of
$2,056,219 through a private placement sale of 23.75 units of Series A
convertible preferred stock for $100,000 per unit. Each unit was convertible
into 37,500 shares of common stock, and the preferred stock bore a cumulative
annual dividend of 9%. Harold S. Blue, the Company's chairman, purchased two
units in the offering. During 1996, all of the outstanding preferred stock was
converted into common stock. As of December 31, 1996, underwriter warrants for
the purchase of 209,198 shares of common stock at an exercise price of $4.17 per
share remain outstanding through June 9, 2000. If the preferred stock had been
converted as of the beginning of 1996, net loss per share would have been $(.34)
for 1996.

      The Company has 1,870,000 authorized but unissued shares of preferred
stock, par value $.01 per share, which is entitled to rights and preferences to
be determined at the discretion of the Board of Directors.

      (d) OTHER WARRANTS - In connection with the Company's initial public
offering in 1993 and a private placement of common stock in 1994, warrants are
outstanding to the underwriter and the placement agent for the purchase of up to
49,101 and 78,265 shares of common stock, respectively, at exercise prices of
$3.94 and $3.06 per share through August 5, 1998 and August 19, 1999,
respectively.


(3)  LICENSING AGREEMENTS

      (a) THE MEDICAL MANAGER - In May 1996, the Company signed an Electronic
Commerce and Healthcare Information Licensing Agreement with Medical Manager
Corp. ("MMC"). The agreement requires the Company to provide MMC with a
"software developer's toolbox" to enable MMC to integrate the Company's products
and services into MMC's existing prescription module in its physician practice
management software, The Medical Manager. The Medical Manager software is
reportedly used by over 110,000 physicians in 22,000 offices throughout the
United States. Under the agreement, the

                                      F-9

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


Company shares in defined revenues paid by physicians to MMC, and MMC is
entitled to a portion of all defined transaction fee revenue derived from the
Company's prescription network services. As part of the agreement, the Company
granted a five-year warrant to MMC for the purchase of 150,000 shares of common
stock for $3.50 per share. The compensatory value of this warrant, as well as a
warrant for 37,500 shares exercisable at $4.17 per share issued in connection
with a license agreement with Blue Cross and Blue Shield of Massachusetts, Inc.
("BCBSM") (see (c) below), and certain other stock options for 12,500 shares
issued to two consultants, have been charged to expense in 1996 in the amount of
$300,172. The weighted average fair value of each compensatory warrant and
option was estimated at $1.50 at the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk-free interest rate of
6.17%, expected life of 5 years, expected volatility of 60.8%, and no dividend
yield.

      (b) BERGEN BRUNSWIG - In February 1996, the Company signed a marketing
agreement with IntePlex, Inc. and Bergen Brunswig Drug Company, both of which
are wholly-owned subsidiaries of Bergen Brunswig Drug Corporation (collectively
"Bergen"), a multi-billion dollar national pharmaceutical and medical supplies
distributor. Under the agreement, Bergen paid a one-time, non-refundable fee of
$1,000,000 for a non-exclusive limited license to market certain of the
Company's products (as defined in the agreement) throughout the United States.
The term of the agreement is for 12 months, and automatically renews for
successive 12 month periods unless terminated as provided under the agreement.
The Company is prohibited from entering into similar arrangements for certain
designated products with certain of Bergen's principal competitors, including
other major national pharmaceutical and medical supplies distributors. Under the
agreement, the Company will pay Bergen from 10% to 30% of net sales (as defined)
from the sale of these products, depending on the total annual volume of sales,
including certain sales of the defined products not resulting from Bergen
referrals, and including prescription transactions between participating
physicians, pharmacies and managed care organizations over ProxyNet. The
$1,000,000 fee was recorded as revenue in 1996. In addition, Bergen purchased
$529,298 of computer equipment containing ProxyScript software in 1996, which is
included in sales.

      (c) BLUE CROSS AND BLUE SHIELD OF MASSACHUSETTS, INC. ("BCBSM") - In March
1996, the Company entered into a license agreement with BCBSM, a large health
insurance provider based in Boston, Massachusetts. Under this agreement, BCBSM
agreed to pay a one-time license fee of $204,000 in exchange for which it
received a right to license the Company's product, ProxyScript, to physicians
exclusively, including its approximately 12,000 affiliated physicians, in
Massachusetts, Vermont, New Hampshire, Maine and Rhode Island (the "States"),
and on a non-exclusive basis in Connecticut. BCBSM intends to link ProxyScript
licensees in the States through its Healthwire network. Under the BCBSM
agreement, the Company is barred until March 1, 1998 from competing in the
States with BCBSM for the electronic prescription business, and BCBSM is barred
from competing with the Company's electronic prescription business outside the
States for the same period. The license fee was recorded as revenue in 1996.

