U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 28, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO ______
Commission File Number 0-24768
MEDIX RESOURCES, INC.
(Formerly INTERNATIONAL NURSING SERVICES, INC.)
(Name of small business issuer in its charter)
Colorado 84-1123311
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization Identification No.)
Suite 400, 360 South Garfield Street
Denver, Colorado 80209
(Address of Principal Executive Offices)
Issuer's Telephone Number: (303) 393-1515
Securities Registered Under Section 12(b) of the Exchange Act: None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock. $.001 Par Value;
1994 Warrants to Purchase Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[ ]
Registrant's revenues for its most recent fiscal year: $24,875,000
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 24, 1998 was approximately
$6,219,000 (for purposes of the foregoing calculation only, each of the
registrant's officers and directors is deemed to be an affiliate).
There were 20,343,787 shares of registrant's Common Stock outstanding as of
March 24, 1998.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy
Statement that will be filed with the Securities and Exchange Commission in
connection with the registrant's annual meeting of stockholders are
incorporated by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
<PAGE>
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TABLE OF CONTENTS
PART I 3
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2 DESCRIPTION OF PROPERTY 12
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
PART II 15
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 15
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 15
ITEM 7. FINANCIAL STATEMENTS 27
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 27
PART III 28
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT 28
ITEM 10. EXECUTIVE COMPENSATION 29
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND AGREEMENT 35
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 35
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 36
<PAGE>
PART I
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Medix Resources, Inc., a Colorado corporation, formerly known as
International Nursing Services, Inc. (the "Company"), has two principal lines
of business, healthcare services and medical information software.
The Company, doing business as National Care Resources, STAT Health Care
Services, Ellis Health Services, and TherAmerica, Inc., provides skilled
nursing, therapists, rehabilitation and other medical personnel for
supplemental staffing in home care and in a broad spectrum of health care and
educational facilities. The Company's supplemental staffing services are
provided through a pool of approximately 1,500 caregivers including licensed
and registered nurses, rehabilitation, physical, respiratory, occupational and
speech therapists, medical social workers, home care aides and other
unlicensed personnel. The Company's supplemental and home care staff
currently serves over 500 hospitals, clinics, nursing homes, physician groups,
assisted living facilities, health maintenance organizations and other health
care institutions, a variety of educational facilities and individual home
care clients. The Company operates through offices located in Yonkers and the
Bronx, New York, Houston and San Antonio, Texas, Emoryville and Ontario,
California, and Denver and Englewood, Colorado. The Company currently
provides supplemental staffing services and therapists in New York, Texas,
Colorado and California. Travel nurses and therapists are provided in
seventeen states and the District of Columbia.
The Company recently acquired Cymedix Corporation, which has developed an
Internet-based communications and information management product, Cymedix
Lynx, which the Company began marketing to medical professionals nationwide.
Growth of the medical information management marketplace is being driven by
the need to share significant amounts of clinical and patent information
between physicians, their outpatient service providers, hospitals, insurance
companies and managed care organizations. This market is one of the
fastest-growing sectors in healthcare today, commanding a projected two-thirds
of health care capital investments. Cymedix Lynx is a secure medical
communications product, with patent application pending, that makes use of the
Internet. Using Cymedix Lynx, medical professionals can order, prescribe and
access medical information from insurance companies and managed care
organizations, as well as from any participating outpatient service provider
such as a laboratory, radiology center, pharmacy or hospital. The Company
will provide its software free of charge to physicians and clinics, and will
collect user fees whenever these products connect to the Internet. The
product's relational database technology provides physicians with a permanent,
ongoing record of each patient's name, address, insurance or managed care
affiliation, referral status, medical history, personalized notes and an audit
trail of past encounters. Physicians can electronically order medical
procedures, receive and store test results, check patient eligibility, make
medical referrals, request authorizations, and report financial and encounter
information in a cost-effective, secure and timely manner.
HISTORY OF THE COMPANY; PENDING DISPOSITIONS
The Company was incorporated in the State of Colorado on April 22, 1988.
On August 12, 1988, the Company completed a self-underwritten public offering
pursuant to which an aggregate of 150,100 units, each unit consisting of one
share of common stock and one redeemable warrant, were offered and sold. The
Company received gross proceeds of $150,100 from its initial public offering
of such units. On September 19, 1994, the Company completed a public offering
of 225,000 Units, each Unit consisting of two shares of preferred stock, one
share of common stock and three 1994 Warrants. This offering raised gross
proceeds of $5,287,500. A portion of the proceeds of this public offering was
used to finance the Company's acquisitions in September, 1994 of certain
assets of Paxxon Services, Inc. ("Paxxon Services") and certain assets of Mint
Energy Corporation, doing business as Nurse Connection ("Nurse Connection").
In April 1996, the Company acquired certain assets of Ellis Health
Services, Inc. ("Ellis"). The purchase price for the Ellis assets was
$1,025,000. The purchase price was paid by issuing 256,250 shares of the
Company's common stock and guaranteeing that the former owner of Ellis would
receive at least $1,025,000 in proceeds from the sale of the shares. Ellis
had been an affiliated company of Paxxon Services, Inc., which the Company
acquired in September, 1994.
In July 1996, the Company acquired certain assets of STAT Health Care
Services, Inc. ("STAT") for a purchase price of approximately $2,145,000. The
purchase price was paid $1,550,000 in cash, approximately $468,500 worth of
common stock of the Company and warrants to purchase 125,000 shares of common
stock at $1.88 per share, which have since expired.
In January 1997, the Company acquired certain assets of Colorado
Therapists On Call, Inc. ("CTOC") and Professional Healthcare Providers, Inc.
("PHP"), together doing business under the name TherAmerica ("TherAmerica").
The acquisition was effective January 1, 1997 and the Company paid $2,000,000
in cash and assumed approximately $175,000 in liabilities for the assets of
TherAmerica, with the transaction being treated as a purchase for accounting
purposes.
In September 1997, the Company sold its Denver home care and certified
medicare provider operations for $200,000 in cash.
In October 1997, the Company sold the assets and business of Paxxon
Services, one of its New York operations. At the same time the Company
entered into a definitive agreement to sell the other two New York operations,
Ellis and STAT, for $2,080,000 in cash, subject to approval by New York State
licensing authorities and other closing conditions, which can not be assured.
The three New York operations provided approximately $10,262,000 in revenue
for the 1997 fiscal year. The sale of these operations will substantially
reduce the Company's revenues.
In January 1998, the Company acquired Cymedix Corporation, a California
corporation ("Cymedix") which was merged into the Company's own wholly-owned
subsidiary, Cymedix Lynx Corporation, a Colorado corporation, and the Company
issued or committed to issue 6,980,000 shares of its Common Stock to the
shareholders of Cymedix and granted or committed to grant options covering
1,200,000 shares of the Company's Common Stock to employees of the subsidiary.
The Company has agreed to file a registration statement with the U.S.
Securities and Exchange Commission by April 20, 1998, to register such shares
to permit them to be sold into the public market.
The Company may pursue other possible acquisitions or dispositions as
opportunities are presented. All such future transactions will be, and the
above described current dispositions are, subject to definitive documentation
which will and do contain certain closing conditions, including obtaining the
necessary financing. There can be no assurance that the necessary financing
will be obtained or that other conditions to closing will be satisfied. In
addition, there can be no assurance that the Company will consummate either of
the currently contracted dispositions discussed above. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Overview."
HEALTHCARE SERVICES
Overview. The Company provides medical supplemental staffing, principally to
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healthcare institutions in the form of either staffing done on a daily basis
or through travel nurse assignments that are generally thirteen weeks or
longer in length. Health care institutions use supplemental staffing for the
following reasons:
Local and regional health care worker shortages;
Episodic needs for specialty health care during specific disease
epidemics;
Increased patient acuity mix within the hospital markets;
Increases in labor intensive medical care technology;
The aging of the population;
Hospital trends to contain costs by cutting back staff positions to a
minimal level and supporting periodic increased occupancy rates with
supplemental staffing;
Early discharge pressures have caused hospitals to provide more
outpatient and home health care programs; and
Numerous health care organizations have developed special or innovative
arrangements for early discharges, including both pre- and post-admission
services.
Proposals to reform the United States healthcare system have been made
from time to time over the last decade, and can be expected to be made in the
future. Legislation at both the federal and state levels have increased
government involvement in health care, lowered reimbursement rates, limited
capital expenditures and otherwise changed the operating environment for the
Company's customers. Future legislation to enact current and future proposals
can be expected. Healthcare facilities have reacted to these proposals and
legislation and the uncertainty surrounding them by curtailing the use of
flexible staff, which adversely affects the Company's business. The Company
cannot predict with any certainty what impact, if any, proposals for
healthcare reforms might have on the Company's business. The healthcare
industry is subject to changing political, economic and regulatory influences
that may affect the procurement practices and operations of hospitals and
other healthcare facilities. In addition, major third party payers of hospital
services (insurance companies, Medicare and Medicaid) have significantly
revised payment procedures in an effort to contain health care costs. These
developments could negatively impact the Company's operations.
Business Strategy The Company's strategy is to provide comprehensive services
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to patients located in hospitals, health care organizations, and homes.
Staffing is provided in homes, school settings, hospitals, clinics and
physician offices utilizing a supplemental diversified mix of traditional
nursing and other allied health care professionals such as physical,
occupational and respiratory therapists, home health aides, and other nursing
professionals.
The services provided by the Company bridge the gap between hospital and
home. Frequently, the same professionals caring for patients in the hospital
setting are involved in the care at home. Healthcare institutions request
that the Company provide the same trained professional for both home and
hospital health care. This request has driven the Company to provide
supplemental staffing, travel nurse and home health care in each of the
geographical markets that the Company operates.
Other key elements of the Company's strategy include:
Improvement of customer relationships;
Continued contracting and marketing efforts; and
Expansion services in response to customer demand.
The foregoing business strategies include forward-looking statements, the
realization of which are subject to risks and uncertainties that may be
impacted by certain important factors discussed elsewhere herein. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Forward-Looking
Statements and Associated Risks".
Customers. The Company's customers include, but are not limited to, patients,
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hospitals, physicians, third party payers, educational facilities and other
types of health care organizations. Billing, payment arrangements and
staffing agreements with the Company's customers are stipulated by contracts
with the customer. The contracts are not exclusive and do not obligate the
customer to utilize a certain amount of service for any specific period of
time. Customers often use several supplemental staffing agencies to meet
their needs and the Company competes with these agencies on the basis of
pricing, availability of caregivers, and quality of service.
Services. The Company offers a broad range of professional and support
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services to meet medical and personal needs in the home or in health care or
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educational facilities. The following provides a brief description of the
services customarily provided by skilled nursing personnel and other
caregivers placed with customers.
Registered Nurses provide a broad range of nursing care services,
including skilled observation and assessment, instruction of patients
regarding medical and technical procedures, direct hands-on treatment, and
communication and coordination with the attending physician or other service
agencies.
Licensed Practical Nurses perform, under the supervision of a registered
nurse, technical nursing procedures, which include injections, dressing
changes, assistance with ambulation and catheter care.
Physical and Rehabilitation Therapists provide services related to the
reduction of pain and improved rehabilitation of joints and muscles, including
strengthening and range-of-motion exercises, heat lamp therapy and massage.
Occupational Therapists assist patients in restoring their ability to
perform routine activities of daily living by offering instruction in self
care, discussing techniques for coping with physical disability and suggesting
the use of assistant devices or home adaption to make living at home easier.
Speech Therapists retrain patients who have swallowing difficulties or
speech, language or hearing problems to improve their physical capabilities or
communication abilities.
Respiratory Therapists specialize in the prevention, assessment, treatment,
management, and rehabilitation of individuals with respiratory disorders or
cardiopulmonary disease.
Home Health and certified Nurse Aides, working under the supervision of
a registered nurse, provide health-related services and personal care such as
assistance with ambulation, limited range-of-motion exercises and monitoring
of vital signs.
Homemakers/Companions provide personal care and assistance with daily
living activities, including bathing, dressing, grooming, meal preparation,
light housekeeping and occasional shopping for essential items.
Rehabilitation Consulting provides medical and vocational counseling,
consulting, training and expert testimony to businesses, employee-patients and
disabled individuals in connection with physical disability rehabilitation
programs and obligations under the Americans with Disabilities Act.
Recruiting. The Company is active in recruiting skilled nursing and therapy
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personnel and other caregivers in order to assure availability of personnel as
customer demand warrants. Location of assignment, compensation and benefits
are generally the principal factors considered by medical personnel when
determining whether to contract with a particular flexible staffing business.
To date, the Company's operations have not been adversely affected by the
shortage of nurses in certain geographical regions or specialties.
The Company's ability to deliver quality nursing and therapy services is
dependent upon the Company's ability to recruit qualified personnel. The
Company's recruiting efforts include advertising, attendance at national and
regional conventions, personal and professional referrals and participation by
the Company's officers in nursing and other trade associations. The Company
has recruited and continues to recruit medical personnel and has entered into
agreements with other staffing agencies whereby the Company can use the other
agency's personnel under contract. The Company has compiled a listing of over
1,500 qualified nurses and medical personnel who are classified by skills,
experience and availability for assignment. These nurses and other medical
personnel generally do not work exclusively for the Company. The Company has
in the past been generally successful in meeting its staffing requirements
from its existing pool of caregivers and, in cases where a particular
specialty or expertise was unavailable, the Company has been successful in
hiring personnel on a subcontract basis from other flexible staffing
companies.
Marketing and Sales. The Company's clientele currently consists of hospitals
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and other healthcare and educational facilities located in New York, Texas,
California and Colorado and its travel nursing and therapist clientele
consists of hospitals and other healthcare facilities in seventeen states and
the District of Columbia. The Company has secured non-exclusive agreements to
supply supplemental staff to these healthcare facilities for a period of
between one and two years. The Company derives a significant portion of its
business through its marketing efforts and expects to continue its marketing
efforts to local and regional hospital chains as the expected consolidation in
the health care industry is anticipated to result in an increasing number of
regional and national hospital chains.
The Company markets its supplemental staffing services principally
through direct contact with hospitals, direct mail, attendance at national and
regional conventions and seminars and telephone solicitations. In order to
increase its penetration in the supplemental staffing market, the Company has
also initiated a program to include rehabilitation, physical and respiratory
therapists for placement in hospitals and other health care and educational
facilities. Management anticipates the Company will continue to develop its
marketing programs.
The Company's marketing and sales strategy consists of working to
increase its shift count and improve its gross margins with existing clients,
bidding competitively on new contracts and continuing to expand its
opportunities to place its personnel at non-traditional facilities. The
Company intends to utilize the existing infrastructure in each of its branch
offices to expand its service offerings in each branch office.
Competition. The Company's supplemental staffing businesses compete with
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other medical recruitment and supplemental staffing organizations which offer
the same or similar services provided by the Company. Many of these
competitors have greater financial and other resources than are available to
the Company. Competition for hospital and other health care clients is
generally based on the ability to provide qualified nurses and medical
personnel on a timely basis in a cost-competitive manner. The Company also
experiences competition in recruiting for nursing staff and other medical
personnel.
The Company believes the key competitive factors in its industry include
service, price and its ability to deliver staff to the geographic area where
needed. The range of specialized services offered, together with the price
charged for the services, are also competitive factors in attracting clients.
Regulation. The healthcare system in the United States is highly regulated at
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the federal, state and local level. The object of such regulation is
generally quality and, more recently, cost control. Most individual
healthcare providers are required to be licensed at the state level by the
states in which they provide services. As mentioned earlier, over the last
decade, several programs have been proposed to reform the United States
healthcare system, and certain legislation enacted at the federal and state
levels. This legislation has generally increased governmental involvement in
healthcare. Other than as described below, the Company, as it currently
operates, is not required to be licensed by any governmental agency. Most of
the Company's customers are licensed and the impact of governmental regulation
on these customers has in the past and may in the future adversely affect the
Company's operations. There can be no assurance the Company will be able to
operate profitably in the current regulatory environment.
Certain of the Company's operations have received, accreditation from the
Joint Commission on Accreditation of Healthcare Organizations ("JCAHO") to
evidence the Company's commitment to high service standards in its Bronx and
Yonkers offices, which are currently expected to be sold during 1998. See
"History of the Company; Pending Dispositions." Management believes such
certification provides a marketing advantage to the Company's home care and
rehabilitation services, although there is no assurance such certification
will be received by all of its offices. If the proposed sale of the Bronx and
Yonkers offices is completed, none of the Company's remaining offices
currently are accredited by JCAHO and no such accreditation is required.
Several states have enacted legislation requiring providers of
supplemental staffing services to publicly post their billing rates. At least
one state has adopted legislation that provides for regulatory review of such
billing rates. The adoption of similar legislation by other states could have
an adverse impact on the supplemental staffing industry.
The Company is subject to various city, county and state payroll,
occupational and professional licensing laws that apply to medical
professionals. Many states have statutes requiring training, monitoring and
regulating of medical professionals. The Company complies with such
requirements as applicable to its operations and such requirements have not
adversely impacted the Company.
<PAGE>
MEDICAL INFORMATION SOFTWARE
In January 1998, the Company acquired a developer of software
applications for medical information management. The acquired business had
been organized in November 1995. The Company's first two software products,
Cymedix Lynx and Sherpa Universal Data Interface (Sherpa ), have just begun
to be marketed to the medical community. Cymedix Lynx manages remote
information distribution in the healthcare industry and Sherpa Universal
Interface manages information integration. These two products, together with
their relational database technology, will provide physicians with a
permanent, ongoing record of their patients' insurance, managed care
affiliation, referral status, medical history and diagnosis. Cymedix Lynx is
Internet based, but completely secure, and provides doctors with forms to
order medical procedures, make referrals and check insurance eligibility.
Customers and Marketing. The marketing strategy for the LYNX products of the
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Company's subsidiary, Cymedix Lynx Corporation, will focus on the direct
cost savings that can be achieved by using the Internet as the platform for
medical data exchange compared to the current manual and semi-automated
practices of competitors, relying on a combination of mail, telephone, fax or
private network communications. The subsidiary will also emphasize the value
added features of its LYNX software in making the flow of medical data more
efficient.
Unlike its existing competitors that generally focus on software sales to
physicians, the Company's subsidiary will market LYNX to sponsoring
organizations such as HMOs, hospital-based physicians networks and clinical
laboratories that can offer the product to physicians without charge as a
cost savings connectivity solution for their routine transactions, including
medical orders, eligibility checks, authorization of care and doctor
referrals. The subsidiary anticipates that its LYNX sponsors will charge fees
on a per transaction basis. As a result, participants will only pay for the
product when it is used, and the Company's subsidiary will charge sponsors a
per transaction fee based on the type of transaction. The twin drivers of
demand for the LYNX products, a cost savings solution to an ongoing expense
and the low risk purchase decision inherent in this strategy are expected to
facilitate early adoption of the LYNX products by sponsoring organizations.
