MEDIX RESOURCES, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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 27, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-24768
MEDIX RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1123311
-------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7100 E. Belleview Ave, Suite 301, Englewood, CO 80111
----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(303) 741-2045
------------------------------------------------
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 9, 1998.
Common Stock, $0.001 par value 21,500,724
------------------------------ ----------
Class Number of Shares
<PAGE>
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets -- September 27,
1998 (Unaudited) and December 28, 1997 .................3
Unaudited Consolidated Statements of
Operations -- For the Three Months Ended
and the Nine Months Ended September 27,
1998 and September 28, 1997 ............................4
Unaudited Consolidated Statements of
Cash Flows -- For the Nine Months
Ended September 27, 1998 and September 28,
1997 ...................................................5
Notes to Unaudited Consolidated Financial
Statements..............................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . .......13
PART II. Other Information ..............................................22
SIGNATURES .....................................................25
Index to Exhibits ..............................................24
<PAGE>
MEDIX RESOURCES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 27, December 31,
1998 1997
--------------- -------------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents ............................. $ 37,000 $ 158,000
Accounts receivable, net .............................. 3,606,000 4,559,000
Notes receivable ...................................... 423,000 491,000
Prepaid expenses and other ............................ 40,000 99,000
------------ ------------
Total current assets ............................... 4,106,000 5,307,000
Property and equipment, net .............................. 280,000 302,000
Other assets
Intangible assets, net ................................ 4,373,000 4,491,000
Notes Receivable ...................................... 150,000 --
Other ................................................. 32,000 40,000
------------ ------------
Total assets ............................................. $ 8,941,000 $ 10,140,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt ..................... $ 250,000 $ 35,000
Current portion of capital lease obligation ........... -- 25,000
Line-of-credit ........................................ 1,885,000 3,543,000
Preferred stock subject repurchase agreement .......... 675,000 --
Accounts payable ...................................... 916,000 649,000
Accrued payroll tax, interest and penalty ............. 1,337,000 468,000
Other accrued expenses ................................ 836,000 916,000
------------ ------------
Total current liabilities .......................... 5,899,000 5,636,000
Stockholders' equity
Preferred stock, 10% cumulative convertible,
$1 par value, 488 shares authorized, 8.0
and 26.25 issued and outstanding at
September 27, 1998 and December 28,
1997, respectively, liquidation preference
$10,000 per share .................................... -- --
Preferred stock, 0% cumulative convertible,
$1 par value, 290 shares authorized, 15.5
and 100.5 issued and outstanding at
September 27, 1998 and December 28,
1997, respectively, liquidation preference
$10,000 per share .................................... -- --
Common stock, $0.001 par value; 25,000,000
shares authorized, 21,500,724 and
12,843,567 issued and outstanding at
September 27, 1998 and December 28,
1997, respectively ................................... 22,000 13,000
Dividends payable with common stock ................... 39,000 39,000
Additional paid-in capital ............................ 12,833,000 12,191,000
Accumulated deficit ................................... (9,852,000) (7,739,000)
------------ ------------
Total stockholders' equity ...................... 3,042,000 4,504,000
------------ ------------
Total liabilities and stockholders' equity ...... $ 8,941,000 $ 10,140,000
============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MEDIX RESOURCES, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 27, September 27,
1998 and September 28, 1997 1998 and September 28, 1997
------------------------------ ------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues ...... $ 4,353,000 $ 6,138,000 $ 14,515,000 $ 19,762,000
Direct costs of
services ......... 3,354,000 4,648,000 11,117,000 15,093,000
------------ ------------ ------------ ------------
Gross Margin ...... 999,000 1,490,000 3,398,000 4,669,000
Selling, general
and administrative
expenses ......... 1,464,000 1,287,000 4,651,000 4,207,000
Gain (loss) on sale
of divisions
(Note 8) ......... (47,000) 191,000 (270,000) 191,000
------------ ------------ ------------ ------------
Net income(loss)
from operations .. (512,000) 394,000 (1,523,000) 653,000
Interest
expense, net ..... 185,000 299,000 590,000 699,000
------------ ------------ ------------ ------------
Net income(loss) .. $ (697,000) $ 95,000 $ (2,113,000) $ (46,000)
============ ============ ============ ============
Basic income
(loss) per
common share
(Note 7) ......... $ (0.03) $ 0.01 $ (0.10) $ (0.07)
============ ============ ============ ============
Basic weighted average
shares outstanding 21,106,483 11,518,685 20,530,161 8,894,554
============ ============ ============ ============
Diluted income
(loss) per
common share
(Note 7) ......... $ (0.03) $ 0.00 $ (0.10) $ (0.07)
============ ============ ============ ============
Diluted weighted
average shares
outstanding ...... 21,106,483 26,448,959 20,530,161 8,894,554
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MEDIX RESOURCES, INC.
Consolidated Statements of Cash Flows
For the Six Months Ended
September 27, 1998
and September 28, 1997
1998 1997
------------ ------------
Cash flows from (used in)
operating activities
Net (loss) .................................. $(2,113,000) $ (46,000)
Adjustment to reconcile net
(loss) to net cash flows from (used
in) operating activities
Depreciation and amortization .............. 506,000 453,000
Common stock issued for services ........... 12,000 --
Basis in assets of divisions sold,
net of notes receivable issued ............ 1,623,000 --
Imputed interest expense on convertible
debt ...................................... -- 78,000
Net changes in current assets and current
liabilities ............................... 1,672,000 (677,000)
----------- -----------
Net cash flows from (used in) operating
activities ........................... 2,175,000 (192,000)
----------- -----------
Cash flows used in investing activities
Purchase of property and equipment .......... (34,000) (115,000)
Proceeds from notes receivable .............. 95,000 --
Business acquisition costs, net of
cash acquired .............................. (39,000) (2,054,000)
----------- -----------
Net cash flows (used in) investing
activities ........................... (453,000) (2,169,000)
----------- -----------
Cash flows from (used in) financing activities
Advances, net ............................... (1,658,000) 357,000
Payments on capital leases and debt ......... (60,000) (731,000)
Payments on preferred stock repurchase
agreements ................................. (125,000) --
Proceeds from convertible debt .............. -- 1,000,000
Net proceeds from exercise of Unit option ... -- 200,000
Net proceeds from issuance(redemption)
of preferred stock ......................... -- 1,535,000
Net cash flows from (used in) financing
activities ........................... (1,843,000) 2,361,000
----------- -----------
Net (decrease) increase in cash and
cash equivalents ............................ (121,000) --
Cash and cash equivalents, at beginning
of period ................................... 158,000 --
----------- -----------
Cash and cash equivalents, at end of period .. $ 37,000 $ --
=========== ===========
See notes to consolidated financial statements.
