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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2003



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period
from  to



Commission File No. 1-13772



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PLANVISTA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)



|Delaware                                                       |  | 13-3787901                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



|4010 Boy Scout Boulevard, Suite 200, Tampa, Florida |  | 33607     
|--------------------------------------------------- |  | ----------
|(Address of Principal Executive Offices)            |  | (Zip Code)



(813) 353-2300

(Registrants Telephone Number, Including Area Code)



Not applicable

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)



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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes  x    No ̈



Indicate by check mark
whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



The number of shares outstanding of the issuers Common Stock, par value $.01 per share, as of November 13, 2003 was 16,995,481.



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PLANVISTA CORPORATION



Table of
Contents



|                               |  |                                                                                                                       |  | Page No.
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- |  | --------
|Part I - FINANCIAL INFORMATION |  |                                                                                                                      
|                               |  |                                                                                                                      
|Item 1.                        |  | Condensed Consolidated Balance Sheets September 30, 2003 (unaudited) and December 31, 2002 (restated)                 |  | 1       
|                               |  |                                                                                                                      
|                               |  | Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)   |  | 2       
|                               |  |                                                                                                                      
|                               |  | Condensed Consolidated Statement of Changes in Stockholders Deficit Nine Months Ended September 30, 2003 (unaudited) |  | 3       
|                               |  |                                                                                                                      
|                               |  | Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2003 and 2002 (unaudited)             |  | 4       
|                               |  |                                                                                                                      
|                               |  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                      |  | 5       
|                               |  |                                                                                                                      
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                 |  | 11      
|                               |  |                                                                                                                      
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                                                            |  | 18      
|                               |  |                                                                                                                      
|Item 4.                        |  | Controls and Procedures                                                                                               |  | 19      
|                               | 
|Part II - OTHER INFORMATION    |  | 19                                                                                                                   
|                               |  |                                                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                                                     |  | 19      
|                               |  |                                                                                                                      
|Item 2.                        |  | Changes in Securities and Use of Proceeds                                                                             |  | 20      
|                               |  |                                                                                                                      
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                      |  | 20      



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##### Table of Contents

PART I - FINANCIAL INFORMATION

Item 1.Financial Statements



PLANVISTA CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands except
share amounts)



|                                                                                                                                        |  | September 30,2003 |          |   | December 31,2002   |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ------------------ | -
|                                                                                                                                        |  |                   |          |   | (Restated -Note 2) |  
|ASSETS                                                                                                                                  |  |                   |          |   |                    |  
|                                                                                                                                        |  |                  
|Current assets:                                                                                                                         |  |                   |          |   |                    |  
|Cash and cash equivalents                                                                                                               |  | $                 | 2,962    |   |                    | $
|Accounts receivable, net of allowance for doubtful accounts of $1,353 and $1,985                                                        |  |                   | 8,091    |   |                    |  
|Prepaid expenses and other current assets                                                                                               |  |                   | 449      |   |                    |  
|Refundable income taxes                                                                                                                 |  |                   |         |   |                    |  
|                                                                                                                                        |  |                   |          |   |                    |  
|Total current assets                                                                                                                    |  |                   | 11,502   |   |                    |  
|Property and equipment, net                                                                                                             |  |                   | 1,500    |   |                    |  
|Other assets                                                                                                                            |  |                   | 684      |   |                    |  
|Goodwill                                                                                                                                |  |                   | 29,405   |   |                    |  
|                                                                                                                                        |  |                   |          |   |                    |  
|Total assets                                                                                                                            |  | $                 | 43,091   |   |                    | $
|                                                                                                                                        |  |                   |          |   |                    |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                                                                   |  |                   |          |   |                    |  
|                                                                                                                                        |  |                  
|Current liabilities:                                                                                                                    |  |                   |          |   |                    |  
|Accounts payable                                                                                                                        |  | $                 | 1,618    |   |                    | $
|Accrued liabilities                                                                                                                     |  |                   | 4,471    |   |                    |  
|Income tax payable                                                                                                                      |  |                   | 912      |   |                    |  
|Deferred revenue                                                                                                                        |  |                   |         |   |                    |  
|Current portion of long-term debt                                                                                                       |  |                   | 38,439   |   |                    |  
|                                                                                                                                        |  |                   |          |   |                    |  
|Total current liabilities                                                                                                               |  |                   | 45,440   |   |                    |  
|Long-term debt, less current portion                                                                                                    |  |                   | 5,981    |   |                    |  
|Common stock with make-whole provision                                                                                                  |  |                   | 5,000    |   |                    |  
|Other long-term liabilities                                                                                                             |  |                   | 849      |   |                    |  
|                                                                                                                                        |  |                   |          |   |                    |  
|Total liabilities                                                                                                                       |  |                   | 57,270   |   |                    |  
|                                                                                                                                        |  |                   |          |   |                    |  
|Commitments and contingencies                                                                                                           |  |                   |          |   |                    |  
|                                                                                                                                        |  |                  
|Common stock with make-whole provision                                                                                                  |  |                   |         |   |                    |  
|                                                                                                                                        |  |                  
|Series C convertible preferred stock, $0.01 par value; 40,000 shares authorized; 32,659 shares and 31,092 shares issued and
outstanding |  |                   | 129,503  |   |                    |  
|                                                                                                                                        |  |                  
|Stockholders deficit:                                                                                                                  |  |                   |          |   |                    |  
|Common stock, $0.01 par value; 100,000,000 shares authorized, 16,967,352 shares and 16,761,354 shares issued and
outstanding            |  |                   | 170      |   |                    |  
|Additional paid-in capital                                                                                                              |  |                   |         |   |                    |  
|Treasury stock at cost, 7,940 shares issued and outstanding                                                                             |  |                   | (38      | ) |                    |  
|Accumulated deficit                                                                                                                     |  |                   | (143,814 | ) |                    |  
|                                                                                                                                        |  |                   |          |   |                    |  
|Total stockholders deficit                                                                                                             |  |                   | (143,682 | ) |                    |  
|                                                                                                                                        |  |                   |          |   |                    |  
|Total liabilities and stockholders deficit                                                                                             |  | $                 | 43,091   |   |                    | $
|                                                                                                                                        |  |                   |          |   |                    |  



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



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PLANVISTA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands except per
share data)



|                                                                       |  | Three Months Ended September 30, |         |   | Nine Months Ended September 30, |  
|---------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ------------------------------- | -
|                                                                       |  | 2003                             |         |   | 2002                            |  
|Operating revenue                                                      |  | $                                | 8,019   |   |                                 | $
|                                                                       |  |                                  |         |   |                                 |  
|Cost of operating revenue:                                             |  |                                  |         |   |                                 |  
|Personnel expenses                                                     |  |                                  | 2,076   |   |                                 |  
|Network access fees                                                    |  |                                  | 1,652   |   |                                 |  
|Other                                                                  |  |                                  | 1,683   |   |                                 |  
|Depreciation                                                           |  |                                  | 155     |   |                                 |  
|Costs related to ProxyMed agreement                                    |  |                                  |        |   |                                 |  
|                                                                       |  |                                  |         |   |                                 |  
|Total cost of operating revenue                                        |  |                                  | 5,566   |   |                                 |  
|                                                                       |  |                                  |         |  
|Bad debt expense                                                       |  |                                  | 370     |   |                                 |  
|Other income                                                           |  |                                  | (650    | ) |                                 |  
|Interest expense, net                                                  |  |                                  | 646     |   |                                 |  
|                                                                       |  |                                  |         |   |                                 |  
|Total expenses and other income                                        |  |                                  | 5,932   |   |                                 |  
|                                                                       |  |                                  |         |   |                                 |  
|Income before provision (benefit) for income taxes                     |  |                                  | 2,087   |   |                                 |  
|Provision (benefit) for income taxes                                   |  |                                  | 564     |   |                                 |  
|                                                                       |  |                                  |         |   |                                 |  
|Net income                                                             |  |                                  | 1,523   |   |                                 |  
|                                                                       |  |                                  |         |  
|Preferred stock accretion and preferred stock dividend                 |  |                                  | (18,151 | ) |                                 |  
|                                                                       |  |                                  |         |   |                                 |  
|Loss applicable to common stockholders                                 |  | $                                | (16,628 | ) |                                 | $
|                                                                       |  |                                  |         |   |                                 |  
|Basic and diluted loss per share applicable to common stockholders:    |  |                                  |         |   |                                 |  
|Net income                                                             |  | $                                | 0.09    |   |                                 | $
|Preferred stock accretion and preferred stock dividend                 |  |                                  | (1.07   | ) |                                 |  
|                                                                       |  |                                  |         |   |                                 |  
|Loss applicable to common stockholders                                 |  | $                                | (0.98   | ) |                                 | $
|                                                                       |  |                                  |         |   |                                 |  
|Basic and diluted weighted average number of common shares outstanding |  |                                  | 16,899  |   |                                 |  
|                                                                       |  |                                  |         |   |                                 |  