As part of its penetration pricing strategy, the Company plans to set fees at
a 30% discount to current alternatives in the market place.
The Company's subsidiary recently implemented distribution and licensing
arrangements with Global Med Technology, Inc. As an established vendor of
drug testing, blood bank and blood donor management software, Global is
expected to provide Cymedix with access to its customer base for distribution
services and to act as a value added re-seller under the licensing
arrangements, with potential royalties to the Company's subsidiary generated
from the sale of Global products incorporating the LYNX technology. Because
this arrangement has only recently been entered into, the Company cannot
predict at this time the degree of the possible contributions Global could
make to Cymedix's marketing efforts.
Competition. While Cymedix believes it is the first company to market a
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product for clinical medical data exchange through Internet, competition can
be expected to emerge from established healthcare information vendors,
seeking to capitalize on Cymedix's work in developing and proving the
market. The most likely competitors are companies with a focus on clinical
information systems and enterprises with an Internet commerce or electronic
network focus. Many of these competitors will have access to substantially
greater amounts of capital resources than the Company has access to, for the
financing of technical, manufacturing and marketing efforts. Frequently,
these competitors will have affiliations with major medical product companies
or software developers, who will assist in the financing of such competitor's
product development. The Company will seek to raise capital to develop
Cymedix products in a timely manner, however, so long as the operations of the
Company remain underfunded, as they now are, the Company and its subsidiary
will be at a competitive disadvantage.
Patents, Trademarks and Licenses. The Company's wholly-owned subsidiary,
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Cymedix Lynx, has filed U.S. patent application, Serial No. 08/950,328,
covering its Cymedix Lynx product, on October 14, 1997, and has made a related
filing under the Patent Cooperation Treaty, Application No. PCT/US97/18675.
The U.S. application is currently under review by the U.S. Patent and
Trademark Office. Whether a patent will be granted in response to such
application or the scope of such patent can not be determined at this time.
This subsidiary has also filed applications with the U.S. Patent and Trademark
Office for trademark protection of certain "marks" used or to be used with its
software products. Regulatory review of such applications has not yet been
completed. In addition, the subsidiary will file applications for copyright
registration with the U.S. Copyright Office of modular software components and
related software when it deems copyright protection is legally available and
in the best interest of the Company. No assurance can be given that any of
the Company's software products will receive patent or other intellectual
property protection.
Regulation.
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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 historically
created uncertainty in the industry. A current example is the Health insurance
Portability and Accountability Act of 1996 (HIPAA). 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 procuts 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 of such
products could be required, depending on the product, to (i) register and list
their products with the 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.
EMPLOYEES
Healthcare Services. Exclusive of medical personnel, the Company has 53
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full-time and 5 part-time administrative employees. The number of caregivers
on assignment varies from day to day. These medical personnel do not
necessarily work full-time shifts and may not work exclusively for the
Company. The Company's employees are not represented by a union and the
Company considers its relations with its employees to be good. The Company
currently has in place a screening process for all prospective medical
personnel. The Company has entered into agreements with other staffing
agencies whereby the Company may place medical personnel currently under
contract with other staffing agents.
Medical Information Software. The Company's software subsidiary currently has
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13 full-time and 2 part-time employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located at Suite 400, 360 South
Garfield Street, Denver, Colorado. A summary of the Company's facilities is
provided below:
<TABLE>
<CAPTION>
Square Expiration 1997
Footage Date Rent
------------ ------------- ----------
<S> <C> <C> <C>
Houston, Texas 1,749 9/30/00 $ 15,000
San Antonio, Texas 1,270 4/30/98 14,000
Denver, Colorado 6,113 9/30/00 101,000
Englewood, Colorado 2,269 4/30/98 41,000
Bronx, New York 2,000 10/1/01 36,000
Ontario, California 1,513 12/31/98 25,000
Emeryville, California 791 8/31/00 18,000
----------- ------------
15,705 $250,000
===========
</TABLE>
The Company believes these facilities, which are used for administrative
offices, will be suitable for the Company's needs for the foreseeable future.
The Company believes that all of its properties are adequately insured.
<PAGE>
ITEM 3. 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. 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 believes that its employee
was not negligent in his duties and that the Company has no liability in this
matter. The Company intends to vigorously defend itself in this matter. In
addition, 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. The Company has accrued $100,000 as a potential settlement and
litigation expense. The Company believes that it will not incur any material
losses in excess of accrued amounts. The Company's professional liability
carrier has neither admitted nor denied coverage in this matter, reserving all
of its rights under the policy, but it has made an appearance in the
litigation to defend the matter.
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. EHCSI sought a judgment of $421,705, which
represents the difference between the asset purchase price of $1,060,063 and
the total of (i) the aggregate sales proceeds EHCSI received from the sale of
all of its shares of the Company's stock and (ii) a cash payment of $60,000
made by the Company to EHCSI. In addition to the amount of $421,705, the
complaint seeks interest on such amount at nine percent (9%) per annum and
attorney's fees. On August 1, 1997 the Company agreed to a settlement of this
matter and agreed to pay EHCSI $435,397.30 plus interest at the rate of nine
percent (9%) per annum in an initial payment of $60,000 and monthly payments
of $19,722 with the last payment due April 1, 1999. 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 $391,731.20
plus interest at the rate of nine percent (9%) until paid. The Company is
continuing to negotiate this matter with EHCSI and to pay its agreed monthly
payments. It has paid the delinquent $60,000 and EHCSI has made no effort to
date to execute the judgment against the Company.
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. While no specific amount of
damages has been claimed in either matter, plaintiffs both seek punitive or
exemplary damages as well as other reasonable damages. The Company has denied
both claims and intends to vigorously defend both matters. The Company does
not believe that either matter will have a material adverse affect on the
financial condition of the Company.
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
possible 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
online 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. It also stated that it will be taking strong and
appropriate counteraction against these claims, which it reportedly
characterized as " libelous" and with "no basis in substantial fact." The
Company cannot foresee how this matter will proceed, how long it will take to
resolve, or what the ultimate impact of these matter will be on the financial
condition of the Company. If litigation in this matter is commenced, it could
require substantial resources from the Company and take up substantial
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.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No vote of security holders was solicited during the last quarter of
1997. The annual meeting of shareholders was held on January 30, 1998 in
Denver, Colorado (adjourned as to Proposal No. 4 below, until February 20,
1998) for the purpose of electing a board of directors, authorizing a reverse
stock split, authorizing a name change, authorizing a change in certain
shareholder voting requirements and approving the appointment of independent
auditors. Proxies for the meeting were solicited pursuant to Section 14(a) of
the Securities Exchange Act of 1934 and there was no solicitation in
opposition to management's solicitations.
Voting results were as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted Shares Voted Shares Voted Shares Subject
to Broker
For Against Withhold Abstain Non-Votes
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
1. Election
of
directors
John Yeros 8,973,171 - 325,059 - -
Tom Oberle 8,975,044 - 323,186 - -
Charlie
Powell 8,977,044 - 321,186 - -
2. Approval
of
reverse
split 8,422,460 727,039 - 148,731 -
3. Approval
of
name
change 8,757,964 324,635 - 142,587 73,044
4. Approval
of
change
in
shareholder
vote
required 6,384,867 1,293,698 - 277,888 4,103,501
5. Approval
of
independent
auditors 9,039,355 120,659 - 138,216 -
</TABLE>
Shareholders of record for purposes of this annual meeting were
determined as of December 8, 1997 and total shares able to be voted were
12,768,272. Therefore, all proposals were approved by the shareholders.
However, the Board of Directors of the Company determined that it was in the
best interest of the Company to abandon Proposal No. 2, regarding a reverse
stock split, prior to its effectiveness.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ Small-Cap Market under
the symbol "NURS." The following table shows high and low bid price
information for each quarter in the last two calendar years as reported by
NASDAQ. Such quotations reflect inter-dealer prices, without retail mark-ups,
markdowns or commissions, and may not necessarily represent actual
transactions. On March 24, 1998, the last sales price was reported to be
$0.34.
<TABLE>
<CAPTION>
Common Stock Bid Price
---------------------
High Low
<S> <C> <C>
1996 Fiscal Year
First Quarter $7.94 $3.00
Second Quarter 3.69 1.88
Third Quarter 3.15 1.69
Fourth Quarter 2.63 1.00
1997 Fiscal Year
First Quarter $1.50 $0.63
Second Quarter .69 .19
Third Quarter .19 .13
Fourth Quarter .38 .13
</TABLE>
The Company has been notified by NASDAQ that it does not meet the new NASDAQ
minimum bid requirement ($1.00). The Company has until May 28, 1998 to comply
with this requirement. The Company intends to take action to comply with the
requirements, which may include a reverse split of the Company's outstanding
common stock. There can be no assurance that the Company's common stock
will remain listed on the NASDAQ small cap market.
There were approximately 400 holders of record (and approximately 2,200
beneficial owners) of the Company's common stock as of March 24, 1998. The
number of record holders includes shareholders who may hold stock for the
benefit of others. The Company had 20,343,787 shares of common stock
outstanding. See Note 9 to the Company's consolidated financial statements.
The Company does not expect to pay any dividends on its common stock in
the foreseeable future. Management currently intends to retain all available
funds for the development of its business and for use as working capital. The
payment of dividends on the common stock is subject to the Company's prior
payment of all accrued and unpaid dividends on any preferred stock
outstanding.
During the last quarter of 1997, the following securities were sold by
the Company without registration with the Securities and Exchange Commission
pursuant to the exemption noted:
<TABLE>
<CAPTION>
Securities Number of Exemption
Sold Date Shares Consideration Purchasers Claimed
- - ---------- --------- ---------- ------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Common Conversion of Private Section 3(a)(9)
Stock Oct 97 99,055 Preferred Investors
Common Conversion of Private Section 3(a)(9)
Stock Dec 97 599,544 Preferred Investors
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company's revenues are provided primarily from supplemental staffing
of therapy and nursing professionals. The Company plans for some internal
growth, in the next twelve months, to be achieved through diversification and
expansion of services at existing locations. If projections are met, the
staffing portion of the business should provide adequate cash flow to fund
operations in the next twelve months.
In January 1998, the Company aquired Cymedix Corporation, a development
stage medical software company. (See "DESCRIPTION OF BUSINESS") Cymedix will
require adequate funding in order to succeed in bringing its product to
market. The Company intends to fund Cymedix principally with proceeds from
the sale of its New York offices. See "DESCRIPTION OF BUSINESS - History of
the Company; Pending Dispositions".
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.
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.
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. 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.
Company Specific Factors. Important factors to be considered in
---------------------------
connection with forward-looking statements include, without limitation, (a)
the fact that the Company reported net losses in the last several years and
had an accumulated deficit and a working capital deficit at the end of fiscal
1997; (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 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) 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 (e) 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.
Any of these important factors discussed above or elsewhere in this
filing could cause the Company's revenues or net income, or growth in revenues
or net income, to differ materially from prior results. 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.
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 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.
GOING CONCERN ISSUES
The Company has suffered recurring losses for the past several years and
incurred net losses for the year ended December 29, 1996 of $1,207,000, and
for the year ended December 28, 1997 of $515,000. In addition, the Company
had a working capital deficit of $329,000 and accumulated deficit of
$8,114,000 at December 28, 1997. These factors, among others, raise a
substantial doubt about the ability of the Company to continue as a going
concern, which has been noted in the audit report of the Company's independent
auditors. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
RESULTS OF OPERATIONS
Comparison of Years Ended December 28, 1997 and December 29, 1996
- - ---------------------------------------------------------------------------
Total net revenues increased approximately 75% from $14,259,000 for the
year ended December 29, 1996 (the "1996 Fiscal Year") to $24,875,000 for the
year ended December 28, 1997 (the "1997 Fiscal Year"). The increase was
mainly attributable to the acquisitions of TherAmerica, STAT, and Ellis. The
TherAmerica, STAT and Ellis acquisitions were accounted for under the purchase
method of accounting. Accordingly, revenues from these acquisitions are
included in the consolidated financial statements of the Company from the date
of the acquisitions, January 1997 for TherAmerica, April 1996 for Ellis, and
July 1996 for STAT. Revenues from these entities included in the statement of
operations for the 1997 Fiscal Year were $8,387,000 for TherAmerica,
$5,072,000 for STAT, and $2,018,000 for Ellis. Revenues from these entities
included in the statement of operations for the 1996 Fiscal Year were
$2,395,000 for STAT and $1,185,000 for Ellis. In the fourth quarter of the
1996 fiscal year the company started a travel nursing division. Revenues from
the travel nursing division included in the statements of operations for the
1997 and 1996 Fiscal Years were $1,349,000 and $24,000 respectively. These
increases were offset by revenue losses in the Paxxon branch and the sales of
the Paxxon and homecare divisions.
In October 1997, the Company sold the assets and business of Paxxon Services,
one of its New York operations. At the same time, the Company entered into a
definitive agreement to sell the other two New York operations, Ellis and
STAT, for $2,080,000 in cash, subject to approval by New York State licensing
authorities and other closing conditions, which can not be assured. The three
New York operations provided approximately $10,262,000 in revenue for the 1997
fiscal year. The sale of these operations will substantially reduce the
Company's revenues.
The Company's total gross margin remained flat at 24% for the 1997 and
1996 Fiscal Years.
See Footnote 2 of the consolidated financial statements for the unaudited
results of operations of the Company after giving effect to the TherAmerica
and Cymedix acquisitions as if they had been acquired as of January 1, 1996.
Selling, general, and administrative expenses increased approximately
$1,587,000 or 39% from $4,083,000 in the 1996 Fiscal Year to $5,670,000 in the
1997 Fiscal Year. As a percent of sales, selling, general, and administrative
expenses decreased from 29% of sales in the 1996 Fiscal Year to 23% of sale in
the 1997 Fiscal Year. The decrease in selling, general, and administrative
expenses, as a percent of sales, is due to economies of scale and reduction of
corporate and branch managerial and administrative staff.
Income(Loss) from operations increased $1,265,000 from a loss from
operations of ($655,000) in the 1996 Fiscal Year to income from operations of
$610,000 in the 1997 Fiscal Year. The increase reflects gain on sale of
divisions of $422,000 (see Note 4 to the Consolidated Financial Statements) in
the 1997 Fiscal Year and the reduction of selling, general, and administrative
expenses, as a percent of sales, discussed in the above paragraph.
Interest expense increased 104% from $552,000 in the 1996 Fiscal Year to
$1,125,000 in the 1997 Fiscal Year. The increase relates accrued interest on
late payroll taxes, interest paid on a bridge loan, and an increase in funding
costs on the additional accounts receivable due to the TherAmerica, STAT, and
Ellis acquisitions. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION -- Liquidity of Capital Resources" and Notes 3, 6, and 9 to the
Consolidated Financial Statements.
Net loss decreased from ($1,207,000) in the 1996 Fiscal Year to
($515,000) in the 1997 Fiscal Year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liabilities at December 28, 1997 aggregated
approximately $5,636,000 and current assets at December 28, 1997 aggregated
approximately $5,307,000.
<PAGE>
In order for the Company to meet its cash requirements in the next year,
management anticipates the need to raise additional debt or equity capital or
sell assets. Management believes that the Company will generate positive cash
from its staffing operations, once certain non-recurring operating liabilities
incurred in the past have been paid off. (See Note 3 to the Consolidated
Financial Statements) However, the Company will require the raising of
additional debt or equity capital or asset sales to adequately fund Cymedix.
On October 19, 1997 the Company sold certain assets of one of its New
York operations for $1,275,000 in cash and a note for $193,000. At the same
time the Company entered into a definitive agreement to sell the other two New
York operations for $2,080,000 in cash subject to approval by New York State
licensing authorities and other closing conditions. (See Note 4 to the
Consolidated Financial Statements.) The $1,275,000 was used to meet a portion
of the Company's current obligations. If the transactions under definitive
agreement close on a timely basis, funds should be available to meet a portion
of the Company's current obligations and adequately fund Cymedix. There is no
assurance, however, that these transactions will close on a timely basis or at
all. The cash consideration is anticipated to be adequate to meet the
Company's needs if Cymedix achieves its sales and operating projections. See
"Forward-Looking Statements and Associated Risks - Medical Information
Software Operations" above. The three New York operations provided
approximately $10,262,000 in revenue for the 1997 fiscal year. The sale of
these operations will substantially reduce the Company's revenues. The
Company believes its ability to generate cash flow, combined with the asset
sale mentioned above and additional financing, if necessary, will generate
sufficient cash to support its operations for the next twelve months.
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.
YEAR 2000 DISCLOSURE
- - ----------------------
The Company uses current versions of widely used, publicly available
software for its accounting and other data processing requirements. The
providers of the software utilized by the Company have stated that there will
be no failures in the programs used by the Company resulting from the year
2000. Cymedix Lynx was designed to be year 2000 compliant. The Company does
not feel it will incur any significant costs in excess of normal operating
expenses relating to the year 2000.
ITEM 7. FINANCIAL STATEMENTS
Attached hereto and filed as a part of this Form 10-KSB are the
Consolidated Financial Statements of the Company.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by the above four Items is omitted because the
Company intends to file a proxy statement with the Commission pursuant to
Regulation 14A not later than 120 days after the close of the fiscal year in
accordance with General Instruction E(3) to Form 10-KSB. The information
called for by these Items is incorporated herein by reference to the proxy
statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B. The Company
-----------------------------------------------
will furnish to its shareholders of record as of the record date for its 1998
Annual Meeting of Stockholders, a copy of any of the exhibits listed below
upon payment of $.25 per page to cover the costs of the Company of furnishing
the exhibits.
Exhibit No. Description
- - ----------- -----------
3.1.1 Articles of incorporation of the Company as filed on
April 22, 1988 with the Secretary of State of the
State of Colorado, incorporated by reference to Exhibit
3.1.1 to the Registration Statement on Form SB-2(Reg. No.
33-81582-D), filed with the SEC in July 14,1994
(the "1994 Registration Statement").
3.1.2 Articles of Amendment to Articles of Incorporation of the
Company as filed on May 24, 1988 with the Secretary of
State of the State of Colorado, incorporated by
reference to Exhibit 3.1.2 to the 1994 Registration
Statement.
3.1.3 Articles of Amendment to Articles of Incorporation of the
Company as filed on February 16, 1990 with the Secretary
of State of the State of Colorado, incorporated by
reference to Exhibit 3.1.3 to the 1994
Registration Statement.
3.1.4 Articles of Amendment to Articles of Incorporation of the
Company as filed on August 12, 1994 with the Secretary
of State of the State of Colorado, incorporated by
reference to Exhibit 3.1.4 to Amendment No. 1 to
the 1994 Registration Statement, filed with the
SEC on August 15, 1994.
3.1.5 Articles of Amendment to Articles of Incorporation of the
Company as filed on September 12, 1994 with the
Secretary of State of the State of Colorado, incorporated
by reference to Exhibit 3.1.5 to Amendment No. 3 to the
1994 Registration Statement, filed with the SEC on
September 12, 1994.