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<PAGE>
MEDIX RESOURCES, INC.
Consolidated Statements of Cash Flows
Non-cash investing and financing activities for the Nine months ended
September 27, 1998:
1. Issuance of 1,436,916 shares of common stock upon conversion of 5 and 18.25
units of 1997 and 1996 convertible preferred stock, respectively.
2. Issuance of $800,000 payable for redemption of 80 units of 1997 convertible
preferred stock.
3. Issuance of 150,000 shares of common stock valued at $12,000 for settlement
agreement with non-employees.
4. Issuance of notes receivable with carrying value of $475,000 related to the
sale of New York divisions.
5. Cymedix merger:
<TABLE>
<CAPTION>
Non-Cash Consideration Purchase Price Allocation
- ----------------------------------------------- -----------------------------------------
<S> <C> <C> <C>
Common stock issued ............. $1,418,000 Cash $ 5,000
Debt assumed .................... 548,000 Fixed assets 21,000
Current liabilities assumed ..... 353,000 Excess purchase price over
net assets acquired 2,349,000
Deferred acquisition costs ...... 12,000 ----------
--------- Total $2,375,000
Subtotal ....................... 2,331,000 ==========
==========
Cash payment .................... 25,000
Acquisition costs ............... 19,000
----------
Subtotal cash portion .......... 44,000
----------
Total consideration ............. $2,375,000
==========
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MEDIX RESOURCES, INC.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated financial statements
as of December 28, 1997 have been derived from audited financial statements, the
report on which included an explanatory paragraph describing uncertainties
concerning the Company's ability to continue as a going concern. The
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Form 10-KSB
for the fiscal year ended December 28, 1997. The results of operations for the
Nine months ended September 27, 1998 are not necessarily indicative of the
results for the entire fiscal year ending December 27, 1998.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements. Currently the Company's
only component, which would comprise comprehensive income, is its results of
operations.
Also, in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131
establishes standards for the way that public companies report information about
operating segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding
how to allocate resources and in assessing performance. SFAS 131 will require
the Company to disclose such segment data in its audited financial statements in
the future.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997, and requires comparative information for earlier
periods to be restated.
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<PAGE>
MEDIX RESOURCES, INC.
Notes to Consolidated Financial Statements
3. ACQUISITIONS
In January 1998, the Company consummated a merger with Cymedix Corporation
(Cymedix). In conjunction with the merger the Company acquired all of the issued
and outstanding common shares of Cymedix for $2,375,000. To finance the
acquisition, the Company issued 6,980,000 shares of common stock valued at
$1,418,000. assumed liabilities of $901,000, and paid $25,000 in cash. The
Company also incurred $31,000 in acquisition costs. The merger has been
accounted for as a purchase. The purchase price has been allocated as follows:
Cash $ 5,000
Property and equipment 21,000
Excess of cash over net assets acquired 2,349,000
----------
$2,375,000
==========
4. EQUITY TRANSACTIONS
In April 1998, the Company repurchased 80 of its outstanding units of
convertible preferred stock and warrants from the 1997 private placement for
$800,000 to be paid by September 1998. The Company did not make the first
payment due under the repurchase agreement by May 1, 1998. As provided in the
repurchase agreement, the missed payment caused the entire $800,000 to be
immediately due and payable, however, the sole obligation of the Company is to
issue shares of its common stock at a purchase price of 75% of the average last
price quoted for ten days prior to the payment deadline. In June 1998 the
Company made payments of $125,000 per the repurchase agreement. The balance due
under the repurchase agreement at September 27, 1998 is $675,000 which may be
converted to approximately 1,929,000 shares at a purchase price of $0.35.
Additionally, in April 1998, the Company exchanged 1,759,000 warrants from the
1996 and 1997 private placements for 175,900 newly issued shares of the
Company's common stock.
In January 1998, the Company issued 175,000 warrants at an exercise price of
$0.25, valued at approximately $25,000 to non-employees in conjunction with the
Cymedix merger.
In September 1998, the Company issued 150,000 shares of common stock, valued at
$12,000, as a result of a settlement agreement with non-employees.
5. STOCK OPTIONS
On April 15, 1998, the Company granted 1,000,000 options to purchase common
stock at $0.50 per share under the Company's 1996 Stock Incentive Plan, all of
which were granted to officers, directors, and employees. During the first
quarter of 1998, in conjunction with the Cymedix merger the Company authorized
1,200,000 and granted 1,046,500 options to purchase common stock, at $0.25 per
share, all of which were granted to officers, employees and outside consultants.
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<PAGE>
MEDIX RESOURCES, INC.
Notes to Consolidated Financial Statements
6. LITIGATION
1. In January 1997, the Company was named as a party in a lawsuit filed by a
former patient in San Antonio, Texas. The complaint alleges that a
respiratory therapist employed by a subsidiary of the Company was negligent
in his duties resulting in bodily injuries and mental anguish suffered by the
patient. On July 22, 1998, all parties to the litigation, including the
Company and its subsidiary settled the litigation and the Company and its
subsidiary agreed to make certain payments to the plaintiffs. All such
payments are being made on behalf of the Company and its subsidiary by the
Company's liability insurance carrier. Plaintiffs executed a release
agreement that released the defendants and related parties in this matter.
The Court entered a final judgment consistent with the settlement. All
payments under the settlement were paid by the Company's liability insurance
carrier.