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



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PLANVISTA CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS DEFICIT

(Unaudited)

(in
thousands)



|                                                     |  | CommonStock |     | AdditionalPaid-inCapital |   |         | TreasuryStock |  |   | AccumulatedDeficit |   |  | Total |         
|---------------------------------------------------- |  | ----------- | --- | ------------------------ | - | ------- | ------------- |  | - | ------------------ | - |  | ----- | --------
|Balance, December 31, 2002 (as restated)             |  | $           | 168 |                          | $ | 45,593  |               |  | $ | (38                | ) |  | $     | (141,329
|Accretion of Series C convertible preferred stock    |  |             |    |                          |   | (43,850 | )             |  |   |                   |   |  |       | (5,971  
|Preferred stock dividends                            |  |             |    |                          |   | (2,465  | )             |  |   |                   |   |  |       |        
|Warrants issued to ProxyMed, Inc.                    |  |             |    |                          |   | 496     |               |  |   |                   |   |  |       |        
|Warrants issued to consultants                       |  |             |    |                          |   | 15      |               |  |   |                   |   |  |       |        
|Common stock issued for investment banking services  |  |             | 1   |                          |   | 142     |               |  |   |                   |   |  |       |        
|Common stock issued in lieu of cash interest payment |  |             | 1   |                          |   | 69      |               |  |   |                   |   |  |       |        
|Net income                                           |  |             |    |                          |   |        |               |  |   |                   |   |  |       | 3,486   
|                                                     |  |             |     |                          |   |         |               |  |   |                    |   |  |       |         
|Balance, September 30, 2003                          |  | $           | 170 |                          | $ |        |               |  | $ | (38                | ) |  | $     | (143,814
|                                                     |  |             |     |                          |   |         |               |  |   |                    |   |  |       |         



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



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PLANVISTA CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)



|                                                                                             |  | Nine Months EndedSeptember 30, |       
|-------------------------------------------------------------------------------------------- |  | ------------------------------ | ------
|                                                                                             |  | 2003                           |       
|Cash flows from operating activities:                                                        |  |                                |       
|Net income                                                                                   |  | $                              | 3,486 
|Adjustments to reconcile net income to net cash provided by operating activities:            |  |                                |       
|Depreciation                                                                                 |  |                                | 425   
|Bad debt expense                                                                             |  |                                | 1,262 
|Deferred revenue settlement                                                                  |  |                                | (650  
|Non-cash interest expense                                                                    |  |                                | 93    
|Restructuring costs                                                                          |  |                                |      
|Warrants issued in connection with ProxyMed agreement                                        |  |                                | 496   
|Warrants issued to consultants                                                               |  |                                | 15    
|Changes in assets and liabilities:                                                           |  |                                |       
|Accounts receivable                                                                          |  |                                | (1,364
|Income taxes                                                                                 |  |                                | 2,512 
|Prepaid expenses and other current assets                                                    |  |                                | (275  
|Other assets                                                                                 |  |                                | (6    
|Accounts payable                                                                             |  |                                | (1,285
|Accrued liabilities                                                                          |  |                                | (485  
|Deferred revenue                                                                             |  |                                | (300  
|Other long-term liabilities                                                                  |  |                                | (154  
|                                                                                             |  |                                |       
|Net cash provided by operating activities                                                    |  |                                | 3,770 
|                                                                                             |  |                                |       
|Cash flows from investing activities:                                                        |  |                                |       
|Purchases of property and equipment                                                          |  |                                | (384  
|                                                                                             |  |                                |       
|Net cash used in investing activities                                                        |  |                                | (384  
|                                                                                             |  |                                |       
|Cash flows from financing activities:                                                        |  |                                |       
|Capital lease and debt payments                                                              |  |                                | (1,622
|Proceeds from common stock issued                                                            |  |                                |      
|                                                                                             |  |                                |       
|Net cash used in financing activities                                                        |  |                                | (1,622
|                                                                                             |  |                                |       
|Net increase in cash and cash equivalents                                                    |  |                                | 1,764 
|Cash and cash equivalents at beginning of period                                             |  |                                | 1,198 
|                                                                                             |  |                                |       
|Cash and cash equivalents at end of period                                                   |  | $                              | 2,962 
|                                                                                             |  |                                |       
|Supplemental disclosure of cash flow information:                                            |  |                                |       
|Cash paid for interest                                                                       |  | $                              | 1,661 
|                                                                                             |  |                                |       
|Supplemental non-cash investing and financing information:                                   |  |                                |       
|Common stock issued in connection with settlement of subordinated notes and accrued interest |  | $                              |      
|                                                                                             |  |                                |       
|Registration rights agreement                                                                |  | $                              |      
|                                                                                             |  |                                |       
|Preferred stock accretion and preferred stock dividends                                      |  | $                              | 52,286
|                                                                                             |  |                                |       
|Conversion of $5.0 million note to common stock with make-whole provision                    |  | $                              |      
|                                                                                             |  |                                |       
|Conversion of accrued interest to long-term debt                                             |  | $                              | 498   
|                                                                                             |  |                                |       
|Preferred stock issued in connection with debt restructuring                                 |  | $                              |      
|                                                                                             |  |                                |       
|Issuance of common stock in lieu of cash interest payment                                    |  | $                              | 70    
|                                                                                             |  |                                |       
|Common stock issued for investment banking services                                          |  | $                              | 143   
|                                                                                             |  |                                |       
|Warrants issued to consultants                                                               |  | $                              | 15    
|                                                                                             |  |                                |       



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



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PLANVISTA CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2003



1. Description of Business



PlanVista Corporation (together with its wholly owned subsidiaries) provides medical cost containment and business process outsourcing solutions for the
medical insurance and managed care industries. Specifically, we provide integrated national preferred provider organization (sometimes called PPO) network access, electronic claims repricing, and network and data management business process
outsourcing services to health care payers, such as self-insured employers, medical insurance carriers, third party administrators (sometimes called TPAs), health maintenance organizations (sometimes called HMOs), and other entities that pay claims
on behalf of health plans. We also provide network and data management business process outsourcing services for health care providers, including individual providers, PPOs, and other provider groups.



2. Restated Financial Statements



The accompanying financial statements include our restated condensed
consolidated balance sheet at December 31, 2002, after determination that our Series C stock, as further described in Note 6, should be classified as temporary equity. This restatement is limited solely to classifying the aggregate of our Series C
stock in the amount of $77.2 million at December 31, 2002 from permanent stockholders deficit to the temporary equity section of the condensed consolidated balance sheet. The restatement had no effect on our condensed consolidated statements
of operations or cash flows.



The following table summarizes
the impact of the restatement as of December 31, 2002:



|                                                       |  | As Reported |         |   | Adjustment |   |         | As Restated | 
|------------------------------------------------------ |  | ----------- | ------- | - | ---------- | - | ------- | ----------- | 
|Series C preferred stock (including accrued dividends) |  | $           |        |   |            | $ | 77,217  |             | 
|                                                       |  |             |        
|Stockholders deficit:                                 |  |             |         |   |            |   |         |             | 
|Preferred stock                                        |  |             | 77,217  |   |            |   | (77,217 | )           | 
|                                                       |  |             |        
|Total stockholders deficit                            |  | $           | (18,389 | ) |            | $ | (77,217 | )           | 



We are amending Form
10-K for the year ended December 31, 2002, as well as Forms 10-Q for the quarters ended March 31, 2003 and June 30, 2003.



3. Reorganization, Debt Restructuring, and Liquidity



Since June 2000, when we initiated a plan of reorganization, we have divested certain of our underperforming and non-growth businesses and restructured
and refinanced our credit facility. Currently, our term loan of $38.4 million is due in quarterly installments of $50,000 with the remaining balance due in full on May 31, 2004 (see Note 5). Such term loan is subject to certain financial covenants,
which must be met on a monthly and/or quarterly basis. Although there can be no assurances, management believes, based on available information, that we will be able to maintain compliance with the terms of our restructured credit facility,
including the financial covenants, until our restructured credit facility becomes due in May 2004.