3.1.6 Certificate of Designation of 1996 Convertible Preferred
Stock, incorporated by reference to Exhibit 3.1 to
Amendment No. 1 to the Registration Statement of the
Company on Form S-3, filed with the SEC October 10, 1996.
3.1.7 Articles to Amendment to Articles of Incorporation filed
with the Secretary of State of the State of
Colorado on October 9, 1996, incorporated by reference
to Exhibit 3.2 to Amendment No. 1 to the
Registration Statement of the Company on Form S-3
filed with the SEC on October 10, 1996.
3.1.8 Articles of Amendment containing Articles of
Designation of 1997 Convertible Preferred
Stock, incorporated by reference to Exhibit 3.1.8 to the
Company's Form 10-KSB filed
with the SEC on March 31, 1997
3.1.9 Articles of Amendment to Articles of Incorporation of the
Company as filed on November 14, 1997 with the
Secretary of State of the State of Colorado.*
3.1.10 Articles of Amendment to Articles of Incorporation of
the Company as filed on February
17, 1998 with the Secretary of State of the State of
Colorado.*
3.1.11 Articles of Amendment to Articles of Incorporation of
the Company as filed on March 7, 1998 with the
Secretary of State of the State of Colorado.*
3.2.1 Amended and Restated By-Laws of the Company, incorporated
by reference to Exhibit 3.2.2 to Amendment No. 1 to
the Registration Statement filed with the SEC on
August 15, 1994.
4.1 Form of specimen certificate for common stock of the
Company.*
4.2.1 Form of specimen certificate for 1994 Warrants of the
Company, incorporated by reference to Exhibit No. 4.1.3
to Amendment No. 1 to the 1994 Registration Statement,
filed with the SEC on August 15, 1994.
4.2.2 Form of Warrant Agreement by and between the Company
and American Securities
Transfer, Inc., incorporated by reference to Exhibit No.
4.1.4 to Amendment No. 2
to the 1994 Registration Statement, filed with the SEC
on September 1, 1994.
4.3 Form of Representative's Warrants issued by the Company
to the underwriters' representative in connection
with the Company's 1994 public offering, incorporated
by reference to Exhibit No. 4.2 to Amendment No. 3 to
the 1994 Registration Statement, filed with the SEC on
September 12, 1994 .
4.4 Form of 1996 Unit Warrant, incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to the Registration
Statement of the Company on Form
S-3 filed with the SEC on October 10, 1996.
4.5 Warrant issued January 28, 1997 to Millenco, L.P,
incorporated by reference to Exhibit
4.9 to the Company's Form 10-KSB filed with the SEC
on March 31, 1997
4.6 Form of 1997 Unit Warrant, incorporated by reference
to Exhibit 4.11 to the Company's
Form 10-KSB filed with the SEC on March 31, 1997.
10.1 Employment Agreement, dated January 7, 1997, by and
between John Yeros and the
Company, incorporated by reference to Exhibit 10.22 to
the Company's
Form 10-KSB filed with the SEC on March 31, 1997.
10.2.1 Incentive Stock Option Plan, adopted May 5, 1988,
authorizing 100,000 shares of common stock for issuance
pursuant to the Plan, incorporated
by reference to Exhibit No. 10.2.1 of the 1994
Registration Statement.
10.2.2 Omnibus Stock Option Plan, adopted effective January 1,
1994, authorizing 500,000 shares of common stock for
issuance pursuant to the Plan, incorporated by reference
to Exhibit No. 10.2.2 of the 1994 Registration
Statement.
10.2.3 1996 Stock Incentive Plan, adopted by the Company's Board
of Directors on November 27, 1996, authorizing 3,000,000
shares of common stock for issuance pursuant to the
Plan.*
10.3.1 Office Lease, dated February 20, 1991 by and between POCOL
Investments, a Delaware partnership, as landlord, and
the Company, as tenant, incorporated by reference to
Exhibit 10.3.1 to the 1994 Registration Statement.
10.3.2 First Amendment to office Lease, dated September 21, 1992
by and between POCOL Investments, a Delaware
partnership, at landlord, and the Company, as tenant,
incorporated by reference to Exhibit 10.3.2 to the 1994
Registration Statement.
10.3.3 Second Amendment to Office Lease, dated August 9, 1993 by
and between POCOL Investments, a Delaware
partnership, as landlord, and the Company, as tenant,
incorporated by reference to Exhibit 10.3.3 to the 1994
Registration Statement.
10.4 Asset Purchase and Sale Agreement, dated May 2, 1994 and
as amended June 1, 1994, by and between the Company
and Paxxon Services, Inc., incorporated by reference to
Exhibit 2.2 to the 1994 Registration Statement.
10.5 Asset Purchase and Sale Agreement dated April 15, 1994
and as amended June 1, 1994, by and between the Company
and Mint Energy Corporation, d/b/a the Nurse
Connection, incorporated by reference to Exhibit 2.4 to
the 1994 Registration Statement.
10.6 Asset Purchase Agreement among the Company, JJ Care
Rexources, Inc. and STAT Health Care Services, Inc.,
dated January 10, 1996, incorporated by
reference to Exhibit 10.18 to Form 8-K of the Company,
filed with the SEC on January 11, 1996.
10.7 Asset Purchase and Sale Agreement, dated as of April 17,
1996, by and between Ellis Home Care Services,
Inc., JJ Care Resources, Inc. and the Company,
incorporated by reference to Exhibit No.10.1 to Form
8-K of the Company, filed with the SEC on April 1996
10.8 First Amendment to Purchase Agreement, dated as of
July 17, 1996, between the Company, JJ Care Resources,
Inc. and STAT Health Care Services,
Inc., incorporated by reference to Exhibit 10.19 to
Form 8-K of the Company, filed with the SEC on
August 1, 1996
10.9 Form of Registration Rights/Purchase Agreement relating
to 1996 Unit Offering, incorporated by reference to
Exhibit 10.1 to Amendment No. 1 to the Registration
Statement of the Company on Form S-3, filed with the
SEC on October 10, 1996.
10.10 Asset Purchase Agreement, dated as of January 31, 1997 by
and among Colorado Therapists on Call, Inc.,
Professional HealthCare Providers, Inc., CoreStaff,
Inc. and the Company, incorporated by reference to
Exhibit 2.1 to the Form 8-K of the Company filed
on February 14, 1997.
10.11 Form of Registration Rights/Purchase agreement relating to
1997 unit offering, incorporated by reference to
Exhibit 10.21 to the Company's Form 10-KSB filed
with the SEC on March 31, 1997
10.12 Loan and Security Agreement, dated May 28, 1997, by and
between National Care Resources - New York, Inc.,
National Care Resources - Texas, Inc., JJ Care Resources,
Inc., National Care Resources - Colorado, Inc.,
TherAmerica, Inc. and International Nursing Services,
Inc. and HCFP Funding, Inc., incorporated by reference
to Exhibit 10.23 in the Company's Form 10-QSB for the
Quarterly Period ended June 29, 1997.
10.13 Agreement of Purchase and Sale (Assets), dated as of
September 1, 1997, by and between National Care
Resources, Inc. and Life Source Service, Inc.,
incorporated by reference to Exhibit 2.1 in the
Company's Form 10-QSB for the Quarterly Period ended
September 28, 1997, filed with the SEC on November
14, 1997.
10.14 Purchase and Sale Agreement, between International Nursing
Services, Inc., National Care Resources - New York,
Inc., National Health Enterprises - NV, Inc., and
National Health Enterprises, Inc., dated October
19, 1997, incorporated by reference to Exhibit 99.1
to the Company's Current Report on Form 8-K filed
with the SEC on November 26, 1997.
10.15 Agreement and Plan of Merger, dated as of November 17,
1997, among International Nursing Services, Inc.,
Cymedix Lynx Corporation and
Cymedix Corporation, incorporated by reference to Exhibit
2.1 to the Company's Current Report on Form 8-K
filed with the SEC on December 24, 1997.
10.16 Amendment No. 1 to Agreement and Plan of Merger, dated as
of December 10, 1997, among International Nursing
Services, Inc., Cymedix Lynx Corporation and Cymedix
Corporation, incorporated by reference to Exhibit 2.2
to the Company's Current Report on Form 8-K filed with
the SEC on December 24, 1997.
10.17 Stipulation of Settlement between Ellis Home Care
Services, Inc. and the Company,
incorporated by reference to Exhibit 10.1 to the
Company's Form 10-QSB for the
Quarterly Period ended September 28, 1997, filed with
the SEC on November 14, 1997.
10.18 Judgment against the Company in favor of Ellis Home Care
Services, Inc., incorporated
by reference to Exhibit 99 to the Company's Form 10-QSB
for the Quarterly Period ended September 28, 1997,
filed with the SEC on November 14, 1997.
10.19 Settlement and Release Agreement, dated November 22, 1996,
among Cymedix Corporation, Keith Berman, Global Med
Technologies, Inc., and Mick Ruxin.*
10.20 Loan and Security Agreement, dated February 26, 1996,
between MedSoft OnLine, Inc. and Global Med
Technologies, Inc.*
10.21 Loan and Security Agreement, dated May 28, 1997, by and
between National Care Resources - New York, Inc.,
National Care Resources - Texas,
Inc., JJ Care Resources, Inc., National Care
Resources - Colorado, Inc. TherAmerica, Inc. and
International Nursing Services, Inc. and HCFP Funding,
Inc., incorporated by reference to Exhibit 10.23 to the
Company's Form 10-QSB, filed with the SEC on August
13, 1997.
21. Subsidiaries of the Company.*
23. Consent of Ehrhardt Keefe Steiner & Hottman PC,
independent certified public accountants for the
Company.*
27. Financial Data Schedule, incorporated by reference to
exhibit 27.2 to the Company's Current Report on Form
8-K filed with the SEC on March 23, 1998.
*Filed herewith
(b) Reports on Form 8-K. The Company filed two reports on Form 8-K during
-------------------
the last quarter of 1997 as follows:
1. Report dated November 14, 1997, reporting under Item No. 2 the sale of
the Company's Paxxon Services office and operations in Yonkers, New York, as
filed with the SEC on November 26, 1997.
2. Report dated December 10, 1997, reporting under Item No. 2 the approval by
shareholders of Cymedix Corporation of the merger of that corporation into a
subsidiary of the Company, as filed with the SEC on December 24, 1997.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on behalf by the
undersigned, thereunto duly authorized on March __, 1998.
INTERNATIONAL NURSING SERVICES, INC.
By: /s/ John P. Yeros
--------------------
John P. Yeros,
Chairman of the Board and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John P. Yeros Chairman of the Board and March 30, 1998
- - -------------------- Chief Executive Officer
John P. Yeros (Principal Executive and
Financial Officer)
/s/ Barry J. McDonald Chief Operating Officer March 30, 1998
- - ------------------------ and Secretary
Barry J. McDonald
/s/ David Kinsella Controller (Chief March 30, 1998
- - -------------------- Accounting Officer)
David Kinsella
/s/ Thomas J. Oberle Director March 30, 1998
- - -----------------------
Thomas J. Oberle
/s/ Charles Powell Director March 30, 1998
- - --------------------
Charles Powell
MEDIX RESOURCES, INC.
AND SUBSIDIARIES
FINANCIAL STATEMENTS
DECEMBER 28, 1997
MEDIX RESOURCES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
-----------------
Page
----
Independent Auditors' Report F-1
Financial Statements
Consolidated Balance Sheet F-3
Consolidated Statements of Operations F-4
Consolidated Statement of Changes in
Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Financial Statements F-8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Medix Resources, Inc. (formerly International
Nursing Services, Inc.)
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Medix
Resources, Inc. (formerly International Nursing Services, Inc.) and
Subsidiaries, as of December 28, 1997, and the related consolidated statements
of operations and changes in stockholders' equity, and cash flows for the
years ended December 28, 1997 and December 29, 1996. These consolidated
financial statements are the responsibility of the management of Medix
Resources, Inc. and Subsidiaries. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Medix Resources, Inc. and Subsidiaries, as of December 28, 1997, and the
results of their operations and their cash flows for the years ended December
28, 1997 and December 29, 1996 in conformity with generally accepted
accounting principles.
<PAGE>
To the Board of Directors and Stockholders
Medix Resources, Inc. (formerly International
Nursing Services, Inc.)
Page Two
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As further discussed in
Note 1 to the consolidated financial statements, the Company has incurred
operating losses for the past several years and has a deficit in working
capital which raises substantial doubt about its ability to continue as a
going concern. Current management's plans in regards to this matter are also
discussed in Note 1. The consolidated financial statements do not include any
adjustments that might result from this uncertainty.
As disclosed in Note 1 to the consolidated financial statements, the Company
changed its method of computing earnings per share.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
March 18, 1998
Denver, Colorado
MEDIX RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 28, 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets
Cash $ 158,000
Accounts receivable, net of allowance of $384,000 4,559,000
Notes receivable 491,000
Prepaid expenses and other 99,000
--------
Total current assets 5,307,000
Property and equipment, net 302,000
Other assets
Intangible assets, net 4,491,000
Other 40,000
--------
Total $10,140,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 35,000
Current portion of capital lease obligation 25,000
Line-of-credit 3,543,000
Accounts payable 649,000
Accrued expenses 1,384,000
-----------
Total current liabilities 5,636,000
-----------
Commitments and contingency
Stockholders' equity
Preferred stock, 10% cumulative
convertible, $1 par value 488 shares
authorized, 155 issued, 26.25
outstanding, liquidation preference $301,481 -
1997 convertible preferred stock, $1 par
value 300 shares authorized 167.15
shares issued, 100.5 outstanding,
liquidation preference $805,000 -
Common stock, $.001 par value, 25,000,000
shares authorized, 12,843,567
issued and outstanding 13,000
Dividends payable with common stock 39,000
Additional paid-in capital 12,191,000
Accumulated deficit (7,739,000)
------------
Total stockholders' equity 4,504,000
-----------
Total $10,140,000
==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
MEDIX RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 28, December 29,
1997 1996
------------------ ------------------
<S> <C> <C>
Revenues $24,875,000 $14,259,000
Direct costs of services 19,017,000 10,831,000
------------ ------------
Gross margin 5,858,000 3,428,000
Selling, general, and
administrative expenses 5,670,000 4,083,000
Gain on sale of
divisions (Note 4) 422,000 -
------------ ------------
Income (loss) from operations 610,000 (655,000)
Interest expense 1,125,000 552,000
----------- ---------
Net loss $ (515,000) $ (1,207,000)
============= ============
Basic loss per common
share (Note 11) $ (.15) $ (.57)
============ ===========
Weighted average common
shares outstanding 9,848,824 4,517,111
============ ===========
</TABLE>
See notes to consolidated financial statements.
MEDIX RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDING DECEMBER 28, 1997 AND DECEMBER 29, 1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Number of Number of
Shares Amount Shares Amount
----------- --------- ------------- ----------
<S> <C> <C> <C> <C>
Balance-December 31,
1995 2,894,773 $ 3,000 469,452 $ -
Automatic conversion
of preferred stock 1,173,631 1,000 (469,452) -
Acquisition of
assets (Ellis) 256,250 1,000 - -
Guaranteed value of
common stock issued in
Ellis acquisition - - - -
Conversion of notes
payable to common stock 41,903 - - -
1996 preferred stock
issuance before of
imputed discount
(Note 11) - - 244.00 -
Imputed dividend on 1996
preferred stock (Note 11) - - - -
Common stock options
issued in connection
with finder on preferred
stock - - - -
Acquisitions of assets
(STAT) 220,133 - - -
Conversion of preferred
stock and accrued
dividends of $26,000 923,111 1,000 (88.50) -
Common stock options
issued for services - - - -
Exercise of warrants 178,491 - - -
Offering costs related
to 1996 stock issued - - - -
Net loss - - - -
Dividends - - - -
----------- -------- -------- -------
Balance December 29,
1996 5,688,292 6,000 155.50 -
1997 preferred stock
issuance, before
imputed discount
(Note 11) - - - -
Imputed dividend on
1997 preferred stock
(Note 11) - - - -
Exercise of 1996 unit
options - - 20.00 -
Offering costs on 1997
preferred stock - - - -
Imputed value of issuance
of warrants in connection
with debt issued - - - -
Imputed dividend on 1997
preferred stock as a
result of warrant repricings
(Note 11) - - - -
Conversion of preferred
stock and accrued
dividends of $71,000 7,042,256 7,000 (149.25) -
Common stock issued for
satisfaction of debt 100,000 - - -
Common stock issued
for services 13,019 - - -
Net loss - - - -
Dividends declared - - - -
----------- --------- --------- --------
Balance at
December 28, 1997 12,843,567 $ 13,000 26.25 $ -
=========== ========= ====== ========
</TABLE>
Consolidated Statement of Changes in Stockholders' Equity Continued below
<TABLE>
<CAPTION>
Dividend
Payable
Preferred Stock 1997 With
Number of Paid-in Common
Shares Amount Capital Stock
----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Balance - December 31,
1997 - $ - $ 6,349,000 $ 441,000
Automatic conversion
of preferred stock - - 440,000 (441,000)
Acqusition of
assets (Ellis) - - 1,058,000 -
Guaranteed value of
common stock issued
in Ellis acquisition - - (560,000) -
Conversion of notes payable
to common stock - - 151,000 -
1996 preferred stock
issuance before of
imputed discount (Note 11) - - 2,440,000 -
Imputed dividend on
1996 preferred stock
(Note 11) - - - -
Common stock options
issued in connection
with finder on
preferred stock - - 125,000 -
Acquisitions of assets
(STAT) - - 467,000 -
Conversion of preferred
stock and accrued
dividends of $26,000 - - 25,000 (26,000)
Common stock options
issued for services - - 48,000 -
Exercise of warrants - - 255,000 -
Offering costs related
to 1996 stock issued - - (507,000) -
Net loss - - - -
Dividends - - (92,000) 92,000
------------- ---------- ----------- --------
Balance - December 29,
1996 - - 10,199,000 66,000
1997 preferred stock
issuance, before
imputed discount
(Note 11) 167.15 - 1,672,000 -
Imputed dividend on 1997
preferred stock
(Note 11) - - - -
Exercise of 1996 unit
options - - 200,000 -
Offering costs on 1997
preferred stock - - (152,000) -
Imputed value of issuance
of warrants in
connection with debt
issued - - 134,000 -
Imputed dividend on 1997
preferred stock as
a result of warrant
repricings (Note 11) - - - -
Conversion of preferred
stock and accrued
dividends of $71,000 (66.65) - 64,000 (71,000)
Common stock issued
for satisfaction of debt - - 100,000 -
Common stock issued
for services - - 18,000 -
Net loss - - - -
Dividends declared - - (44,000) -
------------- ---------- --------- --------
Balance - December 28,
1997 100.50 $ - $12,191,000 $ 39,000
============ ========== ========== =========
</TABLE>
Consolidated Statement of Changes in Stockholders' Equity continue below
<TABLE>
<CAPTION>
Accumulated
Deficit Total
----------- -----------
<S> <C> <C>
Balance, December 31, 1995 $(6,017,000) $ 776,000
Automatic conversion of preferred
stock - -
Acquisition of assets (Ellis) - 1,059,000
Guaranteed value of common stock
issued in Ellis acquisition - (560,000)
Conversion of notes payable to
common stock - 151,000
1996 preferred stock issuance
before of imputed discount (Note 11) - 2,440,000
Imputed dividend on 1996 preferred
stock (Note 11) - -
Common stock options issued in
connection with finder on preferred
stock - 125,000
Acquisitions of (STAT) - 467,000
Conversion of preferred stock and
accrued dividends of $26,000 - -
Common stock options issued for
services - 48,000
Exercise of warrants - 255,000
Offering costs related to 1996
stock issued - (507,000)
Net loss (1,207,000) (1,207,000)
Dividends - -
----------- -----------
Balance - December 29, 1996 (7,224,000) 3,047,000
1997 preferred stock issuance,
before imputed discount
(Note 11) - 1,672,000
Imputed dividend on 1997 preferred
stock (Note 11) - -
Exercise of 1996 unit options - 200,000
Offering costs on 1997 preferred
stock - (152,000)
Imputed value of issuance of
warrants in connection with
debt issued - 134,000
Imputed dividend on 1997 preferred
stock as a result of warrant
repricings (Note 11) - -
Conversion of preferred stock and
accrued dividends of $71,000 - -
Common stock issued for satisfaction
of debt - 100,000
Common stock issued for services - 18,000
Net loss - (515,000)
Dividends declared (515,000) -
------------ ---------
Balance - December 28, 1997 $(7,739,000) $ 4,504,000
============ ===========
</TABLE>
See notes to consolidated financial statements.