In a separate but related matter, the client/hospital at which the alleged
incident occurred has paid $100,000 to the plaintiff in exchange for being
released as a party to the lawsuit and has demanded that the Company
indemnify the hospital as the hospital alleges is stipulated in the
contract between the Company and the hospital. The Company does not believe
it has an obligation to indemnify its client hospital under its contract as
the Company was not a party to the settlement.
2. In April 1997, Ellis Home Care Services, Inc. ("EHCSI") filed a complaint in
the United States District Court, Southern District of New York, against the
Company. The complaint alleges that the Company has breached certain
obligations it undertook in connection with the acquisition of the Ellis
assets by the Company. On September 23, 1997 a judgment was entered against
the Company in this matter as a result of the Company's failure to make the
initial payment of $60,000, although all monthly payments had been made. The
judgment was entered in the amount of $391,731 plus interest at the rate of
nine percent (9%) until paid. On September 1, 1998 EHCSI signed an agreement
to forebear enforcement of judgment. The agreement states that EHCSI is
willing to forebear any enforcement of the Judgment so long as Medix
continues to make payments. The balance payable at September 27, 1998 is
approximately $130,000.
3. During 1997, a subsidiary of the Company was named as defendant in two suits
in Harris County, Texas, entitled Verdell Cooper v. National Care
Resources-Texas, Inc., Harris District Court, 97-21951, and Vanessa Felix v.
National Care Resources-Texas, Inc., Harris District Court, 97-50337. Both
matters involve claims of racial discrimination arising out of the
termination of employment of the plaintiff by the subsidiary. In June of
1998, the Company settled the two suits by paying an aggregate of $20,000.
The Company denied the claims and obtained releases from any further action,
and the Court dismissed each suit.
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<PAGE>
MEDIX RESOURCES, INC.
Notes to Consolidated Financial Statements
4. On or about November 7, 1997, an action was filed against the Company in the
Eastern District of New York under the caption New York Healthcare, Inc. v.
International Nursing Services, Inc., et al., alleging, among other things,
breach of contract against the Company and seeking damages in excess of
$175,000 plus court costs and attorney fees. The Company filed answers and
counterclaims in this action. The Company intends to vigorously defend this
action and to press its counterclaim. The Company does not expect any
resolution of this matter to have a material effect on the Company's
financial condition.
5. On March 19, 1998, the Company announced that its wholly-owned subsidiary
Cymedix Lynx Corporation had submitted a formal demand to Andrx Corporation
for treble damages in the amount of $396.6 million, suffered by Cymedix as a
direct and proximate result of the alleged activities of Andrx, its affiliate
Cybear, Inc. and certain individuals. The demand alleges theft and unlawful
appropriation of Cymedix' computer medical software for remote on-line
healthcare providers and Cymedix' Internet medical communications technology,
commonly referred to as Lynx, for which a preliminary U.S. patent was filed
on October 15, 1996 and a final U.S. patent application was filed on October
14, 1997. Andrx reportedly responded by denying the allegations and stating
that it intends to vigorously defend any litigation that Cymedix might file
in this matter. On April 2, 1998, Andrx and Cybear filed suit in the Circuit
Court of Broward County, Florida, Case No. 98-04613 CACE03, against the
Company and its wholly-owned subsidiary Cymedix Lynx Corporation, alleging
libel and slander, that the Company's claims are false and defamatory, and
that damages of such actions were in excess of $15,000. Plaintiffs stated
that they intend to seek recovery of punitive damages "at the appropriate
time". The Company intends to vigorously defend itself and proceed with its
claims against Andrx. On May 4, 1998, in response to the suit filed by Andrx,
the Company filed a motion to dismiss amended complaint. On June 22, 1998 the
libel and slander suit against Medix and Cymedix was dismissed without
prejudice. On July 1, 1998, Andrx refiled its second amended complaint for
which the Company's motion to dismiss was denied.
On June 2, 1998 the Company, and its subsidiary Cymedix Lynx Corporation,
filed suit in the Circuit Court of Hillsborough County, Florida, Case No.: CI
94-4621, against Andrx Corporation, its subsidiary Cybear, Inc., Elliot Hahn,
Richard Lucibella, and Jerry Cazzell.
The Company cannot foresee how this matter will proceed, how long it will
take to resolve, or what the ultimate impact of these matters will be on the
financial condition of the Company. Litigation in this matter could require
substantial resources from the Company and take up substantial amount of
management time for a period of several years. No assurance can be given that
the Company would receive an award adequate to compensate it for the use of
such resources and time, or that the ultimate outcome might not be that the
Company is required to pay damages as a result of a counterclaim.
6. On May 22, 1998, an action was filed against the Company in the Supreme Court
of the State of New York in Westchester County, Index No.: 98-08078 under the
caption The Nais Corporation against Medix Resources, Inc. and Lippert
Heilshorn and Associates, Inc., alleging, among other things, non-payment of
a brokerage fee on asset sales. The Company filed answers and counterclaims
in this action. On September 30, 1998, the complaint was dismissed.
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<PAGE>
MEDIX RESOURCES, INC.
Notes to Consolidated Financial Statements
7. LOSS PER SHARE
In accordance with the Securities and Exchange Commission's position on
accounting for preferred stock with convertible features that are in the money
at the time of issuance, the Company has imputed a value associated with such
conversion features and has recorded the value as a discount on the preferred
stock. The Company amortizes the imputed discount on the preferred stock over
the period from issuance of the preferred stock to the earliest period at which
the preferred stock becomes convertible. As the Company's 1997 preferred stock
issuances are immediately convertible the Company has amortized in the first
quarter the entire imputed discount as a component of dividends on preferred
stock. The Company recorded additional dividends to preferred stockholders of
approximately $553,000 for the quarter ended March 30, 1997, which represents an
imputed increase to the dividend yield and not a contractual obligation on the
part of the Company to pay such imputed dividends.