Except for the indebtedness due in May 2004, we believe that all of our consolidated operating and financing obligations due in the next twelve months
will be met from internally generated cash flow from operations and our available cash. Our ability to fund our operations, make the scheduled payments of interest and principal on our indebtedness, and maintain compliance with the terms of our
restructured credit facility, including our financial covenants, depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control.



Our indebtedness comes due in May 2004. We are currently pursuing
alternatives to refinance this indebtedness and/or raise additional equity capital to pay off or pay down this indebtedness. There can be no assurance that we will be able to repay the indebtedness or refinance such indebtedness on terms that are
acceptable to us.



If we are unable to generate sufficient cash
flows from operations to pay our financial obligations and meet our debt covenants, as required by our restructured credit facility, or if we are unable to repay or refinance our restructured credit facility in full in May 2004, there may be a
material adverse effect on our business, financial condition, and results of operations.



Management is continuing to explore alternatives, including the possible sale of equity securities, to reduce our obligations, recapitalize the Company and provide additional liquidity. There can be no assurances that
we will be successful in these endeavors. Should we be successful in these endeavors, there could be substantial dilution to the common stockholders.



4. Significant Accounting Policies



Basis of Presentation



The condensed consolidated financial statements include the accounts of PlanVista Corporation and its subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.



In our
opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for fair presentation of the condensed consolidated financial position and the condensed consolidated results of operations for the
interim periods presented. Interim results are not necessarily indicative of results for a full year.



These condensed consolidated financial statements are presented in accordance with the requirements of Form 10-Q and consequently do not include all
disclosures normally required by generally accepted accounting



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principles or those normally made in an annual report on Form 10-K. The interim condensed consolidated financial statements are unaudited and should be read
in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2002.



Earnings Per Share



Basic earnings per share is calculated by dividing the income or loss available to common stockholders by the weighted average number of common shares
outstanding for the period, without consideration for common stock equivalents. The calculation of diluted earnings per share reflects the effect of outstanding options and warrants using the treasury stock method, unless antidilutive. Approximately
5.5 million options and warrants for the three and nine months ended September 30, 2003 and 1.9 million and 1.8 million options and warrants for the three and nine months ended September 30, 2002, respectively, are excluded from the calculation of
diluted loss per share applicable to common stockholders because they are antidilutive. In addition, the common shares associated with the Series C convertible preferred stock are not included in the calculation of diluted loss per share applicable
to our common stockholders for the three and nine months ended September 30, 2003 and 2002 because they are also antidilutive.



Income Taxes



We recognize deferred assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax
bases of assets and liabilities. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Due to cumulative losses in recent years, we have recorded a valuation allowance on
our deferred tax assets at September 30, 2003 and December 31, 2002.



The effective rate used by us to record income tax expense differs from the federal statutory rate primarily related to net operating loss carryforwards.



We have net operating loss carryforwards of approximately $82.5 million that will expire in 2021. Due to a change in
ownership under Section 382 of the Internal Revenue Code, utilization of the net operating loss carryforwards is limited to approximately $3.0 million per year.



Our New York state income tax returns are being audited for the years 1999 through 2001. In the opinion of management, the ultimate resolution of this
matter will not have a material adverse affect on our financial position, results of operations, or cash flows.



Accounting for Stock-Based Compensation



We have adopted the disclosure-only provisions of SFAS No. 123, Accounting for Stock Based Compensation, but we apply Accounting Principles Board
Opinion No. 25 and related interpretations in accounting for our stock-based compensation plans. Therefore, since stock options are granted with an option price greater than or equal to the fair value on the date of grant, we do not recognize
compensation expense for any of our stock option plans. If we elected to recognize compensation expense for our stock option plans based on fair value at the date of grant, consistent with the method prescribed by SFAS No. 123, net income and
earnings per share would have been reduced to the pro forma amounts as follows using the Black-Scholes pricing model and the assumptions detailed below:



|                                                                             |  | Three Months EndedSeptember 30, |         |   | Nine Months EndedSeptember 30, |  
|---------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------------------------ | -
|                                                                             |  | 2003                            |         |   | 2002                           |  
|Loss applicable to common stockholders, as reported                          |  | $                               | (16,628 | ) |                                | $
|Stock-based employee compensation expense for all awards, net of related tax |  |                                 | (489    | ) |                                |  
|                                                                             |  |                                 |         |   |                                |  
|Pro forma loss applicable to common stockholders                             |  | $                               | (17,117 | ) |                                | $
|                                                                             |  |                                 |         |   |                                |  
|Loss applicable to common stockholders:                                      |  |                                 |         |   |                                |  
|Basic and diluted - as reported                                              |  | $                               | (0.98   | ) |                                | $
|                                                                             |  |                                 |         |   |                                |  
|Basic and diluted - pro forma                                                |  | $                               | (1.01   | ) |                                | $
|                                                                             |  |                                 |         |   |                                |  



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|Assumptions:            |  |        |   |  |        |   |  |        |   |  |        |  
|----------------------- |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | -
|Dividend Yield          |  | 0.0    | % |  | 0.0    | % |  | 0.0    | % |  | 0.0    | %
|Expected Volatility     |  | 85.5   | % |  | 30.0   | % |  | 85.5   | % |  | 30.0   | %
|Risk-Free Interest Rate |  | 0.95   | % |  | 1.5    | % |  | 0.95   | % |  | 1.5    | %
|Expected Life           |  | 5 yrs. |   |  | 5 yrs. |   |  | 5 yrs. |   |  | 5 yrs. |  



Reclassifications



Certain prior year
amounts have been reclassified to conform to the current years presentation. These amounts do not have a material impact on the condensed consolidated financial statements taken as a whole.







5. Long-Term Debt







On April 12, 2002, we closed a transaction
for the restructuring and refinancing of our existing senior bank debt. As part of the restructuring, we entered into a $40.0 million term loan that accrues interest at prime plus 1.0% with interest payments due monthly. Principal payments of
$50,000 are due quarterly, with the remaining balance due in full on May 31, 2004. The outstanding balance of the term loan has been classified as a current liability on our balance sheet as of September 30, 2003. The term loan is collateralized by
all of our assets.



The term loan agreement contains certain
financial covenants, including minimum monthly EBITDA levels as defined in the agreement, maximum quarterly and annual capital expenditures, a minimum quarterly fixed charge ratio that is based primarily on our operating cash flows, and maximum
quarterly and annual extraordinary expenses, as defined in the agreement. Beginning in 2003, the minimum EBITDA levels are $1.0 million in January 2003, $700,000 in February 2003, $800,000 per month beginning in March 2003 through July 2003, and
$1.0 million per month thereafter. We are in compliance with these financial covenants as of September 30, 2003.



On March 7, 2003, PVC Funding Partners LLC, an affiliate of Commonwealth Associates, LP and Comvest Venture Partners, acquired from our senior lenders
29,851 shares, or 96.0%, of our outstanding Series C convertible preferred stock. This Series C convertible preferred stock was purchased from the original senior lenders on a prorata basis at a price of $33.50 per share. The original senior lenders
continue to hold the remaining 4.0% of the Series C convertible preferred stock. In connection with the transaction, PVC Funding Partners also acquired $20.5 million in principal amount of our outstanding bank debt from the original senior lenders.
Because of a Board Shift Event which occurred in October 2003 (see Note 5), the debt held by PVC Funding Partners ($20.4 million as of September 30, 2003) is subordinated to the debt held by the original senior lenders ($18.0 million as of September
30, 2003).