MEDIX RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended
December 28, December 29,
1997 1996
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (515,000) $(1,207,000)
------------- -----------
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities -
Depreciation and amortization 606,000 371,000
Common stock issued for services 18,000 48,000
Impairment of goodwill 349,000 -
Basis in assets of divisions sold 770,000 -
Imputed interest expense on
convertible debt 134,000 -
Change in assets and liabilities -
Accounts receivable, net (57,000) (1,960,000)
Prepaid expenses and other (108,000) (33,000)
Checks written in excess of bank balance (65,000) (179,000)
Accounts payable and accrued expenses (279,000) 591,000
--------- --------
1,368,000 (1,162,000)
---------- ------------
Net cash provided by (used in)
operating activities 853,000 (2,369,000)
---------- -------------
Cash flows from investing activities
Business acquisitions (2,000,000) (1,623,000)
Purchase of property and equipment (21,000) (112,000)
Proceeds from the sale of fixed assets 57,000 -
Issuance of notes receivable (491,000) -
------------ -----------
Net cash (used in)
investing activities (2,455,000) (1,735,000)
------------ -----------
Cash flows from financing activities
Proceeds from issuance of debt and
notes payable 1,000,000 -
Advances under financing agreement 23,589,000 11,618,000
Payments under financing agreement (23,364,000) (9,478,000)
Principal payments on debt
and notes payable (1,185,000) (588,000)
Issuance of preferred and common
stock, net of offering costs 1,720,000 2,593,000
Dividends paid - (60,000)
------------ -------------
Net cash provided by
financing activities 1,760,000 4,085,000
----------- -------------
Net increase (decrease) in cash 158,000 (19,000)
Cash, beginning of period - 19,000
---------- ------------
Cash, end of period $ 158,000 $ -
============ =============
See notes to consolidated financial statements.
</TABLE>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest was $972,000 and $655,000 for
December 28, 1997 and December 29, 1996, respectively.
Non-cash investing and financing activities:
Dividends declared payable in common stock were $39,000 and $66,000 for
December 28, 1997 and December 29, 1996, respectively.
The Company issued 100,000 shares of common stock valued at $100,000 in
1997 for the satisfaction of debt.
The Company issued 13,019 shares of common stock valued at $18,000 for
services provided by non-employees.
Acquisition of equipment under capital leases was $56,000 in 1996.
During 1996, $400,000 of receivables and $10,000 of fixed assets were
acquired in business combination through the issuance of 476,383 shares of
common stock with an equivalent value of $1,526,000. The excess of purchase
price over the identifiable assets of $1,116,000 has been allocated to
goodwill.
During 1996, all shares of the 12% preferred stock outstanding at
December 31, 1995 were automatically converted into 1,173,631 shares of common
stock.
In conjunction with the automatic conversion of the 12% preferred stock
accrued dividends outstanding of $441,000 were recaptured.
In 1996, 89 shares of the 10% convertible preferred stock issued plus
$26,000 of accrued dividends were converted into 923,111 share of common
stock.
During 1996, $151,000 in notes payable were converted into 41,903 shares
of common stock to cover the guaranteed value of certain shares issued in a
business acquisition during the year.
During 1996, the Company recorded a liability of approximately $500,000
to cover the guaranteed value of certain shares issued in a business
acquisition during the year.
Options with an imputed value of $125,000 were issued as a finders fee
for preferred stock placements in 1996.
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- - ----------------------------------------------------------------
Organization
- - ------------
Medix Resources, Inc. (formerly International Nursing Services, Inc.) and
subsidiaries (the Company) provide temporary nurses (registered and/or
licensed), therapists, nurse assistants, and other caregivers to nursing
homes, other long-term health-care facilities, hospitals, and private
residences.
The Company changed its name to Medix Resources, Inc. subsequent to December
28, 1997 to more accurately reflect the types of services it will be providing
in the future (Note 2).
Principles of Consolidation
- - -----------------------------
The accompanying consolidated financial statements include the accounts of
Medix Resources, Inc. and its wholly-owned subsidiaries, National Care
Resources - Colorado, Inc. National Care Resources - New York, Inc., National
Care Resources - Texas, Inc., JJ Care Resources, Inc. and TherAmerica, Inc.
All intercompany transactions have been eliminated.
Use of Estimates
- - ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk
- - -------------------------------
The Company maintains cash in depository accounts which, at times, may exceed
FDIC insurance limits. At December 28, 1997 balances in excess of FDIC limits
were approximately $244,000.
Financial instruments which potentially subject the Company to concentrations
of credit risk consist primarily of accounts receivable. The Company grants
credit to health-care facilities primarily in California, Colorado, New York,
and Texas; however, travel nurses are made available throughout the United
States. The Company periodically performs credit analysis and monitors the
financial condition of its clients in order to minimize credit risk.
Financial Instruments
- - ----------------------
The carrying value of the Company's accounts and notes receivable, accounts
payable and accrued expenses approximate their fair values due to the
short-term nature of the financial instruments.
Due to current interest rates available to the Company for debt being similar
to rates on the Company's remaining maturities, the fair value of existing
debt approximates its carrying value.
<PAGE>
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- - -----------------------------------------------------------------------------
Revenue Recognition
- - --------------------
Revenue is recognized when services are rendered at the net realizable amounts
expected to be received from payers, patients and others. Amounts reimbursed
by certain payers of healthcare services are subject to examination and
adjustment. These adjustments are accrued throughout the year and adjusted in
future periods as the final settlements are determined. At December 28, 1997,
the Company has recorded a liability of $232,000 for the amount due for the
difference between actual costs and costs to be reimbursed. This liability
was recorded as a reduction in revenue.
Income Taxes
- - -------------
The Company recognizes deferred tax liabilities and assets based on the
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. The Company's temporary differences result primarily
from the cash to accrual transition adjustment due to a required change from
the cash to accrual basis and depreciation and amortization.
Property and Equipment
- - ------------------------
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the related assets
which range from five to seven years.
Intangible Assets
- - ------------------
Intangible assets are stated at cost, and consist of goodwill, non-compete
agreements and acquisition costs. Goodwill and non-compete agreements are
amortized using the straight-line method over fifteen and three years,
respectively.
Acquisition costs represents costs incurred in connection with the Company's
proposed acquisitions. Acquisition costs will be included in the purchase
price of the acquisitions if successful, or expensed in operations if the
acquisitions are unsuccessful.
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recovered. The Company looks primarily to the undiscounted future cash
flows of its acquisition in its assessment of whether or not goodwill and
other intangibles have been impaired. At December 28, 1997, the Company
determined an impairment of goodwill was appropriate as a result of the
transaction described in Note 4.
<PAGE>
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- - -----------------------------------------------------------------------------
Reclassifications
- - -----------------
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform to the 1997 presentation.
Advertising Costs
- - ------------------
The Company expenses advertising costs as incurred. Advertising expenses for
the years ended December 28, 1997 and December 29, 1996 were $181,000 and
$42,000, respectively.
Basic Loss Per Share
- - -----------------------
During the year ended December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 128, "Earnings Per Share" (FAS
128). FAS 128 established new definitions for calculating and disclosing
basic and diluted earnings per share. Basic loss per share is based upon the
weighted average number of shares outstanding. All dilutive potential common
shares have an antidilutive effect on diluted net loss per share and therefore
have been excluded in determining net loss per share. The Company's basic and
diluted loss per share are equivalent and accordingly only basic loss per
share has been presented.
Continued Existence
- - --------------------
The Company has suffered recurring losses for the past several years and
incurred a net loss for the year ended December 28, 1997 of $515,000. In
addition, the Company had a working capital deficit of $329,000. These
factors, among others, raise substantial doubt about the ability of the
Company to continue as a going concern.
Management's plans in regard to these matters include pursuing a number of
alternatives for additional financing which may include a public and/or
private offering of the Company's securities. The Company is currently
holding discussions with investment bankers and financial institutions related
to an offering of securities and new debt financing. No agreements have been
reached to date. Additionally, subsequent to year end (Note 2), the Company
merged with Cymedix Corporation, which has developed software for the secure
exchange of medical data on the Internet. There can be no assurance that the
Cymedix Corporation merger will produce positive cash flows, or that the
Company will be able to obtain any additional future financing on terms
acceptable to the Company.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
<PAGE>
NOTE 2 - ACQUISITIONS
- - ------------------------
TherAmerica, Inc.
- - ------------------
In January 1997, the Company acquired certain assets of Colorado Therapists On
Call, Inc. ("CTOC") and Professional Healthcare Providers, Inc. ("PHP"),
together doing business under the name Theramerica, Inc. (Theramerica). The
Company paid $2,000,000 cash and assumed approximately $175,000 of liabilities
for the acquisition which was effective January 1, 1997. The Company
accounted for the transaction as a purchase.
The purchase price was allocated to the assets based upon the following
estimated fair values at the acquisition date:
<TABLE>
<CAPTION>
<S> <C>
Net tangible assets $ 160,000
Non compete 50,000
Excess of cost over net
assets acquired (goodwill) 1,965,000
----------
$ 2,175,000
==========
</TABLE>
Cymedix Corporation
- - --------------------
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 $2,345,000. To finance
the acquisition, the Company issued 6,980,000 shares of common stock valued at
$1,418,000 assumed liabilities of $604,000 and paid $323,000 in cash. The
merger has been accounted for as a purchase. The purchase price has been
allocated as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 5,000
Property and equipment 21,000
Excess of cost over net
assets acquired (goodwill) 2,319,000
----------
$ 2,345,000
==========
</TABLE>
The following table reflects the unaudited historical and pro forma results of
the Company's 1997 and 1998 acquisitions.
<PAGE>
NOTE 2 - ACQUISITIONS (CONTINUED)
- - -------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
Medix Combined
Historical(1) Cymedix Adjustments(2) Totals
------------- -------- --------------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 28, 1997
Revenues $24,875,000 $ - $ - $24,875,000
========== ======== ========= ==========
Net (loss) $ (515,000) $ (922,000) $ (156,000) $(1,593,000)
Preferred stock
dividends (972,000) (29,000) 29,000 (972,000)
---------- -------- ------- ----------
Net (loss) applicable
to common
shareholders $(1,487,000) $ (951,000) $(127,000) $(2,565,000)
========== ========= ======== ==========
Basic net (loss)
per common share $ (0.09) $ (0.05) $ (.01) $ (.15)
========== ========= ======== ==========
Weighted average
shares outstanding 16,828,824 16,824,824
============ ==========
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
YEAR ENDED DECEMBER 29, 1996
Medix Combined
Historical(1) Theramerica Cymedix Adjustments(3) Totals
------------- ----------- -------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $14,259,000 $ 8,378,000 $ - $ - $22,637,000
============= ============ ========= ======== ==========
Net (loss) $(1,207,000) $ (62,000) $(817,000)$ 91,000 $(1,995,000)
Preferred stock
dividends (1,388,000) - - - (1,388,000)
------------ ---------- --------- ------- -------------
Net (loss)
applicable to
common
shareholders $(2,595,000) $ (62,000) $ (817,000)$ 91,000 $(3,383,000)
========== ========== ========= ======= ===========
Basic net (loss)
per common share $ (.23) $ - $ (.07) $ .01 $ (.29)
========== ========== ========= ======== =========
Weighted average
shares
outstanding 11,497,111 11,497,111
=========== ============
</TABLE>
(1) Includes the results of operations for Theramerica from January 1,
1997, and reflects the issuance of 6,980,000 common shares related to the
acquisition on weighted average shares outstanding.
(2) Adjustments relate to the amortization of goodwill, and dividends on
convertible preferred stock converted into common stock in the merger have
been eliminated.
(3) Adjustments relate to amortization of goodwill and interest expense on
acquisition debt which would have been required had the Company completed the
acquisition at the beginning of the period, and the elimination of certain
corporate expenses which would not have been incurred.
<PAGE>
NOTE 3 - BALANCE SHEET DISCLOSURES
- - ---------------------------------------
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $ 90,000
Computer hardware and software 536,000
---------
626,000
Less accumulated depreciation (324,000)
----------
$ 302,000
============
</TABLE>
Depreciation expense was $121,000 and $105,000 for the years ended December
28, 1997 and December 29, 1996, respectively.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Goodwill $5,948,000
Non-compete agreements 150,000
Acquisition costs 11,000
--------
6,109,000
Less accumulated
amortization and
impairment (1,618,000)
------------
$ 4,491,000
==========
</TABLE>
Amortization expense was $485,000 and $266,000 for the years ended December
28, 1997 and December 29, 1996, respectively. As discussed in Note 4, the
Company entered into an agreement to sell two entities at a price which would
have resulted in on a loss of approximately $349,000. Accordingly, the
Company impaired the related carrying value of goodwill on these two entities
by approximately $347,000 in 1997.
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Amount due under Ellis acquisition $ 296,000
Amounts due Medicare 232,000
Accrued payroll taxes and penalties 483,000
Other 373,000
---------
$ 1,384,000
=========
</TABLE>
At various times during the year the Company was delinquent with payroll tax
deposits. At December 28, 1997, $215,000 was accrued for estimated interest
and penalties.
<PAGE>
- - ------
NOTE 4 - SALE OF OPERATING DIVISIONS
- - ------------------------------------------
In February of 1997 the Company sold its Medicare division for $200,000 in
cash which resulted in a gain of $190,000. The purchasor did not assume any
prior liabilities associated with operations prior to the acquisition. The
Company believes it has adequate reserves for any final adjustment which may
occur.
During the 4th quarter of 1997, the Company entered into an agreement to sell
three entities it acquired in the past four years. Ellis Home Care Services,
Inc. (Ellis), Stat Health Care Services, Inc. (Stat) and Paxxon Services, Inc.
(Paxxon). The sales prices are $500,000, $1,580,000, and $1,468,000 for
Ellis, Stat and Paxxon, respectively. The Company consummated the sale of
Paxxon in the 4th quarter of 1997 for approximately $1,275,000 cash and a
$193,000 note receivable (Note 5). The Ellis and STAT sales are contingent
upon regulatory approval of the buyer which is anticipated to be completed in
late 1998. The Paxxon sale resulted in a gain of $581,000 while Ellis and
STAT resulted in a loss of $349,000. The Company impaired goodwill on the
Ellis and STAT divisions by $349,000 as a result of entering into the sales
contracts. These sales relate only to the business and not to the assets of
these entities which the Company will retain and liquidate.
In February of 1998, the Company sold the balance of the trade receivables of
Paxxon to the purchasor at a discount of $35,000 which has been netted in the
gain on sale of Paxxon.
The sale of these divisions will result in a significant loss in revenues on
an ongoing basis.
NOTE 5 - NOTES RECEIVABLE
- - -----------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
---------- ---------
<S> <C> <C>
As part of consideration for the sale of
Paxxon (Note 4), the Company received
a note receivable in the amount of
$192,795 that accrues interest at 5.75%.
Two principal and accrued interest
payments of $100,000 each are due in May
1998 and November 1998. Payment on the
note is collateralized by a pledge of
a subordinate interest in the
debtors accounts receivable. $193,000 $ -
The Company advanced $298,000 to
Cymedix which accrued interest at 11%
with principal and accrued interest
due December 31, 1998. The note
is collateralized by a subordinated
security interest in all of the debtors
assets. The Company advanced an
additional $25,000 to Cymedix subsequent
to year end. These were included
as part of the purchase price (Note 2). 298,000 -
------------ ------------
$ 491,000 $ -
============ ============
</TABLE>
<PAGE>
NOTE 6 - LINE-OF-CREDIT
- - --------------------------
The Company has entered into an agreement with a financial institution for a
revolving line-of-credit with a maximum principal balance of $5,000,000 which
is limited by a borrowing base calculation of 80% of qualified accounts
receivable. Interest accrues on the outstanding balance at 2% above bank
prime (10.5% at December 28, 1997). Additionally, the Company is required to
pay the lender a loan management fee on a monthly basis equal to 0.35% of the
average outstanding principal balance of the preceding month. Interest and
fees paid to this financial institution for the year ended December 28, 1997
approximated $650,000. The outstanding principal balance including accrued
interest and fees was $3,543,000 at December 28, 1997. The agreement expires
May 2000 and can be terminated by the lender without notice or by the Company
with a thirty day notice to the lender and payment of defined early payment
penalties. The loan is collateralized by substantially all the Company's
assets.
NOTE 7 - CAPITAL LEASES
- - ---------------------------
The Company leases a portion of their computer equipment under various leases
all that have a 36 month term and contain a bargain purchase option. The
future minimum lease payment as of December 28, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 27,000
-----------
Future minimum lease payments 27,000
Less interest (2,000)
----------
Present value of capital leases 25,000
Less current portion (25,000)
---------
Long-term portion $ -
===========
</TABLE>
Cost of the leased equipment was $77,000 with related accumulated depreciation
of $36,000 at December 28, 1997.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
- - -------------------------------------------
Operating Leases
- - -----------------
The Company leases office facilities and equipment under non-cancelable
operating leases. One of the office leases is personally guaranteed by an
officer, director, and stockholder. Rent expense for the years ended December
28, 1997 and December 29, 1996 was $289,000 and $188,000, respectively.
