Praxsyn Corp (PXYN)

[sensible]

Your “analysis” of PXYN’s 10-Q and its revenue recognition policies are at best, misguided.

Past may very well be prologue and PXYN may be saddled with a discount to Gross Revenues in regards to its PPO business, but this will most probably not be known until the Q1 10-Q as it is my understanding that this business line started in January of 2015 and will therefore not be reported on their Form 10-K.

PXYN’s press release regarding February Gross Revenues of $4,000,000 is not misleading, at least not in the way you read it.

The following simple primer on the claims adjudication process will help those unfamiliar with it:

Adjudication

Now, back to your “analysis.” The historical Revenue Recognition Discount of roughly 53% applies to the Gross Revenues generated by the Workers Compensation (“WC”) business. This is because, historically, PXYN collected approximately 47% of the amount billed from the employers it billed (or, more likely, their insurers). There is a reason for this. WC is an adversarial process. Workers see a doctor, employers are billed, employers may dispute the injury or the treatment, a lien hearing may enter the picture, and an administrative law judge may reject or reduce the claim. The entire process can drag on for years. This is why PXYN must finance their WC receivables at 20% of face. If I, as a lender, am only going to collect 47%, then I’m only advancing you half that or less. I don’t have time to go back over PXYN’s 10-Q right now, but I remember that they get more money if the claims collect well, but that probably won’t happen for another year on claims submitted last March, if at all.

PPO is entirely different. A patient sees his/her regular physician, the doctor calls, faxes or otherwise delivers the prescription to PXYN, NHS, their billing company submits it to the PPO and the PPO rejects the claim, approves it at the full billed amount or approves it at a discounted amount and must state the reasons why if it rejects the claim or approves a lesser amount. The amount paid, per the primer is the “Approved Amount,” or as PXYN worded it, “final committed amounts in excess of $4 million for approved preferred provider organization (PPO) claims.”

What this means, for the slow, is that what PXYN and NHS have submitted to PPO’s for payment, and what they have agreed to pay, is in excess of $4,000,000. This is Gross Revenues of $4,000,000.

The following is helpful for readers without an agenda:

Revenues

Where their wording fails is in the quote provided by Ed Kurtz. He states, "The benefit of PPO is that every claim is approved at the billed amount and at the point of service.” It should read, "The benefit of PPO is that every claim is approved or rejected at the point of service and every approved claim is paid at the approved amount within 60-90 days.” Hopefully PXYN will clarify this in a correction.

If the auditor were to apply the historical 53% discount to these sales, then the top of their income statement would look like this:

Gross Revenues (shown in notes, not in statement): $4,000,000
Net Revenues (Actual top line): $1,880,000
Cost of Sales (Estimate based on previous 10-Q): $ 261,687
Gross Profit: $1,618,313

Operating Expenses:
Selling and marketing - non stock-based: $2,200,000
Income (loss) ($ 581,687)

However, this is insane. Auditors don’t apply two-year collection discounts to amounts approved and paid in ninety days or less. They apply them when history shows that the claims don’t get paid at face. The auditor will know exactly what claims were paid and apply these performance criteria to determine a discount, if any. PXYN’s PR states clearly that they are self-funding these sales. That means they will most likely not take a discount, or if they do, it won’t be anywhere near 55%.

This is the more likely scenario is as follows:

Net Revenues (Actual top line): $4,000,000
Cost of Sales (Estimate based on previous 10-Q): $ 452,487
Gross Profit: $3,547,513

Operating Expenses:
Selling and marketing - non stock-based: $2,200,000
Income (loss) $1,347,513

Now, this is only for February and only for PPO. Their WC business, if any, would still receive the 55% discount and the Statement of Operations would show Income that reflects both lines, but they were not losing money on that business in September. This MASSIVELY improves the situation.