Loss per share applicable to common stockholders is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -------------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) ......... $ (697,000) $ 95,000 $ (2,113,000) $ (46,000)
Preferred stock dividends -
stated rate .............. (2,000) (8,000) (9,000) (39,000)
Preferred stock dividends -
imputed discount ......... -- -- -- (553,000)
Net income(loss) applicable
to common stockholders ... $ (699,000) $ 87,000 $ (2,122,000) $ (638,000)
============ ============ ============ ============
Basic income (loss) per
common share ............. $ (0.03) $ 0.01 $ (0.10) $ (0.07)
============ ============ ============ ============
Weighted average shares
outstanding .............. 21,106,483 11,518,685 20,530,161 8,894,554
============ ============ ============ ============
Diluted income (loss)
per common share ......... $ (0.03) $ 0.00 $ (0.10) $ (0.07)
============ ============ ============ ============
Diluted weighted average
shares outstanding ....... 21,106,483 26,448,959 20,530,161 8,894,554
============ ============ ============ ============
</TABLE>
Diluted weighted average shares outstanding for the three months ended September
28, 1997 includes exercisable options and warrants.
- 11 -
<PAGE>
MEDIX RESOURCES, INC.
Notes to Consolidated Financial Statements
8. LOSS ON SALE OF DIVISIONS
In October 1997, the company entered into a definitive agreement to sell its two
remaining New York operations, for $2,080,000 in cash subject to New York State
licensing authorities and other closing conditions. On April 27, 1998 the
Company signed a definitive agreement to sell the remaining three of its
staffing business subsidiaries, National Care Resources - Colorado, Inc.,
National Care Resources - Texas, Inc., and TherAmerica, Inc. for $5,000,000 in
cash and $2,000,000 in convertible preferred stock. The proceeds were payable
with $750,000 in non-refundable deposits in May 1998, $4,250,00 cash and
$2,000,000 stock at closing. Closing was scheduled for September 1998. In June
of 1998, the Company received $350,000 in non-refundable deposits. In July of
1998, the agreements to sell the two New York operations and the three
subsidiaries were terminated for failure by the purchaser to comply with their
terms. The Company recognized a gain of $350,000 in June 1998 on this
transaction.
On September 14, 1998 the Company disposed of the remaining operations in the
State of New York by selling certain contracts and other assets to Premier Home
Health Care Services, Inc. of White Plains, New York. The selling price for the
operations was $1,650,000, payable with cash of $1,000,000 and the delivery of
two promissory notes in the principal amount of $325,000 each. The promissory
notes accrue interest at 4% annually, and mature in 9 and 15 months
respectively. The 15-month promissory note has been escrowed and is subject to
offset if the operations do not meet certain billings levels over a 4-week test
period after the closing or if claims for indemnification are made by the
purchaser. After review of the billings for the 4-week test period, the 15-month
promissory note was recorded at the estimated realizable value of $150,000.
Additionally, the Company sold furniture and fixtures from one of the two New
York operations for $3,000 in cash.
The Company recognized a loss on the sale of the New York divisions of $620,000
of which $47,000 was recognized in September 1998. The loss includes $573,000 of
goodwill impairment by the Company in June 1998 as a result of signing a
letter-of-intent with Premier Home Health Care Services, Inc. The funds
generated from the sale were used to reduce its line-of-credit balance and to
provide working capital.
The two New York operations provided $4,740,000 in revenues for the Nine months
ended September 27, 1998. The sale of these operations will significantly reduce
future revenues.
9. NASDAQ LISTING
The Nasdaq Stock Market, Inc. delisted the Company's common stock from trading
on the Nasdaq SmallCap Market, effective at the close of business on July 14,
1998, for failure to satisfy the revised listing maintenance standards adopted
by The Nasdaq Stock Market, Inc. during 1997. The Company's common stock is
eligible to trade on the OTC Bulletin Board. Information about the OTCBB can be
found on the Internet at www.OTCBB.com. However, quotes for stock traded on the
OTC Bulletin Board are not published in major newspapers, and can only be found
in specialized publications or on the Internet.
In the light of such delisting, the Company determined that it would not be in
the best interests of its shareholders to complete the reverse stock split that
had been approved by its shareholders at its Annual Meeting of Shareholders held
on May 29, 1998, and the Board of Directors exercised its authority to abandon
the reverse stock split.
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<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements and Associated Risks
This filing contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward-looking
statements include the plans and objectives of the management for future
operations, including plans and objectives relating to services offered by and
future economic performance of the Company.
Healthcare Services Operations. The forward-looking statements included herein
are based on current expectations that involve a number of risks and
uncertainties. These forward-looking statements are based on assumptions that
the Company will continue to be able to provide on a cost effective and
competitive basis quality home health care and interim staffing services, that
the regulatory environment governing the Company's industry will not change in
ways that are materially adverse to the Company and its operations, that the
Company will be able to continue to fund operations, that the Company will be
able to raise additional equity or debt capital if required to fund operations,
that the Company will be able to achieve operating efficiencies resulting in
cost reductions, that a sufficient supply of qualified health care personnel
will be available to the Company for deployment in the health care industry on a
competitive and cost effective basis and that there will be no material adverse
change in the demand for the Company's services or in the Company's operations
or business. Additional risks and uncertainties that the Company faces include
the current uncertainty in the health care industry and government health care
reform proposals considered from time to time, which has already and may in the
future adversely affect the regulatory environment in which the Company operates
and the reimbursement rate payable under government programs, resulting in
decreased revenues from home care services; the Company's dependence on customer
relationships, which makes the Company vulnerable to consolidation in the health
care industry, changes in customer personnel and other factors that may impact
customer relationships; the Company's ability to obtain needed licenses, permits
and governmental approvals; the Company's ability to compete in the highly
competitive supplemental staffing services market; hospital budgetary cycles,
increased competition for qualified medical personnel, patient admission
fluctuations and seasonality; the adoption by hospitals and third party payers
of new or revised reimbursement policies; and uninsured risks associated with
providing home care and supplemental staffing services, which the Company will
attempt to minimize, but which can not be entirely eliminated.
Further, the Company's announced policy of disposing of healthcare service
operations to fund the development and marketing of its Cymedix subsidiary's
software products, has created uncertainty and instability among the staffs of
such operations, which in turn adversely impacts the value of such operations.