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
- - --------------------------------------------------------
Future minimum lease payments under these leases are approximately as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended December Amount
----------------------------- ------------
<S> <C>
1998 $ 259,000
1999 206,000
2000 155,000
2001 34,000
--------
$ 654,000
============
</TABLE>
Litigation
- - ----------
In 1997, a former patient filed a complaint in Texas against the Company
alleging that an employee/therapist of the Company was negligent. The Company
believes that there was no wrong doing and intends to defend itself vigorously
against the charges. The client/hospital where the employee was working at
the time of the alleged incident paid the plaintiff $100,000 in settlement and
release from further claims. The client/hospital has now demanded that the
Company indemnify them for the $100,000 as the client/hospital alleges this is
stipulated in a contract between the Company and the client/hospital. The
Company does not believe that it has a contractual obligation to indemnify the
client/hospital in this situation and intends to vigorously defend against
this demand. In addition, the Company maintains an insurance policy with a
limit of $1,000,000 which may satisfy some or all of the damages in the event
of an unfavorable outcome. The Company believes that it will not incur any
material losses in excess of accrued amounts or insured limits.
During the fourth quarter of 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
possible resolution of this matter to have a material effect on the Company's
financial condition.
The Company is also subject to certain other litigation with former employees.
Management believes that it will not incur any material losses in excess of
accrued amounts.
<PAGE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
- - --------------------------------------------------------
Ellis Guarantee
- - ----------------
The Company purchased Ellis Health Services, Inc. by issuing 256,250 shares of
the Company's common stock and guaranteeing that the former owner of Ellis
would realize at least $4.25 per share upon the sale of the first 12,000
shares each month and 4.00 per share thereafter. The Company agreed to issue
additional shares or stock to make up any shortfall and the Chairman and CEO
of the Company pledged 100,000 of his personal shares as collateral. At
December 29, 1996, the former owner of Ellis had a shortfall of approximately
$500,000 from the sales of stock to that date. In January 1997, the former
owner of Ellis exercised his right to take the security pledged by the
Chairman and CEO of the Company. The Board of Directors of the Company
approved the issuance to the Chairman and CEO 100,000 shares of common stock
and options to purchase 250,000 shares of common stock at $1.00 per share to
compensate the Chairman and CEO for the loss of his personal shares. The
$1.00 per share represented the fair market value of the shares at the date of
the grant. In March 1997, the former owner of Ellis presented a demand letter
to the Company requesting immediate payment of the remaining short fall of
approximately $400,000. In August of 1997, the Company entered into an
agreement with the former owner of Ellis agreeing to payments resulting in a
liability of $295,000 at December 28, 1997.
NOTE 9 - STOCKHOLDERS' EQUITY
- - ---------------------------------
1996 Private Placement
- - ------------------------
In July and September 1996, the Company completed a private placement of 244
units, each unit consisting of a share of convertible preferred stock, $10,000
per unit, $1 par value ("1996 Preferred Stock"), a warrant to purchase 8,000
shares of the Company's common stock at $2.50 per share and a unit purchase
option to purchase an additional unit at $10,000 per unit. The convertible
preferred stock carries a 10% dividend and is convertible at the lesser of
$1.25 or 75% of the average sales price for the five trading days prior to
conversion. The private placement raised gross proceeds to the Company of
approximately $2,440,000. The Company has filed a registration statement which
became effective in October of 1996, registering 8,293,133 shares of common
stock. The registered common stock is primarily designated for the conversion
of the related preferred stock and exercise of the associated warrants. The
registered common stock is primarily designated for the conversion of the
related preferred stock.
Approximately $1,550,000 of the proceeds raised was used to fund the cash
purchase portion of STAT. A shareholder who participated in the placement of
the private placement was paid a commission of $117,000 in 1996 and issued a
warrant to purchase 100,000 shares of common stock at $2.00 per share. The
warrant price was subsequently reduced to $1.00 per share in January 1997.
<PAGE>
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
- - ----------------------------------------------
1996 Private Placement (continued)
- - -------------------------------------
During 1996, 88.5 units (with accrued dividends) were converted to 923,111
shares of common stock. In addition, a Unit holder who held 17 units was
allowed to reduce their purchase price on their warrants to $1.00 per share
from $2.50 per share, resulting in gross proceeds to the Company of $136,000
in November 1996. In 1997 a Unit Holder who held 20 Units exercised their
Unit purchase option resulting in gross proceeds to the Company of $200,000.
The Unit holder immediately converted the preferred to common resulting in the
issuance of 257,028 shares of common stock in January 1997.
During 1997, 129.25 units (with accrued dividends) were converted to 3,133,361
shares of common stock. Subsequent to year end, an additional 8.0 units have
been converted resulting in the issuance of an additional 489,315 shares of
common stock in 1998.
1997 Private Placement
- - ------------------------
In January and February 1997, the Company completed a private placement of
167.15 Units, each unit consisting of one share of convertible preferred
stock, $10,000 per unit, $1 par value, "1997 Preferred Stock", and a warrant
to purchase 10,000 shares of common stock at $1.00 per share. The convertible
preferred stock carries no dividend if the underlying common stock is included
in an effective registration statement within 90 days of the date of the
agreement. After 90 days, if the underlying shares are not included in an
effective registration statement, the dividend rate becomes 18%. In addition,
the preferred stock contains a redemption feature whereby if the underlying
common stock which the preferred shares are convertible into is not
effectively registered by the second anniversary date of each respective unit,
the holder at their option may redeem the preferred shares for $10,000 back
plus all accrued unpaid dividends. The Company raised gross proceeds of
$1,672,000 from this private placement. Commissions of $100,000 were paid to
individuals who assisted in the private placement who are also shareholders of
the Company. The Company received net proceeds of approximately $1,520,000
from the sale of the 1997 preferred stock. Substantially all of the proceeds
were used to purchase TherAmerica (Note 2). The Company has filed a
registration statement which became effective in April of 1997, registering
6,732,311 shares of common stock. The registered common stock is primarily
designated for the conversion of the related preferred stock and exercise of
the associated warrants.
During 1997, 66.65 units were converted to 3,651,867 shares of common stock.
Subsequent to year end, an additional 1.0 unit has been converted resulting in
the issuance of an additional 53,981 shares of common stock in 1998.
<PAGE>
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
- - ----------------------------------------------
Warrants
- - --------
On January 28, 1997, the Company issued a convertible note for proceeds of
$1,000,000 from a shareholder of the Company. Interest accrued on the note at
12.5% and the note matured on January 27, 1998. The proceeds of the note were
used to fund the acquisition costs related to TherAmerica (Note 2). The
Company also issued a warrant to purchase 200,000 shares of common stock at
$1.1875 per share until July 31, 1999 to the convertible note holder. The
Company recorded an imputed discount on the convertible debenture of $134,000
using the Black-Scholes option pricing model related to the issuance of the
warrant to purchase 200,000 shares of common stock at $1.1875 per share. The
Company amortized the imputed discount over the expected term of the related
debt. On May 28, 1997, the Company paid $500,000 of principal plus accrued
interest to the noteholder, and the exercise price of the warrant was reduced
to $0.27 from $1.19. The reduction of the exercise price resulted in no
material change to the imputed discount due to a decrease in the market value
of the Company's stock. During the forth quarter of 1997 the Company paid the
remaining $500,000 plus accrued interest from proceeds received on the Paxxon
Sale (Note 4).
Stock Options
- - --------------
In May 1988, the Company adopted an incentive stock option plan (ISO), which
provides for the grant of options representing up to 100,000 shares of the
Company's common stock to officers and employees of the Company upon terms and
conditions determined by the Board of Directors. Options granted under the
plan are generally exercisable immediately and expire up to ten years after
the date of grant. Options are granted at a price equal to the market value
at the date of grants, or in the case of a stockholder who owns greater than
10% of the outstanding stock of the Company, the options are granted at 110%
of the fair market value.
In 1994, the Board of Directors established, the Omnibus Stock Plan of 1994
(1994 Plan) and reserved 500,000 shares of the Company's common stock for
grant under terms which could extend through January 2004. All options and
warrants issued under this plan are non-qualified. Grants under the 1994 Plan
may be to employees, non-employee directors, and selected consultants to the
Company, and may take the form of non-qualified options, not lower than 50% of
fair market value. To date, the Company has not issued any options below fair
market value at the date of grant.
In 1996, the Board of Directors established the 1996 Stock Option Plan (the
"1996 Plan") with terms similar to the 1994 Plan. During 1996, the Company
issued 300,000 options to purchase the Company's common stock at $1.88
expiring in 2006. The Board of Directors of the Company reserved 3,000,000
shares of common stock for issuance under the 1996 Plan.
<PAGE>
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
- - ----------------------------------------------
Stock Options (continued)
- - ---------------------------
Also during 1996, the Company canceled and reissued certain options to certain
officers and directors of the Company. Options to purchase 224,187 shares of
common stock at exercise prices ranging from $1.20 to $2.75 which were issued
to certain officers and directors under the 1994 Plan were canceled. Options
to purchase 239,437 shares of common stock at $1.88 (which represented the
fair market value of the common stock at the time of grant) were issued as
replacement for the canceled options. The additional 15,250 options were
issued to replace the loss in value for those option holders who held options
at exercise prices which were less than $1.88.
The Company also granted 443,748 options to purchase common stock at $1.00 per
share under the "1996 Plan", 133,609 of which were granted to officers and
directors.
The following is a summary of options and warrants granted, all of which
expire at various times through 2007.
<TABLE>
<CAPTION>
Number of Options
--------------------
Exercise Exercise
Price Per Number of Price Per
Plan Non-Plan Share Warrants Shares
------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding
December 31, 1995 1,121,375 15,500 $0.63-$6.00 1,514,604 $1.75-$5.00
Option/warrants
granted 539,437 - $1.88 2,217,000 $1.00-$2.50
Unit options
granted(1) - - - 1,952,000 -
Cancellations (317,687) (8,000) $0.63-$6.00 (358,941)$1.00-$4.00
--------- --------- ----------- ---------- ----------
Outstanding
December 29, 1996 1,343,125 7,500 $.63-$6.00 5,324,663 $1.00-$5.00
Options/warrants
granted 3,019,155(2) - $0.25-$1.00 2,279,126(3) $0.15-$2.50
Unit options
canceled - - (1,792,000)(3) $2.50
Cancellations (1,920,935)(2) - $0.63-$3.25 (1,011,376) $0.27-$2.50
---------- --------- ----------- ---------- ----------
Outstanding
December 28, 1997 2,441,345 7,500 $0.25-$6.00 4,800,413 $0.15-$5.00
</TABLE>
<PAGE>
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
- - ----------------------------------------------
(1) Represents option to purchase an additional unit identical to the Unit
issued in the July/September private placement. Each $10,000 unit consists of
one share of convertible preferred (convertible at the lesser of $1.25 or 75%
of the closing price on the five trading days prior to conversion) and a
warrant to purchase 8,000 shares of common stock at $2.50 per share for three
years.
(2) Includes 1,223,326 options that were canceled and reissued at an
exercise price of $0.25 to $1.00 to officers, directors, and employees of the
Company. The options were originally exerciseable between $0.63 and $3.25.
Net new issues were 1,794,729 and net canceled were 696,509.
(3) Includes 287,626 warrants that were canceled and reissued at an
exercise price of $0.25 to an officer of the Company. The warrants were
originally exerciseable at $1.75. Also includes the cancelation of 204 Unit
Options in exchange for the cancellation and reissue of the related warrant
with an exercise price of $0.63. The warrants were previously exerciseable at
$2.50. Millenco note warrants were issued on January 28, 1997 at $1.19,
Millenco also exercised 20 unit options on 1996 preferred stock. On August
15, 1997 the warrants were canceled and reissued at an exercise price of
$0.63. The warrants were originally exerciseable at $1.25. Net new issues
were 1,871,500 and net canceled were 163,750.
The weighted average exercise price of options and warrants outstanding
at December 28, 1997 is $1.82.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Corporation's two stock
option plans been determined based on the fair value at the grant date for
awards consistent with the provisions of SFAS No. 123, the Corporation's net
loss and loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net loss - as reported $ (515,000) $(1,207,000)
Net loss - pro forma (1,963,000) (2,141,000)
Basic loss per share - as reported (.15) (.57)
Basic loss per share - pro forma (.30) (.78)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: dividend yield of
0%; expected volatility of 128% and 93%, respectively; discount rate of 5.5%
and 11.5%, respectively; and expected lives of 10 years.
<PAGE>
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
- - ----------------------------------------------
Warrants (continued)
- - ---------------------
Dividends
- - ---------
In 1995, the Board of Directors declared a stock dividend on the 12% preferred
stock to be paid in common stock. Under the terms of the preferred stock, if
the Company does not have $750,000 cash or cash equivalents then the dividend
may be paid by issuing common stock at the rate of $1.80 per share annualized.
The Company accrued dividends at the $1.80 level for 1995 as the Company did
not have $750,000 in cash and cash equivalents. The dividends on the
preferred stock for the year ended December 31, 1995 were $876,000 of which
$435,000 was paid in common stock of the Company. The remaining dividends of
$441,000 were accrued at year end and recorded as a dividend payable in common
stock.
During January 1996, the outstanding 12% preferred stock at December 31, 1995
was automatically converted into common stock. All unpaid dividends on that
preferred stock were void and no longer payable. Since the dividends were
previously reflected in the statement of operations as a component of the net
loss applicable to common stockholders, the recovery of the accrued dividends
has been reflected as a credit in determining the net loss applicable to
common stockholders in 1996 on the statement of operations in the accompanying
financial statements.
The Company has imputed dividends on the 1997 and 1996 preferred stock as a
result of in the money conversion features (Note 11).
Stock Payoff of Note Payable
- - --------------------------------
In February 1996, the Company paid off a note payable consisting of principal
of $25,000 and accrued interest payable of approximately $23,000 with issuance
of 13,700 shares of common stock. The common stock was valued at $3.50 which
represented the fair market value of the common stock at the time of the
payoff.
Settlement of Stock for Services
- - ------------------------------------
In September 1996, the Company settled a dispute with a former investment
banker who claimed that the Company owed the investment banker approximately
$53,000. The Company settled the dispute by issuing 20,133 shares of common
stock.
<PAGE>
- - ------
NOTE 10 - INCOME TAXES
- - --------------------------
The temporary differences between the tax basis of assets and their financial
reporting amounts that give rise to a deferred tax asset are primarily due to
a cash to accrual transition adjustment due to the Company being required to
adopt the accrual basis for income tax filing purposes.
The components of deferred tax assets (liabilities) in the balance sheet,
which are fully limited by a valuation allowance, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Accounting method differences $ 244,000
Net operating loss carryforward 2,006,000
-----------
2,250,000
Less valuation allowance (2,250,000)
------------
Net deferred tax asset $ -
=============
</TABLE>
The Company has incurred net losses for federal tax reporting purposes since
inception of approximately $5,900,000. The tax net operating loss (NOL)
carryforwards expire in years 2003 through 2012. The utilization of
$4,718,000 of the NOL carryforward is limited to $469,000 on an annual basis
due to an effective change in control which occurred as a result of the 1996
private placement. Due to the existence of net operating losses incurred by
the Company which raise substantial doubt about the Company's ability to
continue as a going concern, the Company has concluded it is more likely than
not that it will not realize its deferred tax asset and accordingly has
established a valuation allowance of $2,250,000.
NOTE 11 - LOSS PER COMMON SHARE
- - -------------------------------------
In accordance with the SEC's position on 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 and 1996 preferred stock issuances are immediately
convertible, the Company has amortized the entire imputed discount as a
component of dividends on preferred stock. The Company recorded additional
dividends to preferred stockholders of approximately $553,000 and $1,737,000
for the years ended December 29, 1997 and 1996, respectively, 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.
The Company has also imputed additional dividends on the 1997 preferred stock
of $375,000 as a result of the repricing of the exercise price associated with
the related warrants issued. The Company repriced the warrant exercise price
as an inducement for holders not to convert their 1997 preferred stock into
shares of common stock.
<PAGE>
NOTE 11 - LOSS PER COMMON SHARE (CONTINUED)
- - --------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
--------- --------
<S> <C> <C>
Net loss $ 515,000 $1,207,000
Preferred stock dividends based
on stated rate 44,000 92,000
Preferred stock dividends based
on imputed discount at issuance 553,000 1,737,000
Preferred stock dividends imputed
associated with related warrant repricing 375,000 -
Preferred stock dividends recaptured (Note 9) - (441,000)
----------- ----------
Net loss applicable to common stockholders $ 1,487,000 $ 2,595,000
============ ============
Basic loss per common share $ (.15) $ (.57)
========= =============
Weighted average shares outstanding 9,848,824 4,517,111
=========== ==========
</TABLE>
NOTE 12 - RETIREMENT SAVINGS PLAN
- - --------------------------------------
Effective March 25, 1997, the Company adopted a defined contribution
retirement savings plan which covers all employees age 21 or older with one
thousand hours of annual service. Matching contributions are made by the
Company at $0.25 for each $1 that the employee contributes up to 8% of
compensation. Company contributions vest as follows:
<TABLE>
<CAPTION>
Years of Service Vested
------------------ --------------
<S> <C>
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 100%
</TABLE>
Contributions for the year ended December 28, 1997 were $35,000.
Common Stock
C 1614 9,999,999,999
INTERNATIONAL
NURSING SERVICES
SEE REVERSE FOR CERTAIN DEFINITIONS AND RCF INFORMATION REGARDING AUTHORITY
TO ISSUE STOCK OF MORE THAN ONE CLASS
NAME CHANGE TO MEDIX RESOURCES, INC.
EFFECTIVE 2/28/98
INTERNATIONAL NURSING SERVICES, INC.
Incorporated Under The Laws of The State Of Colorado
THIS IS TO CERTIFY THAT ***COMPANY NAME TEST LINE***XXXXXX CUSIP 585011-10-9
S P E C I M E N
is the owner of *** NINE MILLION NINE HUNDRED NINETY-NINE THOUSAND NINE
HUNDRED NINETY-NINE AND NINE HUNDRED NINETY-NINE ONE THOUSANDTHS***
CERTIFICATION OF STOCK
Dated 3/25/1998
<PAGE>
TRANSFER FEE $20.00
INTERNATIONAL NURSING SERVICES, INC.
Transfer Fee: $10.00 Per Certificate Issued
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws and regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _______Custodian______
TEN ENT - as tenants by the entireties (cust) (minor)
under Uniform Gifts to Minors
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list
For Value Received, ________________________________________ hereby shall,
assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
__________________
S P E C I M A N
- - ----------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS FOLLOWING ZIP CODE OF ASSIGNEE)
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
- - ----------------------------------------------------------------------Shares
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN Certificate, and do hereby
irrevocably constitute and appoint
- - ---------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated________________________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature Guaranteed
By:
The signature(s) must be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee ______ Program) pursuant to
S.E.C. Rule 17ad-15.