As of September 30, 2003 and December 31, 2002, we
had additional notes and other obligations totaling approximately $5.6 million and $6.0 million, respectively (excluding the make-whole obligation described in Note 5), related to a 1993 acquisition, a 1998 acquisition, and equipment
purchases. Included in the total outstanding balance as of December 31, 2002 was $4.3 million of notes payable to CENTRA Benefits, Inc. (Centra) in connection with the 1998 acquisition, bearing interest at 12.0% per annum (payable in
additional shares of our common stock, except under specified circumstances), with a maturity date of December 1, 2004 pursuant to a restructuring in April 2002. In connection with the April 2002 restructuring, we issued to Centra warrants to
purchase 200,000 shares of our common stock at an exercise price of $6.40, which was $0.25 over the market price of the stock on the date of the issuance of the restructured notes. Effective March 31, 2003, we again renegotiated the Centra note
terms. In particular, we extended the maturity date of the notes to April 1, 2006, reduced the interest rate to 6.0% per annum, and fixed the conversion price on the notes at one share of common stock for each dollar of principal outstanding. In
addition, we issued a new convertible note equal to the amount of accrued and unpaid interest payable to Centra related to the restructured notes in the amount of approximately $500,000. This note has the same terms and conditions as the
restructured notes. Immediately upon completion of this restructuring, PVC Funding Partners acquired slightly more than 50.0% of the face value of the notes, including the new note, from Centra. The remaining portion is still held by Centra.



On April 12, 2002, we extended the maturity date of notes
totaling $500,000 due to one current and one former member of our Board of Directors to December 1, 2004. These notes bear interest, which accrues at prime plus 4.0% per annum, but payment of interest is subordinated and deferred until all senior
obligations are paid.



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6. Preferred Stock, Common Stock, and Related Events



On April 12, 2002, in connection with the restructuring of our senior bank
debt discussed in Note 4, we issued $29.0 million of Series C convertible preferred stock (the Series C stock). The Series C stock accrued dividends at 10.0% per annum during the first 12 months from issuance and is currently fixed at a
rate of 12.0% per annum. Dividends are payable quarterly in additional shares of Series C stock or, at our option, in cash. As of September 30, 2003, we have chosen to pay dividends in the form of additional shares, and we have issued an aggregate
of 3,659 additional shares of Series C stock as dividends. We may redeem the Series C stock at any time at our option at a redemption price of $1,000 per share plus accrued and unpaid dividends. The Series C stock has weighted-average anti-dilution
protection and a provision that, subject to certain adjustments, the Series C stock will not convert into less than 51% of our common stock on a fully diluted basis. After adjusting for the issuance of certain anti-dilutive securities, at any time
after October 12, 2003, the Series C stock may be converted into shares of our common stock at $1.33 per share, or a total of 24,555,639 common shares as of September 30, 2003.



The holders of the Series C stock are entitled to receive a Liquidation Preference, as defined, upon certain circumstances,
including but not limited to, a change in control of us, or our involuntary liquidation. As a result of these circumstances being outside of our control, the Series C stock is classified at September 30, 2003 and December 31, 2002 in the temporary
equity section of the accompanying condensed consolidated balance sheets (see Note 2).



In addition, while at least 12,000 shares of the Series C stock are outstanding, the Series C stockholders are entitled to elect three members to our Board of Directors. However, upon the occurrence of the Board Shift
Event, which was triggered by the Companys failure to redeem the Series C stock by October 12, 2003, the Board composition changed so as to allow the Series C stockholders to elect four out of seven directors, thereby shifting control of the
Board to the holders of Series C stock. On October 27, 2003, PVC Funding Partners informed the senior lenders that they were exercising their option to control our Board of Directors due to our failure to redeem the Series C stock. PVC Funding
Partners designated one of the existing directors previously elected by the common stockholders as the fourth Series C director.



In connection with the April 12, 2002 bank restructuring, we were required to adopt the accounting principles prescribed by Emerging Issues Task Force No.
00-27, Application of Issue No. 98-5 to Certain Convertible Instruments (EITF 00-27). In accordance with the accounting requirements of EITF 00-27, we accreted an increase to the carrying value of our Series C stock with a
comparable reduction to additional paid-in capital over the contractual life of the Series C stock. During the three months ended September 30, 2003, our additional paid-in capital was reduced to zero as a result of the accretion of the Series C
stock. Therefore, such additional accretion increases our accumulated deficit. To date, we accreted approximately $98.0 million. The amount accreted to the Series C stock is calculated based on (a) the difference between the closing price of our
common stock on April 12, 2002 and the conversion price per share available to the holders of our Series C stock, multiplied by (b) the number of shares of common stock that will be issued if the shares of our Series C stock are ever converted. The
accretion of the Series C stock will cease on October 12, 2003. This non-cash entry does not affect our net income or our cash flow, but does impact the net income deemed available to our common stockholders.



In June 2001, we completed the disposition of one of our subsidiaries,
HealthPlan Services, Inc., in a non-cash transaction. As part of the transaction, we issued a long-term convertible subordinated note, which automatically converted into 813,273 shares of common stock on April 12, 2002 in connection with the
restructuring of our credit facilities. The 813,273 shares are included in the number of outstanding shares at September 30, 2003 and December 31, 2002. Our agreement with the buyer states that, if the buyer does not receive gross proceeds of at
least $5.0 million upon the sale of the conversion shares, then we must issue and distribute to them additional shares of our common stock, based on a ten-day trading average price, to compensate the buyer for the difference, if any, between $5.0
million and the amount of proceeds they realize from the sale of the conversion shares. The entire $5.0 million obligation is recorded as common stock with a make-whole provision on our balance sheet at September 30, 2003 and December 31, 2002. In
accordance with SFAS No. 150, Accounting for Certain Financial Investments with Characteristics of Both Liabilities and Equity, we classified this obligation as a liability as of September 30, 2003. Our agreement with the buyer also
requires that we register the conversion shares upon demand. Assuming a sale of the conversion shares and based on the fair market value of our common stock on September 30, 2003, we would have been required to issue an additional 679,264 shares
under the provisions of this agreement.



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We entered into a registration rights agreement in favor of the buyer of HealthPlan Services with respect
to 709,757 shares we issued to them at closing in June 2001. The agreement contained provisions requiring redemption of such shares or the issuance of 200,000 shares of our common stock as a penalty if the original 709,757 shares were not registered
by certain specified time periods. Because the 709,757 shares were not registered within the required time periods, we issued to the buyer an aggregate of 200,000 penalty shares in 2001 and 2002.



Since the sale of HealthPlan Services in June 2001, we had been in
discussions with the buyer to finalize purchase price adjustments associated with the HealthPlan Services transaction. On October 1, 2003, we finalized discussions with no additional liability for purchase price adjustments. Additionally, we agreed
upon payment terms for $1.7 million of other items that are included in accrued liabilities in the accompanying condensed consolidated balance sheets as of September 30, 2003 and December 31, 2002.



7. ProxyMed Agreement



On June 10, 2003, we entered into a three year joint marketing agreement with ProxyMed, Inc. Pursuant to the agreement, our
network repricing services and network management services will be offered to ProxyMeds existing and prospective payer customers. Upon execution of this agreement, we paid ProxyMed $200,000 for access to certain data. In addition, we are
paying ProxyMed $150,000 to be ProxyMeds exclusive partner during the first 12 months of this arrangement. We also issued to ProxyMed a warrant to acquire 15.0% of our outstanding common stock, calculated on a fully-diluted basis as of the
time of exercise, at an exercise price of $1.95 per share. The warrant has an initial term of six months with two three-month renewal options based on achieving certain revenue-based milestones, as defined in the agreement. The fair value of the
warrant of $496,000 on the date the warrant was granted was determined by an independent consultant using the Black-Scholes pricing model and using the same assumptions as for stock options as described in Note 4. Because revenue from this agreement
is not assured, total consideration of $846,000 was recorded as an expense during the quarter ended June 30, 2003.



8. Litigation



In the ordinary course of business, we are a party to a variety of legal actions. In addition, we entered into indemnification obligations related to
certain of the businesses we sold during 2001 and 2000, and we could be subject to a variety of legal and other actions related to such indemnification obligations. We currently have insurance coverage for some of these potential liabilities. Other
potential liabilities may not be covered by insurance, insurers may dispute coverage, or the amount of insurance may not cover the damages awarded. While the ultimate financial effect of these claims and indemnification agreements cannot be fully
determined at this time, in the opinion of management, they will not have a material adverse effect on our financial condition, results of operations, or cash flows.



In November 2001, Paid Prescriptions, LLC initiated a breach of contract action in the United States District Court for the
District of New Jersey against HealthPlan Services, our former subsidiary. Paid Prescriptions LLC was seeking $1.6 million to $2.0 million in compensation arising from HealthPlan Services alleged failure to meet certain performance goals under
a contract requiring HealthPlan Services to enroll a certain number of customers for Paid Prescriptions LLCs services. Because the events giving rise to this claim allegedly occurred prior to our sale of the HealthPlan Services business, we
defended the action on behalf of HealthPlan Services, in accordance with our indemnification obligations to its buyer. In October 2003, we settled this litigation by paying $850,000 to Paid Prescriptions, LLC. This settlement had previously been
accrued for, and thus will not have a material adverse effect on our consolidated statement of operations.