- 13 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Forward-Looking Statements and Associated Risks (continued)
Medical Information Software Operations. The Company, through its subsidiary
Cymedix Lynx Corporation has only recently begun its medical software line of
business through the acquisition of a development stage medial software
business. The uncertainties and risks that accompany forward-looking statements
are enhanced by the Company's lack of experience in this business. The Company
has no experience in marketing of software products, providing software support
services, evaluating demand for products, financing a software business and
dealing with government regulation of software products. As a developer of
information systems, the Company will be required to anticipate and adapt to
evolving industry standards and new technological developments. The market for
the Company's software products is characterized by continued and rapid
technological advances in both hardware and software development, requiring
ongoing expenditures for research and development and the timely introduction of
new products and enhancements to existing products. The establishment of
standards is largely a function of user acceptance. Therefore, such standards
are subject to change. The Company's future success, if at all, will depend in
part upon its ability to enhance existing products, to respond effectively to
technology changes, and to introduce new products and technologies to meet the
evolving needs of its clients in the health care information systems market. The
Company is currently devoting significant resources toward the development of
products. There can be no assurance that the Company will successfully complete
the development of these products in a timely fashion or that the Company's
current or future products will satisfy the needs of the health care information
systems market. Further, there can be no assurance that products or technologies
developed by others will not adversely affect the Company's competitive position
or render its products or technologies noncompetitive or obsolete.
Certain of the Company's products provide applications that relate to patient
medical histories and treatment plans. Any failure by the Company's products to
provide accurate, secure and timely information could result in product
liability claims against the Company by its clients or their affiliates or
patients. The Company maintains insurance that it believes is adequate to
protect against claims associated with the use of it products, but there can be
no assurance that its insurance coverage would adequately cover any claim
asserted against the Company. A successful claim brought against the Company in
excess of its insurance coverage could have a material adverse effect on the
Company's results of operations, financial condition or business. Even
unsuccessful claims could result in the expenditure of funds in litigation, as
well as diversion of management time and resources.
The success of the Company is dependent to a significant degree on its key
management, sales and marketing, and technical personnel. The Company believes
that its success will also depend upon its ability to attract, motivate and
retain highly skilled, managerial, sales and marketing, and technical personnel,
including software programmers and systems architects skilled in the computer
languages in which the Company's products operate. Competition for such
personnel in the software and information services industries is intense. The
loss of key personnel, or the inability to hire or retain qualified personnel,
could have a material adverse effect on the Company's results of operations,
financial condition or business.
- 14 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Forward-Looking Statements and Associated Risks (continued)
Medical Information Software Operations (continued). The health care industry in
the United States is subject to changing political, economic and regulatory
influences that may affect the procurement practices and operations of health
care organizations. During the past several years, the health care industry has
been subject to increasing levels of governmental regulation of, among other
things, reimbursement rates and certain capital expenditures. The Company cannot
predict with any certainty what impact, if any, such increased regulation might
have on its results of operations, financial condition or business. In addition,
Medicare has, from time to time, promulgated regulations concerning anti-fraud
and (physician) inducement that heretofore have not directly affected the
marketing of the Company's software and similar products. However, these
regulations, which are usually later adopted by state-managed Medicaid plans,
have created uncertainty in the industry. A current example is HIPAA (Health
Insurance Portability and Accountability Act of 1996). The Company is waiting
for the promulgation of the related regulations so that it may assess the impact
on its business. It is unclear the effect, if any, these regulations will have
on the Company, its products or its clients.
The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the regulation of certain computer software products as medical devices
under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has recently indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical device
under the policy, the manufacturers or such products could be required,
depending on the product, to (i) register and list their products with FDA, (ii)
notify the FDA and demonstrate substantial equivalence to other products on the
market before marketing such products, or (iii) obtain FDA approval by
demonstrating safety and effectiveness before marketing a product. In addition,
such products would be subject to the FDC Acts general controls, including those
relating to good manufacturing practices and adverse experience reporting.
Although it is not possible to anticipate the final form of the FDA" policy with
regard to computer software, the Company expects that, whether or not the draft
is finalized or changed, the FDA is likely to become increasingly active in
regulating computer software that is intended for use in health care settings.
The FDA can impose extensive requirements governing pre- and post-market
conditions such as device investigation, approval, labeling and manufacturing.
In addition, the FDA can impose extensive requirements governing development
controls and quality assurance processes. There can be no assurance that actions
taken by the FDA to regulate computer software products will not have a material
adverse effect on the Company's results of operations, financial condition or
business.
- 15 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Forward-Looking Statements and Associated Risks (continued)
Company Specific Factors. Important factors to be considered in connection with
forward-looking statements include, without limitation, (a) the fact that the
Company has reported net losses in the last several years and has an accumulated
deficit and a working capital deficit at the end of its most recent fiscal
quarter; (b) the Company's auditors have included a "going concern" exception in
their report on the Company's financial statements; (c) the Company's lack of
working capital and inability to generate positive cash flow from operations may
require the Company to raise additional equity or debt financing in order to
fund operations and the Company may be unable to raise such debt or equity
financing; (d) Nasdaq informed the Company on July 14, 1998 that it was delisted
for non-compliance with a requirement to remain listed on the Nasdaq SmallCap
market. The non-compliance was for failing to maintain tangible net worth of
$2.0 million (while the Company's balance sheet shows net assets of an excess of
this amount, a substantial portion of those assets are intangible). Being
delisted from the Nasdaq SmallCap market significantly impedes the Company's
ability to raise future equity capital; (e) the Company depends on
key-management personnel, especially John P. Yeros to manage and direct the
business and operations of the Company and its healthcare services and Keith
Berman to manage the development and marketing of the Company's medical
information software; and (f) various other factors may cause actual results to
vary materially from the results contemplated in any forward-looking statements
included in this filing. No assurances can be given that the foregoing factors
will not result in a material adverse effect on the Company and its operations.
As of November 10, 1998, the Company does not have a source of funds for the
funding of the development of its Cymedix software products. The proceeds from
the sale of the two New York operations are not adequate to meet the future cash
needs of the Company. The Company is currently pursuing other sources of funds.