THE CORPORATION IS AUTHORIZED TO ISSUE SHARES OF MORE THAN ONCE CLASS, NAMELY
COMMON STOCK AND PREFERRED STOCK AND IS AUTHORIZED TO ISSUE PREFERRED STOCK IN
SERIES PURSUANT TO COLORADO REVISED STATUTES. THE CORPORATION'S PRINCIPAL
OFFICE WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL
STATEMENT OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES, LIMIGATIONS,
RESTRICTIONS AND RELATIVE RIGHTS OF THE STOCK OF EACH CLASS OR SERIES
AUTHORIZED TO BE ISSUED BY THE CORPORATION.
INTERNAUONAL NURSING SERVICES, INC.
AMENDED 1996 STOCK INCENTIVE PLAN
---------------------------------
PURPOSE
- - -------
This Amended 1996 Stock Incentive Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of International Nursing
Services, Inc., a Colorado corporation (the "Company"), and any present or
future, 50% or more owned subsidiaries of the Company (individually a "Related
Corporation" and collectively "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder that qualify as "incentive stock options" under Section 422A(b) of
the Internal Revenue Code of 1986, as amended and the regulations thereunder
(the "Code") (individually an "ISO" and collectively "ISOs"); (b) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to purchase stock in the
Company pursuant to options granted hereunder that do not qualify as ISOs
(individually a "Non-Qualified Option" and collectively "Non-Qualified
Options"); (c) to directors, officers, employees and consultants of the
Company and Related Corporations by providing them with awards of stock in the
Company ("Awards"); and (d) to directors, officers, employees and consultants
of the Company and Related Corporations by providing them with opportunities
to make direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereinafter individually as an "Option"
and collectively as "Options". Options, Awards and authorizations to make
Purchases are referred to hereinafter collectively as "Stock Rights". As used
herein, the terms "parent" and "subsidiary" mean it parent corporation" and
"subsidiary corporation", respectively, as those terms are (refined in Section
425 of the Code.
<PAGE>
2. ADMINISTRATION OF PLAN
------------------------
(a) Board or Committee Administration
------------------------------------
This Plan shall be administered solely by the Company's Board of Directors
(the "Board") or by a Compensation Committee (the "Committee") consisting of
not less than two (2) members of the Board, provided the members of the Board
or such Committee members have not within one year prior to such Committee
service received, or during such service receive, a grant or award of Stock
Rights under this Plan or any other plan of the Company. Hereinafter, all
references in this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board, and subject to the terms of
this Plan, the Committee shall have the authority to (i) determine the
employees of the Company and Related Corporations (from among the class of
employees eligible under Section 3 below to receive ISOS) to whom ISOs may be
granted, and to determine (from among the class of individuals and entities
eligible under Section 3 below to receive Non-Qualified Options and Awards and
to make Purchases) to whom Non-Qualified Options, Awards and authorizations to
make Purchases may be granted; (ii) determine the time or times at which
Options or Awards may be granted or Purchases made; (iii) determine the option
price of shares subject to each Option, which price shall not be less than the
minimum price specified in Section 6 below, and the purchase price of shares
subject to each Purchase; (iv) determine whether each Option granted shall be
an ISO or a Non-Qualified Option; (v) determine (subject to Section 7 below)
the time or times when each Option shall become exercisable and the duration
of the exercise period (vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Awards and Purchases
and the nature of such restrictions, if any; and (vi) interpret this Plan and
prescribe and rescind rules and regulations relating to this Plan. If the
Committee determines to issue a Non-Qualified Option, the Committee shall take
whatever actions it deems necessary under Section 422A of the Code and the
regulations promulgated thereunder, to ensure that such Option is not treated
as an ISO. The interpretation and construction by the Committee of any
provisions of this Plan or of any Stock Right granted under this Plan shall be
final unless otherwise determined by the Board. The Committee may from
time-to-time adopt such rules and regulations for carrying out this Plan as it
may deem appropriate. No member of the Board or of the Committee shall be
liable for any action or determination made in good faith with respect to this
Plan or any Stock Right granted under this Plan.
(b) Committee Actions
------------------
The Committee may select one of its members as its chairman, and shall hold
meetings at such times and places as it may determine. Except as otherwise
provided by the Company's Bylaws, acts by a majority of the Committee, or acts
reduced to or approved in writing by unanimous consent of the members of the
Committee, shall be the valid acts of the Committee. From time-to-time the
Board may increase the size of the Committee and appoint additional members
thereof, may remove members (with or without cause) and may appoint new
members in substitution therefor. fill vacancies (however caused), or remove
all members of the Committee and thereafter directly administer this Plan.
<PAGE>
(c) Grant of Stock Rights to Board Members
--------------------------------------------
Stock Rights may be granted to members of the Board, but any such grant shall
be made and approved in accordance with Section 2(d) below, if applicable.
All grants of Stock Rights to members of the Board shall in all other respects
be made in accordance with the provisions of this Plan applicable to other
eligible persons. Members of the Board who are either (i) eligible for Stock
Rights pursuant to this Plan or (ii) have been granted Stock Rights, may vote
on any matters affecting the administration of this Plan or the grant of any
Stock Rights pursuant to this Plan, except that no such member shall act upon
the granting to himself or herself of Stock Rights, but any such member may be
counted in determining the existence of a quorum at any meeting of the Board
during which action is taken with respect to the granting to him or her of
Stock Rights'.
(d) Compliance with Federal and State Securities Laws and State
------------------------------------------------------------
Corporate Law
---------
Various restrictions apply to officers and directors and others who may be
deemed insiders under federal and state securities laws and state corporate
law. These laws impose certain restrictions on insiders. Any Stock Right
granted to any director is subject to those restrictions. Holders of Stock
Rights should consult with their le-al and tax advisors regarding the
securities law, tax law, corporate law and other effects of transactions under
this Plan. These restrictions relate to holding periods, alternative minimum
tax calculations and other matters and should be clearly understood by the
holders of Stock Rights. The granting of Stock Rights is subject to any
applicable restrictions under state corporate law, including without
limitation, restrictions applicable to conflicting interest transactions
involving directors.
(e) Purpose and Intent of Plan
------------------------------
The purpose of this Plan is to advance the interest of the Company and
its Related Corporations by stimulating the efforts of employees on behalf of
the Company and Related Corporations, and heightening the desire of employees
to continue employment with the Company and Related Corporations, assisting
the Company and Related Corporations in competing effectively with other
enterprises for the services of new employees necessary for the continued
improvement of operations, and to attract and retain the best available
personnel for service as directors to the Company and Related Corporations and
for services as consultants to the Company and Related Corporations. This
Plan is intended to be an "employee benefit plan" under Rule 16b-3 promulgated
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"1934 Act"). This Plan is also intended to be a "compensatory benefit plan"
under Rule 701 promulgated under the Securities Act of 1933, as amended.
Transactions under this Plan are intended to comply with Rule 16b-3) and Rule
701. To the extent any provisions of this Plan or any action by the Committee
or the Board fails to comply with such Rules and to the extent any provisions
of this Plan or any action by the Committee or the Board fails to comply with
the requirements of the Code (for options intended to be ISOs hereunder), each
such provisions) and action(s) shall be deemed to be null and void, to the
extent permitted by applicable law and as deemed advisable by the Committee or
the Board.
<PAGE>
(f) Shareholder Approval
---------------------
Grants of incentive stock options hereunder shall be subject to shareholder
approval of this Plan within twelve (12) months following the date this Plan
is approved and adopted by the Board.
3. ELIGIBLE EMPLOYEES AND OTHERS
--------------------------------
ISOs may be granted to any employee of the Company or any Related Corporation.
Any officer or director of the Company who is not also an employee of the
Company may not be granted ISOs under this Plan. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee,
officer or director (whether or not such person is also an employee of the
Company) or to any consultant to the Company or to any Related Corporation.
The Committee may take into consideration a recipient's individual
circumstances in determining whether to grant an ISO, a Non-Qualified Option,
an Award or an authorization to make a Purchase. The granting of a Stock
Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify that individual or entity from, participation in any
other grant of Stock Rights.
4. STOCK
-----
The stock subject to Options, Awards and Purchases shall be authorized but
unissued shares of Common Stock of the Company, $.001 par value per share (the
"Common Stock"), or shares of Common Stock reacquired by the Company in any
manner. Subject to the foregoing, the aggregate maximum number of shares of
Common Stock that may be issued pursuant to this Plan is 3,000,000, subject to
adjustment as provided below in this Section 4 and in Section 13. Any such
shares may be issued as ISOS, Non-Qualified Options or Awards or to
individuals or entities making Purchases, so long as the number of shares so
issued does not exceed such number, as adjusted. If any Option granted under
this Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or
in part, or if the Company shall reacquire any unvested shares issued pursuant
to Awards or Purchases, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for
grants of Stock Rights under this Plan.
5. GRANTING OF STOCK RIGHTS
---------------------------
Stock Rights may be granted under this Plan at any time until ten (10) years
after the date of the approval and adoption of this Plan by the Board. The
date of grant of a Stock Right under this Plan will be the date specified by
the Committee at the time it -rants the Stock Right; provided, however, that
such date shall not be prior to the date on which the Committee acts to
approve the grant. The Committee shall have the right, with the consent of
the optionee, to convert an ISO granted under this Plan into a Non-Qualified
Option pursuant to Section 16 below.
<PAGE>
6. MINIMUM OPTION PRICE, ISO LIMITATIONS
-----------------------------------------
(a) Price for Non-Qualified Options
----------------------------------
The exercise price per share specified in the agreement relating to each
Non-Qualified Option granted under this Plan shall in no event be less than
the lesser of (i) the book value per share of the Common Stock as of the end
of the fiscal year of the Company immediately preceding the date of such grant
or (ii) fifty percent (50%) of the fair market value per share of the Common
Stock on the date of such grant. Subject to the foregoing sentence, the
exercise price for Non-Qualified Options granted hereunder shall be determined
by the Committee or the Board in its sole discretion, taking into account
factors it deems relevant.
(b) Price for ISO's
-----------------
The exercise price per share specified in the agreement relating to each ISO
granted under this Plan shall not be less than the fair market value per share
of the Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of
any Related Corporation, the price per share specified in the agreement
relating to such ISO shall not be less than one hundred ten percent (I IO %)
of the fair market value per share of the Common Stock on the date of grant.
(c) $100,000 Annual Limitation on ISO's
---------------------------------------
Each eligible employee may be granted ISOs only to the extent that (in the
aggregate under this Plan and all incentive stock option plans of the Company
and any Related Corporation), such ISOs do not become exercisable for the
first time by such employee during any calendar year in a manner that would
entitle the employee to purchase more than $100,000 in fair market value
(determined at the time the ISOs were granted) of the Common Stock in that
calendar year. Any options granted to an employee in excess of that amount
will be granted as Non-Qualified Options.
(d) Awards and Purchases.
----------------------
Awards and Purchases under this Plan shall be made at prices equal to the fair
in market value of the Common Stock on the date of such Award or Purchase.
Fair market value shall be determined by the Committee or the Board in its
sole discretion in accordance with Section 6(e) below. Shares of Common Stock
may be issued in Award and Purchase transactions for any lawful consideration
determined by the Committee or the Board in its sole discretion.
<PAGE>
(e) Determination of Fair Market Value
--------------------------------------
If, at the time an Option is granted under this Plan, the Company's Common
Stock is publicly-traded, "fair market value" shall be determined as of the
last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded, if
the Common Stock is then-traded on a national securities exchange; or (ii) the
last reported sale price (on that date) of the Common Stock on the NASDAQ
National Market, if the Common Stock is not then traded on a national
securities exchange; or (iii) the closing bid price (or average of bid prices)
last quoted (on that date) by an established quotation service for
over-the-counter securities, if the Common Stock is not reported on the NASDAQ
National Market. However, if the Common Stock is not publicly-traded at the
time an Option is granted under this Plan, "fair market value" shall be deemed
to be the fair value of the Common Stock as determined by the Committee or the
Board in its sole discretion, after taking into consideration all factors that
it deems appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at arm's length.
7. OPTION DURATION.
----------------
Subject to earlier termination as provided in Sections 9 and 10 below, each
Option shall expire on the date specified by the Committee or the Board, but
not more than (i) ten (10) years and one (1) day from the date of grant in the
case of Non-Qualified Options, (ii) ten (10) years from the date of grant in
the case of ISOs generally and (iii) five (5) years from the date of grant in
the case of ISOs granted to an employee owning stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any Related Corporation. Subject to earlier termination as
provided in Sections 9 and 10 below, the term of each ISO shall be the term
set forth in the original instrument granting such ISO, except with respect to
any part of such ISO that is converted into a Non-Qualified Option pursuant to
Section 16 below.
8. EXERCISE OF OPTIONS.
----------------------
Subject to the provisions of Sections 9 through 12 below, each Option granted
under this Plan shall be exercisable as follows:
(a) Vesting
-------
The Option shall either be fully exercisable on the date of grant or shall
become exercisable thereafter in such installments as the Committee or Board
may specify.
(b) Full Vesting of Installments
-------------------------------
Once an installment becomes exercisable it shall remain exercisable until
expiration or termination of the Option, unless otherwise specified by the
Committee or the Board.
<PAGE>
(c) Partial Exercise
-----------------
Each Option or installment may be exercised at any time or from time-to-time,
in whole or in part, for up to the total number of shares with respect to
which it is then exercisable.
(d) Acceleration of Vesting
-------------------------
The Committee or the Board shall have the right to accelerate the date of
exercise of any installment of any Option; provided, however, that the
Committee or the Board shall not, without the consent of the optionee,
accelerate the exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Section 16 below) if such acceleration would violate the annual
vesting limitation contained in the Code, as described in Section 6,(c) above.
9. TERMINATION OF EMPLOYMENT
---------------------------
If an ISO optionee ceases to be employed by the Company or any Related
Corporation other than by reason of death or disability as defined in Section
10 below, no further installments of such optionee's ISOs shall become
exercisable, and such optionee's vested ISOs shall terminate after the passage
of ninety (90) days from the date of termination of such optionee's
employment, but in no event later than on their specified expiration date(s),
except to the extent that such ISOs (or the unexercised installments thereof)
have been converted into Non-Qualified Options pursuant to Section 16 below.
Employment shall be considered as continuing uninterrupted during any bona
fide leave of absence (such as those attributable to illness, military
obligations or governmental service), provided that the period of such leave
does not exceed ninety (90) days or, if longer, any period during which such
optionee's right to reemployment is guaranteed by statute. A bona fide leave
of absence with the written approval of the Committee or the Board shall not
be considered an interruption of employment under this Plan, provided that
such written approval contractually obligates the Company or any Related
Corporation to continue the employment of the optionee after the approved
period of absence. ISOs granted under this Plan shall not be affected by any
change of employment within or among the Company and any Related Corporations,
so long, as the optionee continues to be an employee of the Company or any
Related Corporation. Nothing, in this Plan shall be deemed to give any
grantee of any Stock Right the right to be retained IN employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY
------------------
(a) Death
-----
If an ISO optionee ceases to be employed by the Company or any Related
Corporation by reason of such optionee's death, any ISO of such optionee may
be exercised, to the extent of the number of shares with respect to which the
optionee could have exercised on the date of the optionee's death, by the
optionee's estate, personal representative or beneficiary who has acquired the
ISO by will or by the laws of descent and distribution, at any time prior to
the earlier of the specified expiration date of the ISO or one year from the
date of the optionee's death.
<PAGE>
(b) Disability
----------
If an ISO optionee ceases to be employed by the Company or any Related
Corporation by reason of disability, such optionee (or such optionee's
custodian) shall have the right to exercise any ISO held by such optionee on
the date of termination of employment, to the extent of the number of shares
with respect to which the optionee could have exercised on that date, at any
time prior to the earlier of the specified expiration date of the ISO or one
year from the date of the termination of the optionee's employment. For
purposes of this Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or any successor
statute.
11. ASSIGNABILITY
-------------
No Option or Derivative Security (as that term is defined in Rule 16b-3 under
the 1934 Act) shall be assignable or transferable by the optionee except as
permitted under Rule 16b-3 under the 1934 Act or by will or by the laws of
descent and distribution, and during the lifetime of the optionee each Option
shall be exercisable only by the optionee. No ISO shall be transferable
except as permitted by the Code.
12. TERMS AND CONDITIONS OF OPTIONS
-----------------------------------
Options shall be evidenced by instruments (which need not be identical) in
such form as the Committee or the Board may from time-to-time approve. Such
instruments shall conform to the terms and conditions set forth in Sections 6
through 11 above and may contain such other provisions as the Committee or the
Board deems advisable, which are not inconsistent with this Plan, including,
without limitation, restrictions applicable to shares of the Company's Common
Stock issuable upon exercise of Options. In granting Non-Qualified Options,
the Committee or the Board may specify that Non-Qualified Options shall be
subject to the restrictions set forth herein with respect to ISOS, or to such
other termination. and cancellation provisions as the Committee or the Board
may determine. The Committee or the Board may from time-to-time confer
authority and responsibility on one or more of its members and/or one or more
officers of the Company to execute and deliver such instruments. The proper
officers of the Company are authorized and directed to take any and all action
necessary or advisable from time-to-time to carry out the terms of such
instruments.
13. ADJUSTMENTS
-----------
Upon the occurrence of any of the following events, an optionee's rights with
respect to Options -ranted to the optionee hereunder shall be adjusted as
hereinafter provided, unless otherwise specifically provided in the written
agreement between the optionee and the Company regarding such Option:
<PAGE>
(a) Stock Dividends and Stock Splits
------------------------------------
If the shares of the Company's Common Stock shall be subdivided or combined
into a greater or smaller number of shares or if the Company shall issue any
shares of Common Stock as a stock dividend on its outstanding Common Stock,
the number of shares of Common Stock deliverable upon the exercise of Options
shall be appropriately increased or decreased proportionately, and appropriate
adjustments shall be made in the purchase price per share to reflect such
subdivision, combination or stock dividend.
(b) Merger; Consolidation: Sale of Assets
-----------------------------------------
In the event of a consolidation, a merger iii which the Company is not the
surviving entity, or the sale of all or substantially all of the Company's
assets, the Committee or the Board may in its sole discretion accelerate the
exerdisability of any or all outstanding Options so that such Options would be
exercisable in full prior to the consummation of such consolidation, merger or
asset sale at such times and on such conditions as the Committee or the Board
shall determine, unless the successor entity, if any, assumes the outstanding
Options or substitutes substantially equivalent options therefor.
(c) Recapitalization or Reorganization
------------------------------------
In the event of a recapitalization or reorganization of the Company (other
than a transaction described in Section 13(b) above) pursuant to which
securities of the Company or of another entity are issued with respect to the
outstanding shares of Common Stock, an optionee, upol exercising an Option,
shall be entitled to receive for the purchase price paid upon such exercise
the securities the optionee would have received if the optionee had exercised
the Option prior to such recapitalization or reorganization.