                                      F-10

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

(4)  DISPOSITIONS

      (a) SALE OF CERTAIN DISPENSARY ASSETS - On March 15, 1995, the Company
sold to Eckerd Corporation ("Eckerd") certain, but not all, of the assets
related to the Company's HMO prescription drug dispensing operations for
$4,830,387. Of this total purchase price, $2,200,000 was contingent on the
amount of prescription business retained by Eckerd through September 30, 1996.
Accordingly, the Company initially recorded a loss on the sale, and recognized
additional income as prescription data was provided by Eckerd. Ultimately, the
Company collected the entire purchase price, including the entire contingent
amount, and recognized a cumulative gain on the sale of approximately $275,000.
Net sales related to these prescription drug dispensing operations prior to
their sale were $3,404,000 in 1995.

      (b) SALE OF SUBSIDIARY - On September 29, 1995, the Company sold to
National Health Care Affiliates, Inc. and an affiliate thereof (collectively
"NHCA") all of the outstanding common stock of its wholly-owned subsidiary,
ProxyFusion, Inc., for $1,542,029. ProxyFusion, Inc. provides home infusion
therapy services, including pharmacy and nursing services, primarily to HMO
patients. An extraordinary gain on this sale of $669,664 was recorded in 1995,
and $200,000 is being amortized to income over the 30-month period of the
Company's covenant-not-to-compete. Net sales related to these operations prior
to their sale were approximately $1,936,000 in 1995.


(5)  LOAN AGREEMENT

      The Company has a revolving loan agreement with a bank for borrowings of
up to $5,000,000. Outstanding borrowings bear interest at the prime rate less
3/4%, are due on demand and are collateralized by U.S. Treasury Notes. There
were no borrowings outstanding as of December 31, 1996.


(6)  PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31, 1996:

                                                         ESTIMATED USEFUL LIVES
                                                         ----------------------

      Furniture, fixtures and equipment      $1,535,604       5 to 7 years
      Leasehold improvements                    139,480       Life of lease
                                             ----------
                                              1,675,084
      Less accumulated depreciation             605,422
                                             ----------
      Property and equipment, net            $1,069,662
                                             ==========

Depreciation expense was approximately $297,000 in 1996 and $239,000 in 1995.

                                      F-11

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(7)  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consists of the following at December 31,
1996:

     Accounts payable                                 $399,353
     Accrued expenses related to sales of
         assets and subsidiary                          59,914
     Accrued contractual employment obligations         92,202
     Other accrued expenses                            113,281
                                                      --------
      Total accounts payable and accrued expenses     $664,750
                                                      ========


(8)  INCOME TAXES

      The significant components of the deferred tax asset account is as follows
at December 31, 1996:

           Net operating losses - Federal         $ 4,386,000
           Net operating losses - State               673,000
           Other - net (principally allowance for
              doubtful accounts and depreciation)    (166,000)
                                                   ---------- 
              Total deferred tax assets             4,893,000
           Less valuation allowance                (4,893,000)
                                                   ---------- 
              Net deferred tax assets              $        -
                                                   ========== 

      Based on the weight of available evidence, a valuation allowance has been
provided to offset the entire deferred tax asset amount. Net deferred assets and
the valuation allowance recorded relating thereto increased by $2,093,000 in
1996, primarily due to net operating losses. The net operating loss
carryforwards, which amount to $12,901,000 as of December 31, 1996, begin to
expire in 2008.

      The benefit for income taxes differs from the amount computed by applying
the statutory federal income tax rate to the net loss reflected on the
Consolidated Statements of Operations due to the following:

                                                       1996        1995
                                                      ------      ------

     Federal income tax benefit at statutory rate      35.0%       35.0%
     State income tax benefit                           3.5         3.5
     Increase in valuation allowance                  (38.5)      (38.5)
                                                      -----       -----
                                                          -           -
                                                      =====       =====

                                      F-12

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(9)  SIGNIFICANT CUSTOMERS

      Approximately 50% of the Company's sales for 1996 were to Bergen as more
fully described in Note 3. Approximately 26% of the Company's sales for 1995
were to providers under contract with Humana Medical Plan, Inc. and Humana
Health Insurance Company of Florida, Inc. (collectively referred to as Humana),
an HMO with national operations. The operations that accounted for these sales
were disposed of in 1995 as discussed in Note 4.


(10)  STOCK OPTIONS

      In 1993 and 1995, the Company adopted two stock option plans for
executives, directors and other key personnel, under which both incentive stock
options and non-qualified options may be issued. Under the 1993 and 1995 plans,
options to purchase up to 600,000 shares and 376,250 shares, respectively, 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 order to qualify as an
incentive stock option, the value of shares exercisable in any one calendar year
cannot exceed $100,000 (as determined at the date of grant). In 1995, the
Company also adopted a stock option plan for outside directors under which
options to purchase up to 300,000 shares of common stock may be granted at
prices and with vesting periods as may be determined by the Board of Directors
or the Compensation Committee thereof. In addition, as of December 31, 1996,
options for the purchase of 310,000 shares were granted principally as
inducements to newly-hired officers and employees. Stock options issued by the
Company generally vest within three years, and expire up to ten years from the
date granted. Stock option activity was as follows for the two years ended
December 31, 1996:
<TABLE>
<CAPTION>