Any of these important factors discussed above or elsewhere in this filing could
cause the Company's revenues or results of operations, or growth in revenues or
results of operations, to differ materially from prior results. Failure to
obtain financing on a timely basis could result in loss of business
opportunities, the sale of the Cymedix business at a distressed price or the
financial failure of the Company. In addition, growth in absolute amounts of
selling, general and administrative expenses or the occurrence of extraordinary
events could cause actual results to vary materially from the results
contemplated by the forward-looking statements. Budgeting and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its marketing,
capital expenditures or other budgets, which may, in turn, affect the Company's
results of operation.
- 16 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Forward-Looking Statements and Associated Risks (continued)
Company Specific Factors (continued). Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic,
competitive and market conditions, and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the control of the Company. Although the Company believes the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could prove inaccurate, and therefore, there can be no assurance that the
results contemplated in the forward-looking statements will be realized. In
addition, the business and operations of the Company, because of the industries
in which it operates and its underfunded operations, are subject to substantial
risks which increase the uncertainty inherent in such forward-looking
statements.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
Results of Operations
- ---------------------
Comparison of three months ended September 27, 1998 and September 28, 1997
The Company generated approximately $4,353,000 in revenues from operations for
the quarter ended September 27, 1998, compared to approximately $6,138,000 in
revenues for the third quarter of 1997. The decrease in sales for the third
quarter is due primarily to the sale of Paxxon Services, Inc. (Paxxon) and the
Homecare division. Paxxon and the Homecare division generated revenues of
approximately $783,000 and $198,000 respectively, in the third quarter of 1997.
Southern California and Colorado therapy revenues were also down significantly
from the third quarter of 1997. On September 14, 1998, the Company sold its two
remaining New York operations. The two New York operations provided $1,410,000
and $1,784,000 in revenues for the third quarter of 1998 and 1997, respectively.
The sale of these operations will significantly reduce the Company's future
revenues.
The Company's gross margin percentage decreased from 24% for the third quarter
of 1997 to 23% for the third quarter of 1998. The decrease is primarily due to a
reduction in higher margin Colorado therapy revenues and an increase in lower
margin travel revenues.
Selling, general and administrative expenses increased for the quarter ended
September 27, 1998 by approximately $165,000 as compared to the quarter ended
September 28, 1997. This increase includes approximately $307,000 of Selling,
general, administrative expenses incurred by Cymedix which was partially offset
by a reduction of $147,000 related to the sale of divisions.
The Company incurred a net loss of $697,000 for the quarter ended September 27,
1998 compared to net income of $95,000 for the quarter ended September 28, 1997.
The loss for the quarter is attributable to reduced revenues, Cymedix expenses,
and an additional loss on sale of $47,000 on the two New York operations. (see
Note 8 in the accompanying consolidated financial statements). The third quarter
of 1997 included a gain of $191,000 on the sale of the Company's Homecare
division.
- 17 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
- ---------------------------------
Comparison of three months ended September 27, 1998 and September 28,1997
(continued)
The Company has initiated several programs and service lines which are intended
to increase revenues. In particular, nurse staffing was started in the
California locations which previously staffed only therapists. Therapist
staffing operations were expanded in the Texas operations which previously
focused primarily on nursing. Revenue growth from these programs has been slower
than expected and has been offset by reduced revenues in the Colorado and
southern California therapy business. The Company expects to see continued
growth from these programs and is continually exploring potential new service
lines.
Comparison of nine months ended September 27, 1998 and September 28, 1997
The Company generated approximately $14,515,000 in revenues from operations for
the nine months ended September 27, 1998, compared to approximately $19,762,000
in revenues for the first nine months of 1997. The decrease in sales for the
nine months is due primarily to the sale of Paxxon Services, Inc. (Paxxon) and
the Homecare division. Paxxon and the Homecare division generated revenues of
approximately $2,900,000 and $650,000 respectively, in the first nine months of
1997. Southern California and Colorado therapy revenues were also down from the
first nine months of 1997. On September 14, 1998, the Company sold its two
remaining New York operations. The two New York operations provided
approximately $4,690,000 and $5,347,000 in revenues for the nine months ended
September 27, 1998 and September 28, 1997 respectively. The sale of these
operations will significantly reduce the Company's future revenues.
The Company's gross margin percentage was relatively unchanged at 23.4% for the
nine months ended September 27, 1998 compared to 23.6% for the nine months ended
September 28, 1997.
Selling, general and administrative expenses increased for the nine months ended
September 27, 1998 by approximately $444,000 as compared to the nine months
ended September 28, 1997. This increase includes approximately $971,000 of
Selling, general, administrative expenses incurred by Cymedix which was
partially offset by a reduction of $513,000 related to the sale of divisions.
Net loss increased from $46,000 for the nine months ended September 28, 1997 to
$2,113,000 for the nine months ended September 27, 1998. The loss for the nine
months ended September 27, 1998 is attributable to reduced revenues as discussed
above, Cymedix expenses, and a loss on sale of divisions of $270,000. (see Note
8 in the accompanying consolidated financial statements). The nine months ended
September 28, 1997 included a gain of $191,000 on the sale of the Company's
Homecare division.
- 18 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
- ---------------------------------
Comparison of nine months ended September 27, 1998 and September 28, 1997
(continued)
During the nine months ended September 27, 1998, the Company initiated several
programs and service lines which are intended to increase revenues. In
particular, nurse staffing was started in the California locations which
previously staffed only therapists. Therapist staffing operations were expanded
in the Texas operations which previously focused primarily on nursing. Revenue
growth from these programs has been slower than expected and has been offset by
reduced revenues in the Colorado and southern California therapy business. The
Company expects to see continued growth from these programs and is continually
exploring potential new service lines.
Liquidity and Capital Resources
- -------------------------------
The Company's current liabilities at September 27, 1998 aggregated approximately
$5,899,000 and current assets at September 27, 1998 aggregated approximately
$4,106,000. The Company is currently delinquent in the payment of certain of its
current liabilities. Such obligations include federal income tax withholdings
from employees and employer payroll taxes.
In order for the Company to meet its current obligations, management anticipates
the need to raise additional debt or equity capital or sell assets (see
Forward-Looking Statements and Associated Risks, including Company Specific
Factors). However, there are no current agreements in place to engage in any
such transactions.