9. Other Income



As of
March 27, 2002, we retired a $2.5 million subordinated note payable, which had arisen in connection with the operations of a former subsidiary, by issuing 274,369 shares of our common stock based on the closing price of our common stock one day
immediately prior to the retirement date of the note and by issuing a credit for $950,000 payable with in-kind claims repricing services. We have agreed to register these shares upon demand. On



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September 30, 2003, we settled the obligation to provide $950,000 of in-kind services with a cash payment of $300,000. The difference of $650,000 is included
in other income on the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2003.



10. Recent Accounting Pronouncements



On January 1, 2003, we adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal operations of a long-lived asset. The adoption of SFAS No. 143 did not have a
significant effect on our financial position, results of operations or liquidity.



On January 1, 2003, we adopted the provisions of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146
requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred, rather than the date of our commitment to an exit plan. The adoption of SFAS No. 146 did not impact us.



In November 2002, Financial Interpretation (FIN) No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others (an interpretation of SFAS No. 5, 57 and 107 and rescission of SFAS Interpretation No. 34), which modifies the
accounting and enhances the disclosure of certain types of guarantees, was issued. FIN No. 45 requires that upon issuance of certain guarantees, the guarantor must recognize a liability for the fair value of the obligation it assumes under the
guarantee. We adopted the disclosure requirements of FIN No. 45 as of December 31, 2002. On January 1, 2003, we adopted the initial recognition and measurement provisions, which are effective on a prospective basis for guarantees issued or modified
after December 31, 2002. The adoption of FIN No. 45 did not have an impact on us.



On January 17, 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which imposes a new approach in determining if a reporting entity should
consolidate certain legal entities, including partnerships, limited liability companies, or trusts, among others, collectively defined as variable interest entities or VIEs. Certain transition disclosures are required for all financial statements
issued after January 31, 2003. The provisions of FIN No. 46 applicable to variable interest entities in which an enterprise holds available interest that it acquired before February 1, 2003 are effective for all interim and annual periods ending
after December 15, 2003 pursuant to FASB Staff Position No. FIN 46-6. We do not believe FIN No. 46 will have an impact on us.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Investments with Characteristics of Both Liabilities and Equity,
which establishes standards for how companies classify and measure certain financial instruments with characteristics of both liability and equity. Specifically, SFAS No. 150 provides guidance as to which items should be classified as liabilities
that were previously reported as equity or as a mezzanine item reported between liabilities and equity. SFAS No. 150 is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 requires us to
report the common stock with make-whole provision as a liability on the condensed consolidated balance sheet as of September 30, 2003.



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Item 2.Managements Discussion And Analysis Of Financial Condition And Results Of Operations



Introduction



The following is a discussion of our unaudited results of operations for the three and nine months ended September 30, 2003 compared to the same periods
in 2002.



We provide medical cost containment and business
process outsourcing solutions for the medical insurance and managed care industries. Specifically, we provide integrated national PPO network access, electronic claims repricing, and network and data management business process outsourcing services
to health care payers, such as self-insured employers, medical insurance carriers, third party administrators, health maintenance organizations, and other entities that pay claims on behalf of health plans. We also provide network and data
management business process outsourcing services for health care providers, including individual providers, PPOs, and other provider groups.



We earn most of our operating revenue in the form of fees generated from the discounts we provide for the payers that access our National Preferred
Provider Network (sometimes referred to as our NPPN network). We generally enter into agreements with our healthcare payer customers under which they pay to us a percentage of the cost savings generated from our NPPN network discounts with PPOs and
providers. We generally recognize this operating revenue when claims processing and administrative services have been performed. Operating revenue from certain customers with certain contractual rights is not recognized until the corresponding cash
is collected. A portion of our operating revenue is generated from customers that pay us a monthly fee based on eligible employees enrolled in a benefit plan covered by our health benefits payers customers. We recognize our monthly fee revenue at
the time the services are provided. Operating revenue related to our business process outsourcing services is earned on a per claim basis at the time the associated services are provided.



Our expenses generally consist of network access fees incurred to provide access to participating PPO networks for our
customers, compensation and benefits costs for our employees, occupancy and related costs, general and administrative expenses associated with operating our business, taxes, and debt service obligations.



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RESULTS OF OPERATIONS



The following is a presentation of our unaudited condensed consolidated results of operations for the three and nine months ended September 30, 2003,
compared to the same periods in 2002:



|                                                   |  | Three MonthsEnded September 30, |    |  | Nine MonthsEnded September 30, |   
|-------------------------------------------------- |  | ------------------------------- | -- |  | ------------------------------ | --
|                                                   |  | 2003                            |    |  | 2002                           |   
|Operating revenue                                  |  | 100.0                           | %  |  | 100.0                          | % 
|                                                   |  |                                 |    |  |                                |   
|Cost of operating revenue:                         |  |                                 |    |  |                                |   
|Personnel expenses                                 |  | 25.9                            | %  |  | 26.4                           | % 
|Network access fees                                |  | 20.6                            | %  |  | 15.6                           | % 
|Other                                              |  | 21.0                            | %  |  | 17.9                           | % 
|Depreciation                                       |  | 1.9                             | %  |  | 1.6                            | % 
|Costs related to ProxyMed agreement                |  |                                |    |  |                               |   
|                                                   |  |                                 |    |  |                                |   
|Total cost of operating revenue                    |  | 69.4                            | %  |  | 61.5                           | % 
|                                                   |  |                                 |    | 
|Bad debt expense                                   |  | 4.6                             | %  |  | 9.7                            | % 
|Other income                                       |  | (8.1                            | )% |  |                               |   
|Interest expense, net                              |  | 8.1                             | %  |  | 10.3                           | % 
|                                                   |  |                                 |    |  |                                |   
|Total expenses and other income                    |  | 74.0                            | %  |  | 81.5                           | % 
|                                                   |  |                                 |    |  |                                |   
|Income before provision (benefit) for income taxes |  | 26.0                            | %  |  | 18.5                           | % 
|Provision (benefit) for income taxes               |  | 7.0                             | %  |  | (4.1                           | )%
|                                                   |  |                                 |    |  |                                |   
|Net income                                         |  | 19.0                            | %  |  | 22.6                           | % 
|                                                   |  |                                 |    |  |                                |   



Three Months Ended September 30,
2003 Compared to Three Months Ended September 30, 2002



Operating Revenue



Operating revenue for the
three months ended September 30, 2003 decreased $0.3 million, or 3.7%, to $8.0 million from $8.3 million during the same period in 2002. During the three months ended September 30, 2003, we added 13 new payer accounts and generated operating revenue
from those customers totaling $0.5 million. The increase in operating revenue from this new business was offset by a decrease in operating revenue due to the departure of customers that are no longer in business, decreased utilization by some
customers, and a lower percentage of high-dollar claims. Claims volume increased by approximately 46,000, or 5.2%, to 929,000 claims processed during the three months ended September 30, 2003 compared to 883,000 claims processed in the same period
in 2002.



Personnel Expenses



Personnel expenses for the three months ended September 30, 2003 decreased
$0.1 million, or 5.5%, to $2.1 million from $2.2 million during the same period in 2002. Personnel expenses as a percentage of operating revenues decreased to 25.9% in 2003 compared to 26.4% in 2002. We benefited from the cost reduction strategies
implemented during the second quarter of 2003, and we recorded lower bonus expense for the three months ended September 30, 2003 compared to the same period in 2002, due to a lower estimate of such costs for the year ending December 31, 2003. We
also continued to benefit from efficiencies in our claim repricing operations through increased use of our technology, which allowed us to increase the number of claims processed per person in the third quarter of 2003 compared to the same period in
2002.



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Network Access Fees



Network access fees increased by $0.4 million during the three months ended September 30, 2003 to $1.7 million compared to
$1.3 million during the same period in 2002. Network access fees as a percentage of operating revenue were 20.6% in the third quarter of 2003 compared to 15.6% for the same period in 2002. Network access fees are amounts charged by our network and
other cost containment partners for access to their provider networks. The increase in network access fees as a percentage of operating revenue was due to a greater portion of our operating revenue being derived from bill negotiation services, which
is contracted at a higher fee.