(d) Modification of ISO's
-----------------------
Notwithstanding the foregoing, any adjustments made pursuant to Sections
13(a), (b) or (c) above with respect to ISOs shall be made only after the
Committee or the Board, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 425 of the Code) or would cause any
adverse tax consequences for the holders of such ISOS. If the Committee or
the Board determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOS, it may refrain from making such
adjustments.
(e) Issuances of Securities
-------------------------
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or of securities convertible into shares of stock of any
class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities
of the Company.
<PAGE>
(f) Fractional Shares
------------------
No fractional shares shall be issued under this Plan and each optionee shall
receive from the Company cash in lieu of such fractional shares.
(g) Adjustments
-----------
Upon the happening of any of the events described in Section 13(a), (b) or (c)
above, the class and aggregate number of shares set forth in Section 4 above
that are subject to Stock Rights that previously have been or subsequently may
be granted under this Plan shall also be appropriately adjusted to reflect the
events described in such Sections. The Committee or Board shall determine the
specific adjustments to be made under this Section 13 and, subject to Section
2 above, its determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise of
a Stock Right hereunder receives shares or securities or cash in connection
with a corporate transaction described in Sections 13(a), (b) or (c) above as
a result of owning such restricted Common Stock, such shares or securities or
cash shall be subject to all of the conditions and restrictions applicable to
the restricted Common Stock with respect to which such shares or securities or
cash were issued, unless otherwise determined by the Committee or Board.
14. MEANS OF EXERCISING STOCK RIGHTS
------------------------------------
A Stock Right (or any part or installment thereof) shall be exercised by
giving written notice to the Company at its principal office address. Such
notice shall identify the Stock Right being exercised and specify the number
of shares as to which such Stock Right is being exercised, accompanied by full
payment of the purchase price therefor in United States dollars in cash or by
check. The holder of a Stock Right shall not have the rights of a shareholder
with respect to the shares covered by his, her or its Stock Right until the
date of issuance of a stock certificate for such shares. Except as expressly
provided in Section 13 above with respect to changes in capitalization and
stock dividends, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificate is issued.
<PAGE>
15. TERM AND AMENDMENT OF PLAN
------------------------------
This Plan was approved and adopted by the Board on November 24, 1995, subject
(with respect to the validation of ISOs granted under this Plan) to approval
of this Plan by the stockholders of the Company. If the approval of this Plan
by the Company's stockholders is not obtained by November 24, 1996, any grants
of ISOs under this Plan made prior to that date will be rescinded. This Plan
shall expire on November 24, 1996, 2005 (except as to Options outstanding on
that date). Subject to the provisions of Section 5 above, Stock Rights may be
granted under this Plan prior to the date of stockholder approval of this
Plan. The Board may terminate or amend this Plan in any respect at any time;
provided, however, that the Board may not amend this Plan in any of the
following respects without the approval of the Company's stockholders obtained
within twelve (12) months before or after the Board adopts a resolution
authorizing any of the following actions: (a) if such stockholder approval is
required by law, rule or regulation or otherwise deemed desirable by the
Committee or the Board, the total number of shares that may be issued under
this Plan may not be increased (except by adjustment pursuant to Section 13
above); (b) the provisions of Section 3 above regarding eligibility for grants
of ISOs may not be modified; (c) the provisions of Section 6(b) above
regarding the exercise price at which shares may be offered pursuant to ISOs
may not be modified (except by adjustment pursuant to Section 13 above); and
(d) the expiration date of this Plan may not be extended. Except as otherwise
provided in this Section 15, in no event may action of the Board or the
stockholders alter or impair the rights of a grantee, without such grantee's
consent, under any Stock Right previously -ranted to such grantee. The
Committee or the Board may amend the terms of any Stock Right -ranted if such
amendment is agreed to by the recipient of such Stock Right.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISO'S
-------------------------------------------------------------------
The Committee or the Board, at the written request of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's
ISOs (or any installments or portions of installments thereof) that have not
been exercised on the date of conversion into Non-Qualified Options at any
time prior to the expiration of such ISOS, regardless of whether the optionee
is an employee of the Company or a Related Corporation at the time of such
conversion. Such actions may include, but shall not be limited to, extending
the exercise period or reducing the exercise price of the appropriate
installments of such Options. At the time of such conversion, the Committee
or the Board (with the consent of the optionee) may impose such conditions on
the exercise of the resulting Non-Qualified Options as the Committee or the
Board in its discretion may determine, provided that such conditions shall not
be inconsistent with this Plan. Nothing in this Plan shall be deemed to give
any optionee the right to have such optionee's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Committee or the Board takes appropriate action. The Committee or the Board,
with the consent of the optionee, may also terminate any portion of any ISO
that has not been exercised at the time of such termination.
17. APPLICATION OF FUNDS
----------------------
The proceeds received by the Company from the sale of shares pursuant to
Options granted and Purchases authorized under this Plan shall be used for
general corporate purposes.
<PAGE>
18. GOVERNMENTAL REGULATION
------------------------
The Company's obligation to sell and deliver shares of Common Stock under this
Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES
------------------------------------------
Upon the exercise of a Non-Qualified Option, the grant of an Award, the making
of a Purchase of Common Stock for less than its fair market value, the making
of a Disqualifying Disposition (as that term is defined in Section 20 below)
or the vesting, of restricted Common Stock acquired upon the exercise of a
Stock Right hereunder, the Company, in accordance with Section 3402(a) of the
Code, may require the optionee, Award recipient or purchaser to pay additional
withholding taxes in respect of the amount that is considered compensation
includable in such individual's gross income. The Committee or the Board in
its discretion may condition (i) the exercise of an Option, (ii) the grant of
an Award, (iii) the making of a Purchase of Common Stock for less than its
fair market value or (iv) the vesting of restricted Common Stock acquired by
exercising a Stock Right, on the grantee's payment of such additional
withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION
---------------------------------------------------
Each employee who receives an ISO must agree to notify the Company in writing
immediately after the employee makes a Disqualifying Disposition of any shares
of the Company's Common Stock acquired pursuant to the exercise of an ISO. A
Disqualifying Disposition is any disposition (including, any sale) of such
Common Stock before the later of (a) two (2) years after the date the employee
was granted the ISO and (b) one (1) year after the date the employee acquired
the Common Stock by exercising the ISO. If the employee dies before such
shares of Common Stock are sold, these holding period requirements do not
apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW; CONSTRUCTION
-----------------------------
The validity and construction of this Plan and the instruments evidencing
Stock Rights shall be governed by the laws of the State of Colorado, or the
laws of any jurisdiction in which the Company or its successors in interest
may be organized. In construing this Plan, the singular shall include the
plural and the masculine gender shall include the feminine and neuter, and
vice versa, unless the context otherwise requires.
SETTLEMENT AND RELEASE AGREEMIENT PARTEES
-----------------------------------------
Cymedix (Fonnerly MedSoft OnLine) ("Cymedix")
100 E. Thousand Oaks Boulevard, Suite 117
Thousand Oaks, CA 91360
Keith Berinan ( "Berman")
Barbara Asbell ("Asbell")
100 E. Thousand Oaks Boulevard, Suite 117
Thousand Oaks, CA 91360
Global Med Technologies ("Global")
(Fonnerly Global Data Technologies)
Global Data Technologies
12600 West Colfax
Suite A500
Lakewood, Colorado 80215-3734
Mick Ruxin ("Ruxin")
Global Data Technologies
12600 West Colfax
Suite A500
Lakewood, Colorado 80215-3734
Place: Los Angeles, California
Date:
RECITALS
--------
WHEREAS, Cymedix and Global entered into a series of related transactions
beginning on or about February 26, 1996; and Whereas a dispute has arisen
between the parties regarding these related transactions; and Whereas the
parties wish to resolve their disputes;
<PAGE>
NOW, THEREFORE, it is agreed as follows:
(1) MUTUAL RELEASE. Except as otherwise provided in this agreement, and
--------------
in consideration for the promises and undertakings contained herein, Cymedix,
Berman and Asbell on the one hand and Global and Ruxin on the other hand, each
for him, her or itself and for his, her or its respective subsidiaries,
predecessors, successors, assigns, officers, and directors, shareholders,
agents, attorneys, representatives, employees, owners, managers, contractors
and subcontractors do hereby and forever generally, completely and absolutely
release and discharge the other and each of his, her or its respective
predecessors, successors, assigns, officers, directors, shareholders, agents,
attorneys, representatives, employees, insurers, partners, managers, and heirs
of and from any and all claims, actions, causes of action, obligations,
liabilities, injuries and damages of every kind and nature whatsoever, known
or unknown, foreseen or unforeseen, asserted or unasserted, including claims
for breach of contract up through and including the date of this agreement,
which any such person or entity may now have or hereinafter claim to have due
to, arising from or based in whole or in part upon any act, omission, event,
transaction, matter or thing involved, alleged or referred to, or arising
directly or indirectly from or in connection with any of the past
transactions, agreements, understandings, associations, relationships and/or
course of dealing between Cymedix and Global including, without limitation,
all matters in controversy or that could have been placed in controversy by
either of them. The parties, in making this release, specifically except
those items set forth in paragraph 9 below.
(2) EXTENSION OF THE MATURITY DATE ON THE CONVERTIBLE PROMISSORY NOTE.
-----------------------------------------------------------------
(a) Global hereby modifies the convertible promissory note of February 26,
1996, in the amount of $250,000.00 (hereinafter the "Note") by extending the
Maturity Date (as defmed in Paragraph 1.02 of the Loan and Security Agreement)
from February 26, 1997 to December 31, 1997.
(b) Global hereby grants to Cymedix the option to further extend the
Maturity Date of the note for an additional 180 days. Cymedix may only
exercise the option if it has not been successful in raising an additional one
and one half million dollars ($1,500,000.00) in equity capital between the
date of this agreement and December 31, 1997.
(3) EXTENSION OF CONVERSION RIGHTS. All of Global's rights to convert the
------------------------------
Note to stock shall be extended to December 31, 1997, or to the last date to
which payment on the, Note is due should Cymedix exercise its option to extend
the Maturity Date, as set forth in paragraph 2(b) above, provided, however,
that Global agrees that it shall not exercise its option until after the
maturity date or any extension thereof.
(4) LICENSE AGREEMENT. Global shall be licensed to use Cymedix technology
-----------------
in the blood bank and drug testing markets, which license shall be in
substantially the form of that used by Cymedix for such licenses.
<PAGE>
(5) DISTRIBUTORSHIP
---------------
(a) Global shall be appointed by Cymedix as its Exclusive Distributor, for
a period of 180 days, for the sale of Cymedix products to FHP. Such
Distributorship shall be substantially in the form of the Distributorship
Agreement used by Cymedix for such purposes, and shall terminate at the close
of business on the 180th day from the date of the agreement.
(b) Global shall be appointed by Cymedix as a Non-Exclusive
Distributorship for the sale of Cymedix products throughout the continental
United States. Such Distributorship Agreement shall be for a period of three
years, and shall be substantially in the form used by Cymedix for such
purposes.
(6) MEETINGS WITH FHP.
-------------------
Global shall exercise its good faith and best efforts to arrange a meeting
within the next 30 days between a representative of Cymedix and the President
and CEO of FHP, or some mutually agreed upon officer of FHP.
(7) LETTER OF RECOMMENDATION.
--------------------------
Mr. Ruxin shall, on behalf of Global, prepare a letter of recommendation of
Cymedix and its products covering the points set forth on Exhibit D hereto.
(8) MODIFICATIONS -TO LOAN AND SECURITY AGREEMENT.
--------------------------------------------------
(a) The following language is deleted from the second introductory
paragraph: "MSOL and Global are negotiating the terms of a definite agreement.
MSOL will become a subsidiary of Global if the merger is completed.
(b) Section 1.02 is specifically modified by paragraph 2 of this
agreement.
(c) Section 1.03 is deleted.
(d) Section 3.01(b) shall be modified, and shall read as follows:
"(b) MSOL shall not grant or permit any security interest in any of
the collateral to anyone except Global unless (1) such security holder
acknowledge the prior security of Global; or (2) Global consents in writing to
the granting of such a security interest."
(e) Sections 3.01(c) is deleted.
(f) Section 3.01(h) shall be modified, and shall read as follows:
(h) Cymedix, Berman and Asbell agree during the pendency of The
Note, and until the same is either paid in full, converted to stock or
otherwise satisfied, that no further shares of stock in Cymedix shall be
issued to Berman or Asbell except for cash payment or in lieu of accrued
salary. Any such stock purchase shall be subject to the following:
<PAGE>
(1) The stock price shall be the higher of either the price per
share in the most recent private placement offering or Global's conversion
price;
(2) Berman and Asbell shall each be entitled to purchase, in
exchange for accrued salary, up to $100,000 in stock per year, and no more.
This paragraph shall not apply to the exercise of any warrants issued to
Berman or Asbell prior to October 15, 1996.
(g) All references to any proposed merger are deleted.
(9) ITEMS EXCLUDED FROM, THIS MUTUAL - GENERAL RELEASE.
------------------------------------ ----------------
(a) Paragraph 8a and 8b of the Letter of Intent between Cymedix and
Global, dated February 26, 1996.
(b) All rights that Global may have under The Note except:
(1) Any modifications contained in the Agreement shall control over
the language of the Note.
(2) The paragraph on page two of the Note, commencing with the words
"In consideration for making the Loan evidenced by this Note, maker agrees:",
and subparagraphs (a) through (c) thereunder, is deleted.
(3) All references to any proposed merger are deleted.
(c) The Loan and Security Agreement, as modified herein.
(10) WAIVER OF RIGHTS UNDER CALIFORNIA CIVIL CODE SECTION 1542.
---------------------------------------------------------------
With respect to the obligations created by or arising out of this agreement,
as well those items specifically excluded from this mutual general release,
all rights under California Civil Code Section 1542 and any similar rights
under any similar federal, state or local statute, rule or regulation, are
hereby expressly waived by each party. California Civil Code Section 1542
provides as follows:
"A general release does not extend to claims which the creditor did not know
or suspect to exist in his favor at the time of executing the release, which
if known by him must have materially affected his settlement with the debtor.
(11) ENTIRE AGREEMENT.
-----------------
This agreement contains the entire agreement between the parties with regard
to the subject matter thereof. It may not be altered, modified or otherwise
changed in any manner except in a writing signed by all of the parties hereto.
<PAGE>
Date: _________________________ By:____________________
Global Med Technologies
Date:___________________________ By:____________________
Cymedix
Date:___________________________ By:____________________
Barbara Asbell
Date:__________________________ By:____________________
Keith Berman
Date:__________________________ By:____________________
Mick Ruxin
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT made this 26th day of February 1996 by and
between Global Data Technologies, Inc., a corporation with its principal
executive office at 12600 West Colfax, Suite A-500, Lakewood, Colorado
("Global" or the "Lender") and MedSoft OnLine, Inc., a California corporation
with its principal executive office 2899 South Agoura Road, #330, Westlake
Village, California 91361 ("MSOL" or the "Borrower"). The Lender has agreed
to loan to MSOL an aggregate of $250,000 (the "Loan"), evidenced by Promissory
Notes in substantially the form attached as Exhibit A.
Global and MSOL have entered into a Letter of Intent dated February _, 1996
pursuant to which Global will acquire all of the outstanding shares of MSOL
(the "Merger"). A copy of the Letter of Intent is attached as Exhibit C
hereto. MSOL and Global are negotiating the terms of a definitive agreement
of merger. MSOL will become a subsidiary of Global if the Merger is
completed. In accordance with the Letter of Intent, Global will provide a
secured loan to MSOL to provide funds to be used for working capital, and MSOL
has agreed to pledge certain assets as security for the Loan.
IN CONSIDERATION of the mutual covenants and agreements contained herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby covenant and agree as follows:
1. THE LOAN
1.01 Agreement to Borrow and Lend. Subject to all of the terms,
--------------------------------
provisions, conditions, covenants and agreements contained in this Agreement,
Global agrees to make to MSOL the Loan in the original principal amount of up
to $250,000 (the "Aggregate Debt"), of which $100,000 has already been loaned
to MSOL by Global.
1.02 Promissory Note. The Loan has been or will be evidenced by one or
---------------
more promissory notes (collectively, the "Note"), each of which shall be in
substantially the form attached as Exhibit A hereto. In the event of any
discrepancy between any note heretofore executed by MSOL in favor of Global
and Exhibit A, the terms and conditions of Exhibit A shall control and such
prior note be reformed in conformity therewith. The outstanding principal
balance of the Loan shall bear interest at the rate of two percent in excess
of the prime lending rate from time to time published or reported by Mountain
Parks Bank, N.A., Denver, Colorado ("Prime Rate"). The interest rate will be
adjusted daily. Interest shall accrue monthly.
If not sooner paid all unpaid principal together with all accrued but unpaid
interest, all additional interest and all other sums due thereunder, shall be
due and payable in full one year from the date that either party notifies the
other of its intent to not proceed (for any reason) with the proposed Merger
(the "Maturity Date").
At the option of Global, Global can convert at any time the entire principal
balance into shares of common stock of MSOL at the conversion rate of $4.88 in
principal for each share of MSOL common stock. Upon such conversion the
principal balance shall be considered paid in full. However, any accrued but
unpaid interest, all additional interest and all other sums due hereunder
shall continue to be due and payable in full on the Maturity Date. If MSOL
shall at any time while the Note is outstanding change the number of the
outstanding shares of its common stock through a subdivision or combination of
shares, then the number of shares which Global has the right to purchase, and
the conversion price per share, shall be proportionately adjusted.
<PAGE>
1.03 Use of Proceeds. The Borrower represents, warrants, covenants,
----------------
acknowledges and agrees to and with Global that the proceeds of the Loan shall
be used by Borrower solely to provide working capital for operations of MSOL
in accordance with one or more "Proposed Use of Proceeds Statements" approved
in advance by Global through its officers Michael I. Ruxin, Chairman and CEO
of Global, or Joseph Dudziak, President of Global. Otherwise, no expenditure
of the Loan proceeds may be made by borrower without specific authorization of
the expenditure by Ruxin or Dudziak.
1.04 Loan Documents. The term "Loan Documents" shall mean this Loan and
--------------
Security Agreement, the Note and all other security instruments and documents
executed and delivered or to be delivered in connection with the Loan.
2. GRANT OF THE SECURITY INTEREST
2.01 Collateral. The collateral for the Loan is generally described as
----------
(all of which may be collectively referred to as "Collateral") all software,
patents, trademarks, service marks, trade names and franchises included in the
assets of MSOL, all applications for any of the foregoing and all permits,
grants and licenses or other rights running to or from MSOL relating to any of
the foregoing, whether now existing or hereafter arising, including but not
limited to any software that has been or may be developed by MSOL.