In July 1998 the Company terminated agreements to sell all of its staffing
operations for $7,080,000 in cash and $2,000,000 in convertible preferred stock.
The Company intended to use the proceeds from these sales to meet current
obligations and fund the development and marketing of the Cymedix software
products. The termination of these agreements, as a result of the purchasers
failure to comply with terms, has had a material adverse effect on the Company's
financial conditions and has forced the Company to search for alternative
sources of funds to meet current obligations and adequately fund Cymedix.
On September 14, 1998, the Company sold its two remaining two New York
operations for approximately $1,650,000 payable with $1,000,000 in cash and
approximately $650,000 in notes subject to downward adjustment under certain
circumstances. The principal amount of the notes has been adjusted downward by
$175,000. The proceeds from the sale were primarily used to reduce the balance
on the Company's line-of-credit. In the twelve months subsequent to the sale,
the Company expects to receive approximately $1,900,000 in cash receipts from
the collection of New York accounts receivable which will be used to further
reduce the line-of-credit balance and provide working capital. These cash
receipts should allow the Company to meet a portion of its current obligations.
These cash receipts will not provide adequate funds to support the projected
development and marketing costs of the Cymedix software products. Sales of
Cymedix software products have not met, and on-site testing of installed
products has taken longer than, the Company's initial expectations. See
"Forward-Looking Statements and Associated Risks - Medical Information Software
Operations" and "Company Specific Factors" above. The two New York operations to
be sold, provided
- 19 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
$7,090,000 in revenues for the 1997 fiscal year and $4,690,000 in revenues for
the first nine months of 1998. The sale of these operations will significantly
reduce the Company's revenues. The Company will need to obtain additional
financing or sell additional assets in order to generate sufficient cash to
support its operations, including the development and marketing of Cymedix
software products for the next twelve months. There are no current agreements
in place to engage in any such transactions.
The Company has historically released certain of its checks in anticipation of
receiving cash proceeds from its line of credit agreement. The Company does not
have an arrangement with its banks to cover checks presented in excess of its
collected cash balance; however, this situation has not occurred as the Company
releases its checks as close as possible to its funding date.
The Nasdaq Stock Market, Inc. delisted the Company's common stock from trading
on the Nasdaq SmallCap Market, effective at the close of business on July 14,
1998, for failure to satisfy the revised listing maintenance standards adopted
by The Nasdaq Stock Market, Inc. last year. The Company's common stock is
eligible to trade on the OTC Bulletin Board. Information about the OTCBB can be
found on the Internet at www.OTCBB.com. However, quotes for stock traded on the
OTC Bulletin Board are not published in major newspapers, and can only be found
in specialized publications or on the Internet. Being delisted from the Nasdaq
SmallCap Market significantly impedes the Company's ability to raise equity
capital.
In the light of such delisting, the Company determined that it would not be in
the best interests of its shareholders to complete the reverse stock split that
had been approved by its shareholders at its Annual Meeting of Shareholders held
on May 29, 1998, and the Board of Directors exercised its authority to abandon
the reverse stock split.
Year 2000 Disclosure
- --------------------
The Company currently utilizes a external vendor for hardware and packaged
software support. The Company has engaged the external vendor to test all
hardware, operating systems, and software for year 2000 compliance. After
testing the Company will determine what upgrades and/or replacements are
required. The Company uses current versions of widely used, publicly available
software for its accounting and other data processing requirements. The Company
is in the process of obtaining year 2000 certification from these software
vendors. Cymedix Lynx was designed to be year 2000 compliant. The testing and
certification of Cymedix software products may involve significant management
time. The Company's relations with banks, lending institutions, current and
future customers and vendors may be impacted by their ability to become year
2000 compliant.
- 20 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000 Disclosure
- --------------------
The testing for year 2000 compliance of existing systems is scheduled to be
completed by December 31, 1998. Any necessary upgrades or replacements are
scheduled to be completed by February 28, 1999. The upgraded and replaced
systems are scheduled to be tested by March 31, 1999. The Comapny intends to
obtain documentation of year 2000 compliance from its banks, lending
institutions, and significant customers and vendors by March 31, 1999.
The Company does not feel costs relating to year 2000 compliance will have a
material effect on the Company's financial statements.
- 21 -
<PAGE>
MEDIX RESOURCES, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
1. In January 1997, the Company was named as a party in a lawsuit filed by a
former patient in San Antonio, Texas. The complaint alleges that a
respiratory therapist employed by a subsidiary of the Company was negligent
in his duties resulting in bodily injuries and mental anguish suffered by the
patient. On July 22, 1998, all parties to the litigation, including the
Company and its subsidiary settled the litigation and the Company and its
subsidiary agreed to make certain payments to the plaintiffs. All such
payments are being made on behalf of the Company and its subsidiary by the
Company's liability insurance carrier. Plaintiffs executed a release
agreement that released the defendants and related parties in this matter.
The Court entered a final judgment consistent with the settlement. All
payments under the settlement were paid by the Company's liability insurance
carrier.
In a separate but related matter, the client/hospital at which the alleged
incident occurred has paid $100,000 to the plaintiff in exchange for being
released as a party to the lawsuit and has demanded that the Company
indemnify the hospital as the hospital alleges is stipulated in the contract
between the Company and the hospital. The Company does not believe it has an
obligation to indemnify its client hospital under its contract as the Company
was not a party to the settlement.
2. In April 1997, Ellis Home Care Services, Inc. ("EHCSI") filed a complaint in
the United States District Court, Southern District of New York, against the
Company. The complaint alleges that the Company has breached certain
obligations it undertook in connection with the acquisition of the Ellis
assets by the Company. On September 23, 1997 a judgment was entered against
the Company in this matter as a result of the Company's failure to make the
initial payment of $60,000, although all monthly payments had been made. The
judgment was entered in the amount of $391,731 plus interest at the rate of
nine percent (9%) until paid. On September 1, 1998 EHCSI signed an agreement
to forebear enforcement of judgment. The agreement states that EHCSI is
willing to forebear any enforcement of the Judgment so long as Medix
continues to make payments. The balance payable at September 27, 1998 is
approximately $130,000.