Other Costs of Operating
Revenue



Other costs of operating revenue of $1.7 million
for the three months ended September 30, 2003 was comparable to $1.5 million during the same period in 2002. Other costs of operating revenue primarily consist of marketing costs, occupancy and related costs, professional services, and other
administrative costs.



Depreciation



Depreciation of $0.2 million for the three months ended September 30, 2003
was comparable to the same period in 2002.



Bad Debt Expense



Bad debt expense for the three months ended September 30,
2003 decreased $0.4 million, or 54.4%, to $0.4 million from $0.8 million in 2002. Bad debt expense is recorded based on our estimate of uncollectible accounts receivable.



Other Income



On September 30, 2003, we negotiated a settlement for an obligation to provide in-kind claims repricing services. Due to the settlement, we recorded
$650,000 of other income during the three months ended September 30, 2003.



Interest Expense, Net



Interest expense for the three months ended September 30, 2003 decreased to $0.6 million from $0.9 million during the same period in 2002. This reduction is due primarily to the lowering of our outstanding bank debt by $29.0 million upon
the bank restructuring on April 12, 2002, the lowering of the interest rate on such debt from prime plus 6.0% to prime plus 1.0 %, and the repayment of $1.7 million of such debt since September 2002.



Income Taxes



The provision for income taxes for the three months ended September 30, 2003
was $0.6 million compared to a benefit for income taxes of $(0.3) million for the same period in 2002. The provision and benefit were calculated using an effective tax rate that was determined based upon our estimate of our taxable income for the
years ended December 31, 2003 and 2002.



Nine Months Ended September 30,
2003 Compared to Nine Months Ended September 30, 2002



Operating Revenue



Operating revenue for the
nine months ended September 30, 2003 decreased $0.8 million, or 3.2%, to $23.9 million from $24.7 million during the same period in 2002. During the first nine months of 2003, we added 38 new payer accounts and generated operating revenue from those
customers totaling $2.6 million. The increase in operating revenue from this new business was offset by a decrease in operating revenue due to the departure of customers that are no longer in business, decreased utilization by some customers, and a
lower percentage of high-dollar claims. Claims volume increased by approximately 92,000, or 3.4%, to 2,792,000 claims processed during the nine months ended September 30, 2003 compared to 2,700,000 claims processed in the same period in 2002.



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Personnel Expenses



Personnel expenses for the nine months ended September 30, 2003 and 2002 were $6.6 million. Personnel expenses as a
percentage of revenues increased slightly to 27.4% for the nine months ended September 30, 2003 compared to the same period in 2002. Included in personnel expenses for the nine months ended September 30, 2003 is $130,000 related to various severance
agreements. Bonus expense during the nine months ended September 30, 2003 was lower than the same period in 2002 due to lower estimate of such costs for the year ending December 31, 2003. Additionally, we continue to benefit from efficiencies in our
claim repricing operations through increased use of our technology, which allowed us to increase the number of claims processed per person during the nine months ended September 30, 2003 compared to the same period in 2002.



Network Access Fees



Network access fees for the nine months ended September 30, 2003 increased
$0.6 million, or 14.0%, to $4.6 million from $4.0 million in 2002. Network access fees as a percentage of operating revenue were 19.1% in 2003 compared to 16.2% in 2002. Network access fees relate to amounts charged by our network and cost
containment partners for access to their provider network. The increase in network access fees of $0.6 million was due to a greater portion of our operating revenue being derived from bill negotiation services, which is contracted at a higher fee.



Other Costs of Operating Revenue



Other costs of operating revenue for the nine months ended September 30,
2003 decreased $0.2 million, or 3.7%, to $4.2 million from $4.4 million in 2002. Other costs of operating revenue primarily consists of marketing costs, occupancy and related costs, professional services, and other administrative costs. This
decrease was partially the result of settlements of outstanding balances with certain of our vendors during the three months ended March 31, 2003, resulting in $0.2 million in savings, as well as from lower professional fees related to the
completion of a number of outstanding legal matters pertaining to our divested subsidiaries.



Depreciation



Depreciation of $0.4 million for the nine months ended September 30, 2003 was comparable to the same period in 2002.



Costs Related to ProxyMed Agreement



In June 2003, we signed a three-year joint marketing agreement with ProxyMed, pursuant to which ProxyMed has agreed to work with us to market our products
to ProxyMeds existing and prospective customers. As part of the agreement, we expensed $0.8 million, consisting of expenses related to data services ($0.2 million), exclusivity ($0.1 million) and the issuance of a warrant giving ProxyMed the
ability to purchase 15.0% of our outstanding common stock on a fully diluted basis ($0.5 million). The fair value of the warrant was determined by an independent consultant using the Black-Scholes pricing model.



Bad Debt Expense



Bad debt expense for the nine months ended September 30, 2003 decreased $0.7
million, or 36.3%, to $1.3 million from $2.0 million during the same period in 2002. Bad debt expense is recorded based on our estimate of uncollectible accounts receivable.



Other Income



On September 30, 2003, we negotiated a settlement for an obligation to provide in-kind claims repricing services. Due to this settlement, we recorded
$650,000 of other income during the nine months ended September 30, 2003.



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Interest Expense, Net



Interest expense for the nine months ended September 30, 2003 decreased to $2.0 million from $4.6 million during the same
period in 2002. This reduction is due primarily to the lowering of our outstanding bank debt by $29.0 million upon the bank restructuring on April 12, 2002, the lowering of the interest rate on such debt from prime plus 6.0% to prime plus 1.0 %, and
the repayment of $1.7 million of such debt in the three months ended September 30, 2003.



Income Taxes



The
provision for income taxes for the nine months ended September 30, 2003 was $1.2 million. This provision was based on an effective tax rate that was determined based upon our estimate of our taxable income for the year ending December 31, 2003. The
benefit for income taxes for the nine months ended September 30, 2002 was $1.0 million. This benefit was based on an effective tax rate that was determined based upon our estimate of our taxable income for the year ended December 31, 2002.



LIQUIDITY AND CAPITAL RESOURCES



Liquidity is our ability to generate adequate amounts of cash to meet our
financial commitments. Our primary source of cash is fee revenue generated from the healthcare provider discounts that we make available to our customers. Our uses of cash consist of payments to PPOs to provide access to their networks for our
customers, payments for compensation and benefits for our employees, occupancy and related costs, general and administrative expenses associated with operating our business, debt service obligations, and taxes.



We had cash and cash equivalents totaling $3.0 million at September 30, 2003
and $1.2 million at December 31, 2002. Net cash provided by operating activities was $3.8 million and $0.7 million during the nine months ended September 30, 2003 and 2002, respectively. This increase in cash provided by operating activities in 2003
is due primarily to improved accounts receivable collections partially offset by decreases in our accounts payable and accrued expenses.



Restructured Credit Facility



On April 12, 2002, we closed a transaction to restructure and refinance our senior bank debt, which was $69.0 million prior to the closing. Under the
terms of the restructured agreement, we entered into a $40.0 million term loan that accrues interest at a variable rate, generally prime plus 1.0%, with interest payments due monthly. Quarterly principal payments of $50,000 became due beginning
September 30, 2002, and because the term loan is payable in full on May 31, 2004, it is classified as a current liability on our balance sheet as of September 30, 2003. The term loan is collateralized by all of our assets.



In exchange for retirement of the remaining amounts due to the senior
lenders, we issued 29,000 shares of our newly authorized Series C convertible preferred stock and an additional promissory note in the amount of $184,872, which was fully paid as of June 30, 2003. The Series C convertible preferred stock accrued
dividends at 10.0% per annum during the first twelve months from issuance and is currently fixed at 12.0% per annum. Dividends are payable quarterly in additional shares of Series C convertible preferred stock or, at our option, in cash. As of
September 30, 2003, we have chosen to pay dividends in the form of additional shares, and we have issued to the Series C stockholders an aggregate of 3,659 additional shares of Series C convertible preferred stock. The restructured credit agreement
contains certain financial covenants, including minimum monthly EBITDA levels, as defined in the agreement, maximum quarterly and annual capital expenditures, a minimum quarterly fixed charge ratio that is based primarily on our operating cash
flows, and maximum quarterly and annual extraordinary expenses, as defined in the agreement. The required minimum EBITDA level beginning August 2003 is $1.0 million per month. While we are in compliance with the financial covenants as of September
30, 2003, there is no assurance that we will remain in compliance in future periods. If we are not in compliance, the senior lenders could demand repayment of our obligations. In such event, there can be no assurance that we will be able to repay
the indebtedness, or refinance such indebtedness on terms that are acceptable to us.



