Proxymed (PILL) Update

I finally got a chance this weekend to review Proxymed´s latest financials.

What is of course interesting is that despite the company´s huge writeoff during the last quarter, Proxymed (PILL) still generated cash during the quarter. This can been seen from the fact that the company ended the quarter with $6.8 million in cash vs $5 million in cash last quarter. So despite the fact that company is posting accounting losses, it remains cash-flow positive.

But does this make me bullish? Not yet. I still think the company has a precarious liquidity position. Its revenue base is still not stabilized and it is sitting on about $25 million in debt (almost half in convertible debt). So even netting out the current cash, means the company is still in the whole for about $20 million.

Even more important is the following quote from the company´s recent 10Q:

As of September 30, 2005, our principal source of liquidity is our cash and revolving credit facility. Based on our current projections, we may be required to use a portion of this $5.0 million minimum balance as a source of cash. We are currently negotiating with third party financing companies in order to replace the current senior debt facility. There is no assurance that these negotiations will result in terms that are favorable to us or on terms that are better than our current senior debt facility.

What this implies is that Proxymend (PILL) will definately pursue some type of financing in the near future to shore up the balance sheet. I suspect some sort of preferred financing is in the works. These financings can simply destroy small shareholders. So, my recommendation is still the same: Stay away from the stock until the financing is complete and the financial situation is a bit clearer. I still think there is money to be made in this stock, but the timing is crucial and the time is not yet right to make a gamble here.