3. During 1997, a subsidiary of the Company was named as defendant in two suits
in Harris County, Texas, entitled Verdell Cooper v. National Care
Resources-Texas, Inc., Harris District Court, 97-21951, and Vanessa Felix v.
National Care Resources-Texas, Inc., Harris District Court, 97-50337. Both
matters involve claims of racial discrimination arising out of the
termination of employment of the plaintiff by the subsidiary. In June of
1998, the Company settled the two suits by paying an aggregate of $20,000.
The Company denied the claims and obtained releases from any further action,
and the Court dismissed each suit.
- 22 -
<PAGE>
MEDIX RESOURCES, INC.
4. On or about November 7, 1997, an action was filed against the Company in the
Eastern District of New York under the caption New York Healthcare, Inc. v.
International Nursing Services, Inc., et al., alleging, among other things,
breach of contract against the Company and seeking damages in excess of
$175,000 plus court costs and attorney fees. The Company filed answers and
counterclaims in this action. The Company intends to vigorously defend this
action and to press its counterclaim. The Company does not expect any
resolution of this matter to have a material effect on the Company's
financial condition.
5. On March 19, 1998, the Company announced that its wholly-owned subsidiary
Cymedix Lynx Corporation had submitted a formal demand to Andrx Corporation
for treble damages in the amount of $396.6 million, suffered by Cymedix as a
direct and proximate result of the alleged activities of Andrx, its affiliate
Cybear, Inc. and certain individuals. The demand alleges theft and unlawful
appropriation of Cymedix' computer medical software for remote on-line
healthcare providers and Cymedix' Internet medical communications technology,
commonly referred to as Lynx, for which a preliminary U.S. patent was filed
on October 15, 1996 and a final U.S. patent application was filed on October
14, 1997. Andrx reportedly responded by denying the allegations and stating
that it intends to vigorously defend any litigation that Cymedix might file
in this matter. On April 2, 1998, Andrx and Cybear filed suit in the Circuit
Court of Broward County, Florida, Case No. 98-04613 CACE03, against the
Company and its wholly-owned subsidiary Cymedix Lynx Corporation, alleging
libel and slander, that the Company's claims are false and defamatory, and
that damages of such actions were in excess of $15,000. Plaintiffs stated
that they intend to seek recovery of punitive damages "at the appropriate
time". The Company intends to vigorously defend itself and proceed with its
claims against Andrx. On May 4, 1998, in response to the suit filed by Andrx,
the Company filed a motion to dismiss amended complaint. On June 22, 1998 the
libel and slander suit against Medix and Cymedix was dismissed without
prejudice. On July 1, 1998, Andrx refiled its second amended complaint for
which the Company's motion to dismiss was denied.
On June 2, 1998 the Company, and its subsidiary Cymedix Lynx Corporation,
filed suit in the Circuit Court of Hillsborough County, Florida, Case No.: CI
94-4621, against Andrx Corporation, its subsidiary Cybear, Inc., Elliot Hahn,
Richard Lucibella, and Jerry Cazzell.
The Company cannot foresee how this matter will proceed, how long it will
take to resolve, or what the ultimate impact of these matters will be on the
financial condition of the Company. Litigation in this matter could require
substantial resources from the Company and take up substantial amount of
management time for a period of several years. No assurance can be given that
the Company would receive an award adequate to compensate it for the use of
such resources and time, or that the ultimate outcome might not be that the
Company is required to pay damages as a result of a counterclaim.
6. On May 22, 1998, an action was filed against the Company in the Supreme Court
of the State of New York in Westchester County, Index No.: 98-08078 under the
caption The Nais Corporation against Medix Resources, Inc. and Lippert
Heilshorn and Associates, Inc., alleging, among other things, non-payment of
a brokerage fee on asset sales. The Company filed answers and counterclaims
in this action. On September 30, 1998, the complaint was dismissed.
- 23 -
<PAGE>
MEDIX RESOURCES, INC.
Item 2. Changes in Securities and Use of Proceeds
Unregistered sales of securities by the Company for the quarter reported on. See
Note 3 to the unaudited consolidated financial statements elsewhere herein.
Security No. of Exemption
Issued Date Shares Consideration Purchasers Claimed
- ------------ ------- ------- ------------- ---------- ------------
Common Stock 9/23/98 150,000 Settlement Private Section 4(2)
agreement Investors
valued at
$12,000
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Included as exhibits are the items listed on the Exhibit Index.
The Registrant will furnish a copy of any of the exhibits listed
below upon payment of $5.00 per exhibit to cover the costs
to the Registrant of furnishing such exhibit.
b. Reports on Form 8-K during the quarter reported on.
Filing Date Items
July 15, 1998 Item 5, reporting press release on the termination of
definitive sales agreements with Banyan Healthcare
Services, Inc.
July 21, 1998 Item 5, reporting press release announcing the delisting
of the Company's common stock on the Nasdaq SmallCap
Market and cancellation of the reverse split previously
approved by the Company's shareholders.
July 21, 1998 Item 5, reporting press release on the singing of a
consulting and marketing agreement with
ASCENTechnologies
- 24 -
<PAGE>
SIGNATURES
In accordance with 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.
Dated: November 11, 1998
MEDIX RESOURCES, INC.
(Registrant)
/s/ John P. Yeros
John P. Yeros
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ David Kinsella
David Kinsella
Controller
(Principal Financial and Accounting Officer)
- 25 -
<PAGE>
INDEX TO EXHIBITS
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> SEP-27-1998
<CASH> 37,000
<SECURITIES> 0
<RECEIVABLES> 3,606,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,106,000
<PP&E> 280,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,941,000
<CURRENT-LIABILITIES> 5,899,000
<BONDS> 0
0
0
<COMMON> 22,000
<OTHER-SE> 3,020,000
<TOTAL-LIABILITY-AND-EQUITY> 8,941,000
<SALES> 0
<TOTAL-REVENUES> 14,515,000
<CGS> 0
<TOTAL-COSTS> 11,117,000
<OTHER-EXPENSES> 4,651,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 590,000
<INCOME-PRETAX> (2,113,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,113,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,113,000)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