                                        SHARES OF COMMON STOCK           WEIGHTED AVERAGE 
                                   ---------------------------------    EXERCISE PRICE OF 
                                   AVAILABLE FOR OPTION   UNDER PLAN    SHARES UNDER PLAN
                                   --------------------   ----------    -----------------
<S>                                      <C>              <C>                 <C>  
     Balance, January 1, 1995              48,000           552,000           $4.15
     Options authorized                   450,000              --              --
     Options granted                     (679,875)          679,875            --
     Options expired                      297,750          (297,750)          $4.32
                                         --------         ---------
     Balance, December 31, 1995           115,875           934,125           $3.73
     Options authorized                   532,500              --              --
     Options granted                     (875,250)          875,250           $5.20
     Options exercised                       --            (139,601)          $4.22
     Options expired                      231,124          (231,124)          $4.00
                                         --------         ---------
     Balance, December 31, 1996             4,249         1,438,650           $4.59
                                         ========         =========
</TABLE>

                                      F-13

<PAGE>

                       PROXYMED, INC. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      The following table summarizes information regarding outstanding and
exercisable options as of December 31, 1996:
<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING                      OPTIONS EXERCISABLE
                -------------------------------------------       ------------------------
                                WEIGHTED AVERAGE    WEIGHTED                      WEIGHTED
  RANGE OF                          REMAINING       AVERAGE                       AVERAGE
  EXERCISE        NUMBER           CONTRACTUAL      EXERCISE        NUMBER        EXERCISE
   PRICES       OUTSTANDING       LIFE (YEARS)       PRICE        EXERCISABLE      PRICE
------------    -----------     ----------------    --------      -----------     --------
<C>              <C>                  <C>            <C>            <C>             <C>  
$3.17 - 4.00       888,500            3.86           $3.53          613,250         $3.57
$4.01 - 6.50       171,750            2.86           $4.37          119,250         $4.38
$6.51 - 9.88       378,400            8.90           $7.15           89,734         $7.32
                 ---------                                          -------
                 1,438,650                                          822,234
                 =========                                          =======
</TABLE>

      The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its stock-based compensation plans for options issued to
employees. Had compensation cost for such options been recorded based upon the
fair value at the grant date consistent with the methodology prescribed in SFAS
No. 123, "Accounting for Stock-Based Compensation," the Company's net loss and
net loss per share would have been $(3,723,924) and $(.49) for 1996, and
$(3,271,095) and $(.68) for 1995, respectively. The weighted average fair value
of each option granted during 1996 is estimated at $2.31 at the date of grant
using the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 6.08%, expected life of 7 years, expected volatility
of 65.1%, and no dividend yield.


(11)  COMMITMENTS AND CONTINGENCIES

      (a) LEASES - The Company leases certain premises and equipment under
operating leases which expire on various dates through 2001. The leases for the
premises contain renewal options, and require the Company to pay such costs as
property taxes, maintenance and insurance. Future minimum lease payments under
noncancelable operating leases with initial or remaining lease terms in excess
of one year are as follows: $128,000 in 1997, $106,000 in 1998, $17,000 in 1999,
$12,000 in 2000, $5,000 in 2001. The Company has paid off all obligations on its
capital leases. Total rent expense for all operating leases amounted to $119,000
for 1996 and $161,000 for 1995.

      (b) EMPLOYMENT AGREEMENTS - The Company has employment agreements with
certain of its officers and employees for terms of up to three years, with
compensation for up to nine months if terminated under certain conditions.

                                      F-14

<PAGE>

                         PROXYMED, INC. AND SUBSIDIARIES
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


(12)  SUBSEQUENT EVENTS

      On March 14, 1997, the Company acquired substantially all of the assets of
Clinical MicroSystems, Inc. ("CMS"). CMS is the developer of ClinScan, a
physician desktop lab ordering and results posting software which, according to
their records, is used by over 100 labs and 3,000 physicians throughout the
United States. The purchase price consisted of the following: $3,000,000 in cash
and 125,786 shares of unregistered common stock paid at closing, plus $2,000,000
in cash and common stock payable over a three year period. The acquisition will
be accounted for as a purchase. CMS reported net sales of $1,758,645 and pre-tax
income of $288,762 for the year ended December 31, 1996.

      On February 24, 1997, the Company's Board of Directors approved the 1997
Stock Option Plan, under which options for the purchase of up to 250,000 shares
of common stock may be granted under terms similar to those described in Note
10. The 1997 Plan is subject to approval by the Company's shareholders.

                                      F-15

<PAGE>


                               INDEX TO EXHIBITS

EXHIBIT
NUMBER     DISCRIPTION
--------   -----------

10.7                      Employment Agreement between the Company and Bennett 
                          Marks dated November 11, 1996.

10.8                      Employment Agreement between the Company and Carol
                          Dragan dated November 11, 1996.

10.9                      Employment Agreement between the Company and Glenn
                          Gilchrist dated March 14, 1997.

10.11                     Employment Agreement between the Company and Frank M.
                          Puthoff dated November 11, 1996.

23                        Consent of Independent Accountants

27                        Financial Data Schedule