Our indebtedness comes due in May 2004. We are currently pursuing alternatives to refinance this indebtedness and/or raise additional equity capital to pay off or pay down this indebtedness. There can be no assurance
that we will be able to repay the indebtedness or refinance such indebtedness on terms that are acceptable to us. Should we be successful in these endeavors, there could be substantial dilution to the common stockholders. We are currently pursuing
alternatives to refinance this indebtedness and/or raise additional equity capital to pay off or pay down this indebtedness. Should we be successful in these endeavors, there could be substantial dilution to the common stockholders.



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If we are unable to generate sufficient cash flows from operations to pay our financial obligations and
meet our debt covenants, as required by our restructured credit facility, or if we are unable to repay or refinance our restructured credit facility in full in May 2004, there may be a material adverse effect on our business, financial condition,
and results of operations.



PVC Funding Partners Transaction



On March 7, 2003, PVC Funding Partners LLC, an affiliate
of Commonwealth Associates, LP and Comvest Venture Partners, acquired from our senior lenders 29,851 shares, or 96.0%, of our outstanding Series C convertible preferred stock. The Series C convertible preferred stock was purchased from the senior
lenders on a prorata basis at a price of $33.50 per share. The original senior lenders continue to hold the remaining 4.0% of the Series C convertible preferred stock. In connection with the transaction, PVC Funding Partners also acquired $20.5
million in principal amount of our outstanding bank debt from our original senior lenders. In connection with the closing of the transaction, the three Class B members of our Board of Directors designated by the original holders of the Series C
convertible preferred stock voluntarily relinquished their board positions and were replaced by three Class B directors selected by PVC Funding Partners LLC.



There is an intercreditor agreement between PVC Funding Partners and the original senior lenders which provides that, until the occurrence of a Board
Shift Event, PVC Funding Partners has all of the rights of the original senior lenders under the restructured credit agreements, except that (1) PVC Funding Partners rights to mandatory prepayments and other principal payments prior to the
maturity date are subordinated to the original senior lenders rights to those payments, and (2) PVC Funding Partners notes will be voted consistently with and on the same percentage basis as the original senior lenders with respect to
all matters required to be submitted to a vote or consent of the original senior lenders, except for matters related to certain fundamental changes in the loan terms. On October 12, 2003, we did not redeem any of the Series C stock, triggering a
Board Shift Event. Consequently, PVC Funding Partners informed the senior lenders that they were exercising their option to control the Board of Directors by assuming the right to elect four of the seven members of the Board. PVC Funding Partners
designated one of the existing directors previously elected by the common stockholders as the fourth Series C director. Upon the change in control of our Board of Directors, the debt held by PVC Funding Partners became subordinated to the debt held
by the original senior lenders.



Centra Convertible Notes



As of December 31, 2001, we were in default with respect
to interest payments due under notes payable to CENTRA Benefits, Inc. (Centra), originally issued in connection with our 1998 acquisition of a third party administration business from Centra. These notes have been restructured twice
since December 31, 2001. Most recently, effective March 31, 2003, we extended the maturity date of the notes, which are in the amount of $4.3 million, to April 1, 2006, reduced the interest rate to 6.0% per annum, and fixed the conversion price
under which the notes can be converted to common stock at $1.00. We also issued a new convertible note equal to the accrued and unpaid interest owed to Centra in the amount of approximately $500,000. This note has the same terms and conditions as
the restructured notes. Immediately upon completion of this restructuring, PVC Funding Partners acquired slightly more than 50.0% of the face value of the notes, including the new note, from Centra. The remaining portion is still held by Centra.



Other Obligations



In connection with a 1993 acquisition by our former subsidiary, HealthPlan
Services, Inc., we assumed a note payable. As of September 30, 2003, the outstanding principal balance of the note was approximately $695,000, and semi-annual payments on this note are due through November 1, 2008. This note is collateralized by a
letter of credit.



On September 30, 2003, we settled an
obligation to provide $950,000 of in-kind services with a cash payment of $300,000. The difference of $650,000 is included in operating income in the accompanying condensed consolidated statements of operations for the three and nine months ended
September 30, 2003.



On April 12, 2002, in connection with the
restructuring of our credit facility, the maturity date of notes totaling $500,000 was extended to December 1, 2004. The notes are due to a member of our Board of Directors and an individual who was a member of our Board of Directors at the time
that the notes were issued and at the time of the April 2002 restructuring. These notes bear interest at prime plus 4.0% per annum, but payment of interest is subordinated and deferred until all senior obligations are paid.



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Since the sale of HealthPlan Services in June 2001, we had been in discussions with the buyer to finalize
purchase price adjustments associated with the HealthPlan Services transaction. On October 1, 2003, we finalized our discussions with the buyer with no additional liability for purchase price adjustments. Additionally, we agreed upon payment terms
for $1.7 million of other items that are included in accrued liabilities in the accompanying condensed consolidated balance sheets as of September 30, 2003 and December 31, 2002.



Capital Expenditures



We spent $0.4 million on capital expenditures during the nine months ended September 30, 2003. Obligations for future capital expenditures are not
significant and are restricted to $1.5 million annually under our credit facility.



Except for the maturity of our term loan, which becomes due on May 31, 2004, we believe that all consolidated operating and financing obligations for the next twelve months will be met from cash flows from operations
and available cash. Although there can be no assurances, management believes based on available information, we will be able to maintain compliance with the terms of our restructured credit facility, including the financial covenants, until it
becomes due on May 31, 2004. Our ability to fund our operations, make scheduled payments of interest and principal on our indebtedness, and maintain compliance with the terms of our restructured credit facility, including our financial covenants,
depends on our future performance, which is subject to economic, financial, competitive, and other factors beyond our control. If we are unable to generate sufficient cash flows from operations to pay our financial obligations and meet the debt
covenants as required under the restructured credit facility, or we are unable to repay our restructured credit facility in full on May 31, 2004, there may be a material adverse effect on our business, financial condition, and results of operations.
Management is continuing to explore alternatives, including the sale of equity securities, to refinance our debt, reduce our obligations, recapitalize our company, and provide additional liquidity. There can be no assurances that we will be
successful in these endeavors. Should we be successful in these endeavors, there could be substantial dilution to our common stockholders.



Inflation



We do not believe that inflation had a material effect on our results of operations for the three or nine months ended September 30, 2003 and 2002. There
can be no assurance, however, that our business will not be affected by inflation in the future.



Recent Accounting Pronouncements



On January 1, 2003, we adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development or normal operations of a long-lived asset. The adoption of SFAS No. 143 did not have a
significant effect on our financial position, results of operations or liquidity.



On January 1, 2003, we adopted the provisions of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146
requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred, rather than the date of our commitment to an exit plan. The adoption of SFAS No. 146 did not impact us.



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In November 2002, Financial Interpretation (FIN) No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others (an interpretation of SFAS No. 5, 57 and 107 and rescission of SFAS Interpretation No. 34), which modifies the accounting and enhances the disclosure of
certain types of guarantees, was issued. FIN No. 45 requires that upon issuance of certain guarantees, the guarantor must recognize a liability for the fair value of the obligation it assumes under the guarantee. We adopted the disclosure
requirements of FIN No. 45 as of December 31, 2002. On January 1, 2003, we adopted the initial recognition and measurement provisions, which are effective on a prospective basis for guarantees issued or modified after December 31, 2002. The adoption
of FIN No. 45 did not have an impact on us.



On January 17,
2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which imposes a new approach in determining if a reporting entity should consolidate certain legal entities, including
partnerships, limited liability companies, or trusts, among others, collectively defined as variable interest entities or VIEs. Certain transition disclosures are required for all financial statements issued after January 31, 2003. The provisions of
FIN No. 46 applicable to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003 are effective for all interim and annual periods ending after December 15, 2003 pursuant to FASB Staff
Position No. FIN 46-6. We do not believe FIN No. 46 will have an impact on us.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity, which establishes standards for how companies classify and
measure certain financial instruments with characteristics of both liability and equity. Specifically, SFAS No. 150 provides guidance as to which items should be classified as liabilities that were previously reported as equity or as a mezzanine
item reported between liabilities and equity. SFAS No. 150 is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 requires us to report the common stock with make-whole provision as a
liability on the condensed consolidated balance sheet as of September 30, 2003.



Item 3.Quantitative and Qualitative Disclosures About Market Risk



We are exposed to certain market risks inherent in our financial instruments. These instruments arise from transactions entered into in the normal course
of business. We are subject to interest rate risk on our existing agreements. Our fixed rate debt consists primarily of outstanding balances on our notes issued to Cal Group, Inc., the former owner of CENTRA HealthPlan LLC. Our variable rate debt
relates to borrowings under our Term Loan Agreement effective April 12, 2002 and notes issued to certain members of our Board of Directors. See Liquidity and Capital Resources.



At September 30, 2003, the following unaudited table presents the future
minimum operating lease obligations and the future principal payment obligations, and the weighted-average interest rates associated with our long-term debt instruments for the periods ended December 31 (in thousands). These amounts reflect our
restructured debt arrangements:



|                                                                               |  | 2003 |     | 2004 |   | 2005   |  | 2006 |     | 2007 |   | Thereafter
|------------------------------------------------------------------------------ |  | ---- | --- | ---- | - | ------ |  | ---- | --- | ---- | - | ----------
|Operating leases                                                               |  | $    | 177 |      | $ | 505    |  | $    | 101 |      | $ | 56        
|Long-term debt fixed rate (interest rates ranging from 5.75% to 6.0%)          |  | $    | 123 |      | $ | 564    |  | $    | 132 |      | $ | 4,928     
|Long-term debt variable rate (interest at prime plus 1.0% and prime plus 4.0%) |  | $    | 50  |      | $ | 38,389 |  | $    |    |      | $ |          



Our primary market
risk exposure relates to (i) the interest rate risk on long-term and short-term borrowings, (ii) the impact of interest rate movements on our ability to meet interest expense requirements and exceed financial covenants, and (iii) the impact of
interest rate movements on our ability to obtain adequate financing to fund future acquisitions.



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A 1.0% increase in interest rates due to increased rates would result in additional annual interest
expense of approximately $0.4 million.



While we cannot predict
our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, our management continues to evaluate our financial position on an ongoing basis.



Item 4.Controls and Procedures



Based on their most recent review, as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are
effective in ensuring that information required to be disclosed in reports we file under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified by rules and forms
promulgated under that Act.



Forward Looking Information



The statements contained in this report include forward-looking statements
related to us that involve risks and uncertainties, including but not limited to our ability to expand our client base; the success of our new products and services; our ability to maintain our current preferred provider organization network
arrangements; our ability to manage costs; our ability to comply with the financial covenants of our restructured debt agreements; changes in law; risks of material adverse outcomes in litigation; fluctuations in business conditions and the economy;
our ability to attract and retain key management personnel; changes in accounting and reporting practices; our ability to reduce and restructure debt; and our ability to obtain additional debt or equity financing on terms favorable to us to
facilitate our long-term growth. These forward-looking statements are made in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.



The factors above should not be construed as exhaustive. Prospective investors are cautioned that forward-looking statements
are not guarantees of future performance. Except as required to comply with applicable law, we undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or
circumstances after the date of this report or to reflect the occurrence of unanticipated events.



Available Information



Our website address is www.planvista.com. We make available free of charge on or through our Internet website our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such material was electronically filed with, or furnished to, the SEC. We make this information available via a hyperlink to a
third partys SEC filings website. We do not maintain or provide information directly to this site. Although the third party that maintains the website has endeavored to make our SEC filings available as soon as reasonably practicable after we
file them electronically with the SEC, we make no representations or warranties with respect to the timeliness or content of any postings on the website.



PART II - OTHER INFORMATION



Item 1.Legal Proceedings



In November 2001, Paid Prescriptions, LLC initiated a breach of contract action in the United States District Court for the District of New Jersey against HealthPlan Services, our former subsidiary. Paid Prescriptions LLC was seeking $1.6
million to $2.0 million in compensation arising from HealthPlan Services alleged failure to meet certain performance goals under a contract requiring HealthPlan Services to enroll a certain number of customers for Paid Prescriptions LLCs
services. Because the events giving rise to this claim allegedly occurred prior to our sale of the HealthPlan Services business, we defended the action on behalf of HealthPlan Services, in accordance with our indemnification obligations to its
buyer. In October 2003, we settled this litigation by paying $850,000 to Paid Prescriptions, LLC. This settlement had previously been accrued for, and thus will not have a material adverse effect on our consolidated statement of operations. See the
Report on Form 10-Q for the quarter ended March 31, 2003 for information about the resolution of other legal proceedings.



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Item 2.Changes in Securities and Use of Proceeds



On July 9, 2003, we issued 849 shares of our Series C convertible preferred stock pro rata to our senior lenders and to PVC Funding in a private
transaction pursuant to Section 4(2) of the Securities Act of 1933. These shares represented payment of $725,000 in dividends, payable in kind in shares of our Series C convertible preferred stock, pursuant to the terms of the certificate of
designation of our Series C convertible preferred stock.



On
July 10, 2003, we issued 36,781 shares of our common stock to Centra and PVC Funding in lieu of $70,107 of cash interest payments on their notes. The number of common stock issued was determined based upon the average trading price of our common
stock during the quarter ended June 30, 2003.



On August 6,
2003, we issued 143,553 shares of our common stock to Commonwealth Associates Group Holdings, LLC (Commonwealth) and their affiliates in connection with $143,553 of services provided under our advisory agreement relating to the Centra
debt restructuring. The number of shares issued to Commonwealth was based on a value of $1.00 per share as determined in our advisory agreement.



Item 6.Exhibits and Reports On Form 8-K



|(a) | See Exhibit List.
|--- | -----------------



|(b) | Reports on Form 8-K.
|--- | --------------------



On August 12, 2003, we filed a report on Form 8-K with respect to our second quarter earnings press release.



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PLANVISTA CORPORATION



SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



|                        |  | PLANVISTA CORPORATION                                         
|----------------------- |  | --------------------------------------------------------------
|                        | 
|Date: November 19, 2003 |  | /s/ Phillip S. Dingle                                         
|                        |  | Chairman and Chief Executive Officer                          
|                        |  | (Principal Executive Officer)                                 
|                        | 
|Date: November 19, 2003 |  | /s/ Bennett Marks                                             
|                        |  | Executive Vice President and Chief Financial Officer          
|                        |  | (Principal Financial Officer and Principal Accounting Officer)



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EXHIBIT INDEX



|
|

|Exhibit Number |  | Description of Exhibits                                                                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               | 
|10.6.1         |  | Plan Vista Corporation Incentive and Retention Program and Annual Incentive Bonuses, summary description.                                                                                                 
|               | 
|10.7.1         |  | Amendment to Employment and Noncompetition Agreement by and between PlanVista Corporation and Phillip S. Dingle, dated May 22, 2003.                                                                      
|               | 
|10.8.1         |  | Amendment to Employment and Noncompetition Agreement by and between PlanVista Corporation and Jeffrey L. Markle, dated May 22, 2003.                                                                      
|               | 
|10.8.2         |  | Employment and Noncompetition Agreement by and between PlanVista Corporation and Bennett Marks, dated June 10, 2003.                                                                                      
|               | 
|10.19          |  | Second Amended and Restated Convertible Promissory Note in the principal amount of $255,042.46 payable to Centra Benefit Services, Inc., dated April 18, 2003.                                            
|               | 
|10.20          |  | Second Amended and Restated Convertible Promissory Note in the principal amount of $242,542.47 payable to PVC Funding Partners LLC, dated April 18, 2003.                                                 
|               | 
|10.21          |  | Letter agreement between PlanVista Corporation and Health Plan Services, Inc./Health Plan Holdings, Inc. dated October 1, 2003 re Settlement of Final Working Capital Adjustment
and certain other claims.
|               | 
|11.1           |  | Statement of computation of per share earnings: not required because the relevant computation can be clearly determined from the material contained in the financial statements
included herein.          
|               | 
|31.1           |  | Written statement of the Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                       
|               | 
|31.2           |  | Written statement of the Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                       
|               | 
|32.1           |  | Rule 13a-14(a) Certification.                                                                                                                                                                             



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