2.02 Grant of Security: Other Security Instruments. MSOL, for valuable
---------------------------------------------
consideration, receipt of which is hereby acknowledged, hereby grants,
bargains and sells unto Global, its heirs, representatives, successors and
assigns, a security interest in the Collateral, wherever located and whether
now owned or hereafter acquired. MSOL shall execute, acknowledge as
applicable, and deliver to Global the instruments provided for in this Section
2.02 ("Security Instruments") each of which shall be in form and in substance
satisfactory to Global and which shall secure (i) the repayment of the
Aggregate Debt, including all renewals, extensions, amendments and
modifications thereof; and (ii) all other future or contingent debts,
obligations and liabilities of every description, owed to Global by Borrower
("Additional Obligations"):
(a) One or more properly executed and recorded UCC-1 Financing Statements
relating to this Loan and Security Agreement, and the Collateral and as may be
required from time to time by Global; and
(b) Such other documents, instruments and agreements as Global may require
to evidence the Loan or secure the Collateral and all of MSOL's obligations
hereunder.
3. COVENANTS OF MSOL
3.01 Covenants. So long as the Aggregate Debt shall remain unpaid, and
---------
subject to the requirements of confidentiality contained in the Letter of
Intent dated February __, 1996, MSOL covenants and agrees as follows:
(a) MSOL shall permit Global to examine all of MSOL's records pertaining
to the Collateral at any time and to copy or make extracts from said records
as Global deems necessary;
<PAGE>
(b) MSOL shall not, without the prior written consent of Global, grant or
permit any security interest in any of the Collateral to anyone except Global,
including, but not limited to, purchase money security interests to trade
creditors;
(c) MSOL shall not, without the prior written consent of Global, enter
into any borrowing arrangements of any kind or nature, including, but not
limited to, contingent liability on any debt, other than trade debt incurred
in the ordinary course of its business;
(d) MSOL will execute and furnish to Global, promptly upon request, such
instruments including, without limitation, other instruments of mortgage,
assignment, hypothecation and pledge in addition to those specifically
provided for herein as Global may from time to time reasonably require.
Global shall, at its own expense, prepare or cause such instruments to be
prepared. MSOL shall also take all further actions as Global may reasonably
require from time to time in order to create, evidence, perfect, maintain,
protect and preserve the security interest of Global provided for herein and
the property encumbered thereby, to warrant and defend its title thereto and
to evidence the obligations of MSOL thereunder;
(e) MSOL will maintain and preserve its corporate existence under the laws
of every jurisdiction in which it does business;
(f) MSOL shall keep accurate and complete records of the Collateral and,
on request, furnish Global with statements showing a detailed balance sheet
and income statement. Should the merger negotiations terminate and should
Global begin the development of competing products or otherwise enter into
competition with MSOL, Global agrees that it shall not enforce its rights
under this provision;
(g) MSOL will immediately notify Global of any event or circumstance which
reasonably could be deemed to have a materially adverse effect on MSOL's
financial condition, the Collateral or MSOL's ability to perform their
agreements and obligations under the Loan Documents;
(h) MSOL shall not, without the prior written consent of Global, issue any
shares of its capital stock in addition to those outstanding on the date of
this Agreement.
(i) MSOL shall notify Global in writing prior to the time there is any
change of name, identity, or business structure of MSOL including the addition
of any trade names;
(j) In the event of a breach of any covenant contained in this Article 3,
Global shall give MSOL written notice pursuant to the provisions of this
Agreement of such default. MSOL shall have five business days to cure such
default from the effective date of such notice.
4. OTHER AGREEMEENTS
4.01 Other Agreements. In addition to the other agreements contained in
----------------
the Loan Documents, the parties hereto agree as follows:
<PAGE>
(a) Any and all monies received by Global from the operation or sale of
any of the Collateral, whether prior or subsequent to or as a result of a
foreclosure or foreclosure sale of such Collateral, shall be applied by Global
pro rata to amounts due under all of the Loans or toward the payment of
interest, principal, default interest or any other sums due under any of the
Loan Documents .
(b) In the event that a default shall exist under any of the Loan
Documents, after ten (10) days notice to MSOL, if such default has not been
cured, Global may, at its option, declare that a default shall be considered
to exist under each and every one of the Loans, and Global shall be authorized
to proceed with any and all remedies available to Global under any of the Loan
Documents against MSOL, whether or not Global has elected to proceed against
MSOL;
(c) Global may, after notice to and with the consent of, MSOL (which
consent shall not be unreasonably withheld), correct any clerical errors or
omissions that may be present in the Loan Documents executed in connection
with the Loan. MSOL understands that such corrections shall not result in any
increase in the amount of the obligation to be repaid to Global, or any change
of essential terms of repayment of the loan obligation.
5. DEFAULT AND REMEDIES
5.01 Events of Default. Except as otherwise specifically provided herein,
-----------------
if no cure is made within ten (10) days after notice to MSOL as provided in
this Agreement, the occurrence of any one or more of the following events or
the existence of one or more of the following conditions shall constitute an
Event of Default under this Agreement; provided, however, that Global may
resort to the remedies provided herein upon an "Event of Default" only after
the expiration of the 10-day cure period and only if the event or condition
then remains uncured:
(a) Nonpayment: MSOL shall fail to pay when due the full amount of any
----------
payment of principal or interest due under the Note, any other amounts due
under any of the Loan Documents
(b) Other Defaults : The occurrence of any of the following events:
---------------
(1) Any representation or warranty made in writing to Global by MSOL in
connection with the making of the Loan shall prove at any time to have been
incorrect in any material respect when made; or
(2) The breach, default or violation by MSOL of any material obligation,
agreement or covenant contained in any of the Loan Documents executed in
connection herewith by MSOL; or
(3) The holder of any lien or security interest on the Collateral (without
implying the consent of Global to the existence or creation of any such lien
or security interest), declares a default thereunder and accelerates the loan
secured thereby or institutes foreclosure or other proceedings for the
enforcement of its remedies thereunder; or
(4) Any material provision of any of the Loan Documents shall at any time
for any reason cease to be in full force and effect or shall be declared to be
null and void; or
<PAGE>
(5) Any litigation or proceeding which may materially adversely affect the
ability of MSOL to perform its obligations under the Loan Documents; or
(6) MSOL's failure to comply with any other covenants or agreements
contained in any of the Loan Documents and not herein specifically referenced,
unless the same is cured within 10 days after written notice thereof, (or, in
the event such default is not capable of being cured within such period of
time, unless MSOL promptly commences and diligently endeavor to cure such
event of default, but in any event the same must be cured within 30 days after
written notice thereof); or
(7) The occurrence of an event of default under any of the documents,
instruments and agreements which evidence, secure or otherwise relate to any
Additional Obligations
5.02 Remedies. Upon the expiration of the cure period applicable to any
--------
event or condition potentially constituting an Event of Default hereunder, if
that event or condition then remains uncured, constituting an Event of
Default, and at any time thereafter:
(a) All principal, interest and other amounts payable under the Loan
Documents shall, at the option of Global, become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived by MSOL;
(b) Global may proceed with every remedy available at law or in equity or
provided for in the Loan Documents or in any other document executed in
connection with the loan, in such order or sequence as Global may determine in
its sole discretion, including concurrently, independently, or successively,
and all reasonable expenses incurred by Global in connection with any remedy
shall be deemed indebtedness of MSOL to Global including, but not limited to,
reasonable attorneys' fees incurred by Global.
6. GENERAL PROVISIONS
6.01 Amendments. No provision or term of the Loan Documents may be
----------
amended, modified, revoked, supplemented, waived or otherwise changed except
by a written instrument duly executed by MSOL and Global and designated as an
amendment, supplement or waiver.
6.02 No Waiver. The making of this Agreement shall not waive or impair
---------
any other agreement or security Global may have or hereafter acquire with
respect to the Note. Any waiver shall apply only to the extent specifically
set forth in writing and signed by Global.
6.03 MSOL Not Released. Without affecting any obligation of MSOL under
-----------------
this Agreement, Global without notice or demand may renew or extend the terms
and conditions of the Loan, Loan Documents or any of the Collateral, take or
release any other collateral as security for the Loan and add or release any
guarantor, endorser, surety or other party to the Loan, Additional Obligations
or Collateral.
6.04 Legal Opinion. At the time of the closing of the Loan, MSOL shall
-------------
tender to Global a legal opinion from Legal Counsel of MSOL's choosing,
addressed and in form acceptable to Global as counsel to MSOL, offering such
counsel's opinion on: the capacity and legal authority of MSOL under its
corporate documents and California law and the legality, validity,
enforceability and priority of the security interests granted in this Loan and
Security
<PAGE>
Agreement and any UCC forms filed in connection herewith. With respect to any
other issues, the parties shall seek whatever independent legal advice they
deem suitable or prudent.
6.05 Certificate of Officers MSOL. At the time of the closing of the Loan
----------------------------
the President and/or Chief Financial Officer of MSOL shall prepare and execute
a certificate addressed and in form acceptable to Global representing and
warranting to Global that MSOL shall operate its business prudently and in the
ordinary course consistent with previous business practices.
6.06 Severability. Whenever possible, each provision of the Loan
------------
Documents shall be interpreted so as to be effective and valid under Colorado
law. Should any provision, covenant or agreement contained herein be deemed
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
impaired thereby, nor shall the validity, legality or enforceability of any
such defective provision by in any way affected or impaired in any other
jurisdiction.
6.07 Successors and Assigns Bound; Assignment. The covenants and
--------------------------------------------
agreements contained herein shall bind and inure to the benefit of MSOL and
Global, their legal representatives, successors and assigns but this Agreement
may not be assigned by either party without the prior written consent of the
other.
6.08 No Third Party Benefits. This Agreement is made in connection with a
-----------------------
Letter of intent dated February __, 1996 and the merger contemplated thereby,
for the sole benefit of MSOL and Global, and their respective legal
representatives, successors and assigns, and no other person or persons shall
have any rights or remedies under or by reason of this Agreement; however,
nothing contained herein shall impair or diminish the rights of parties to any
other agreements, including employment agreements between MSOL and its
personnel, to which reference is made herein or which are required to be
entered into pursuant hereto.
6.09 Headings. The captions and headings of the paragraphs in the
--------
Agreement are for convenience only and are not used to interpret or define the
provisions of the Agreement.
6.10 Governing Law and Jurisdiction. This Agreement and the Loan
---------------------------------
Documents or any other documents executed in connection with the Loan shall be
governed by and interpreted in accordance with the laws of the State of
Colorado. MSOL agrees and confesses that personal jurisdiction with respect
to any proceedings which arise hereunder shall be proper if such proceedings
are conducted in Denver District Court, State of Colorado.
6.11 Notice. Any notice, request, demand or other communication required
------
or permitted hereunder or required by law shall be in writing addressed to the
addressee at the address shown on the first page of this Agreement or the Note
or to such different address as the intended addressee shall have designated
by written notice sent in accordance herewith and actually received by the
other party and shall be effective upon:
(i) Delivery of the same in person to the intended addressee; or
(ii) One day after deposit of the same with a responsible overnight
courier service (such as Federal Express) for delivery to the intended
addressee; or
<PAGE>
(iii) Actual receipt by the intended addressee after deposit of the same
in the United States mail, postage prepaid, certified or registered mail,
return receipt requested.
IN WITNESS WHEREOF, this Loan Agreement is executed as of the day and year
first set forth above.
GLOBAL DATA TECHNOLOGIES, INC.
By:
Michael I. Ruxin, Chairman and Chief
Executive Officer
MEDSOFT ONLINE, INC.
By:
Keith Berman, President
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT made this 26th day of February 1996 by and
between Global Data Technologies, Inc., a corporation with its principal
executive office at 12600 West Colfax, Suite A-500, Lakewood, Colorado
("Global" or the "Lender") and MedSoft OnLine, Inc., a California corporation
with its principal executive office 2899 South Agoura Road, #330, Westlake
Village, California 91361 ("MSOL" or the "Borrower"). The Lender has agreed
to loan to MSOL an aggregate of $250,000 (the "Loan"), evidenced by Promissory
Notes in substantially the form attached as Exhibit A.
Global and MSOL have entered into a Letter of Intent dated February _, 1996
pursuant to which Global will acquire all of the outstanding shares of MSOL
(the "Merger"). A copy of the Letter of Intent is attached as Exhibit C
hereto. MSOL and Global are negotiating the terms of a definitive agreement
of merger. MSOL will become a subsidiary of Global if the Merger is
completed. In accordance with the Letter of Intent, Global will provide a
secured loan to MSOL to provide funds to be used for working capital, and MSOL
has agreed to pledge certain assets as security for the Loan.
IN CONSIDERATION of the mutual covenants and agreements contained herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereby covenant and agree as follows:
1. THE LOAN
1.01 Agreement to Borrow and Lend. Subject to all of the terms,
--------------------------------
provisions, conditions, covenants and agreements contained in this Agreement,
Global agrees to make to MSOL the Loan in the original principal amount of up
to $250,000 (the "Aggregate Debt"), of which $100,000 has already been loaned
to MSOL by Global.
1.02 Promissory Note. The Loan has been or will be evidenced by one or
---------------
more promissory notes (collectively, the "Note"), each of which shall be in
substantially the form attached as Exhibit A hereto. In the event of any
discrepancy between any note heretofore executed by MSOL in favor of Global
and Exhibit A, the terms and conditions of Exhibit A shall control and such
prior note be reformed in conformity therewith. The outstanding principal
balance of the Loan shall bear interest at the rate of two percent in excess
of the prime lending rate from time to time published or reported by Mountain
Parks Bank, N.A., Denver, Colorado ("Prime Rate"). The interest rate will be
adjusted daily. Interest shall accrue monthly.
If not sooner paid all unpaid principal together with all accrued but unpaid
interest, all additional interest and all other sums due thereunder, shall be
due and payable in full one year from the date that either party notifies the
other of its intent to not proceed (for any reason) with the proposed Merger
(the "Maturity Date").
At the option of Global, Global can convert at any time the entire principal
balance into shares of common stock of MSOL at the conversion rate of $4.88 in
principal for each share of MSOL common stock. Upon such conversion the
principal balance shall be considered paid in full. However, any accrued but
unpaid interest, all additional interest and all other sums due hereunder
shall continue to be due and payable in full on the Maturity Date. If MSOL
shall at any time while the Note is outstanding change the number of the
outstanding shares of its common stock through a subdivision or combination of
shares, then the number of shares which Global has the right to purchase, and
the conversion price per share, shall be proportionately adjusted.
<PAGE>
1.03 Use of Proceeds. The Borrower represents, warrants, covenants,
----------------
acknowledges and agrees to and with Global that the proceeds of the Loan shall
be used by Borrower solely to provide working capital for operations of MSOL
in accordance with one or more "Proposed Use of Proceeds Statements" approved
in advance by Global through its officers Michael I. Ruxin, Chairman and CEO
of Global, or Joseph Dudziak, President of Global. Otherwise, no expenditure
of the Loan proceeds may be made by borrower without specific authorization of
the expenditure by Ruxin or Dudziak.
1.04 Loan Documents. The term "Loan Documents" shall mean this Loan and
--------------
Security Agreement, the Note and all other security instruments and documents
executed and delivered or to be delivered in connection with the Loan.
2. GRANT OF THE SECURITY INTEREST
2.01 Collateral. The collateral for the Loan is generally described as
----------
(all of which may be collectively referred to as "Collateral") all software,
patents, trademarks, service marks, trade names and franchises included in the
assets of MSOL, all applications for any of the foregoing and all permits,
grants and licenses or other rights running to or from MSOL relating to any of
the foregoing, whether now existing or hereafter arising, including but not
limited to any software that has been or may be developed by MSOL.
2.02 Grant of Security: Other Security Instruments. MSOL, for valuable
---------------------------------------------
consideration, receipt of which is hereby acknowledged, hereby grants,
bargains and sells unto Global, its heirs, representatives, successors and
assigns, a security interest in the Collateral, wherever located and whether
now owned or hereafter acquired. MSOL shall execute, acknowledge as
applicable, and deliver to Global the instruments provided for in this Section
2.02 ("Security Instruments") each of which shall be in form and in substance
satisfactory to Global and which shall secure (i) the repayment of the
Aggregate Debt, including all renewals, extensions, amendments and
modifications thereof; and (ii) all other future or contingent debts,
obligations and liabilities of every description, owed to Global by Borrower
("Additional Obligations"):
(a) One or more properly executed and recorded UCC-1 Financing Statements
relating to this Loan and Security Agreement, and the Collateral and as may be
required from time to time by Global; and
(b) Such other documents, instruments and agreements as Global may require
to evidence the Loan or secure the Collateral and all of MSOL's obligations
hereunder.
3. COVENANTS OF MSOL
3.01 Covenants. So long as the Aggregate Debt shall remain unpaid, and
---------
subject to the requirements of confidentiality contained in the Letter of
Intent dated February __, 1996, MSOL covenants and agrees as follows:
(a) MSOL shall permit Global to examine all of MSOL's records pertaining
to the Collateral at any time and to copy or make extracts from said records
as Global deems necessary;
<PAGE>
(b) MSOL shall not, without the prior written consent of Global, grant or
permit any security interest in any of the Collateral to anyone except Global,
including, but not limited to, purchase money security interests to trade
creditors;
(c) MSOL shall not, without the prior written consent of Global, enter
into any borrowing arrangements of any kind or nature, including, but not
limited to, contingent liability on any debt, other than trade debt incurred
in the ordinary course of its business;
(d) MSOL will execute and furnish to Global, promptly upon request, such
instruments including, without limitation, other instruments of mortgage,
assignment, hypothecation and pledge in addition to those specifically
provided for herein as Global may from time to time reasonably require.
Global shall, at its own expense, prepare or cause such instruments to be
prepared. MSOL shall also take all further actions as Global may reasonably
require from time to time in order to create, evidence, perfect, maintain,
protect and preserve the security interest of Global provided for herein and
the property encumbered thereby, to warrant and defend its title thereto and
to evidence the obligations of MSOL thereunder;
(e) MSOL will maintain and preserve its corporate existence under the laws
of every jurisdiction in which it does business;
(f) MSOL shall keep accurate and complete records of the Collateral and,
on request, furnish Global with statements showing a detailed balance sheet
and income statement. Should the merger negotiations terminate and should
Global begin the development of competing products or otherwise enter into
competition with MSOL, Global agrees that it shall not enforce its rights
under this provision;
(g) MSOL will immediately notify Global of any event or circumstance which
reasonably could be deemed to have a materially adverse effect on MSOL's
financial condition, the Collateral or MSOL's ability to perform their
agreements and obligations under the Loan Documents;
(h) MSOL shall not, without the prior written consent of Global, issue any
shares of its capital stock in addition to those outstanding on the date of
this Agreement.
(i) MSOL shall notify Global in writing prior to the time there is any
change of name, identity, or business structure of MSOL including the addition
of any trade names;
(j) In the event of a breach of any covenant contained in this Article 3,
Global shall give MSOL written notice pursuant to the provisions of this
Agreement of such default. MSOL shall have five business days to cure such
default from the effective date of such notice.
4. OTHER AGREEMEENTS
4.01 Other Agreements. In addition to the other agreements contained in
----------------
the Loan Documents, the parties hereto agree as follows:
<PAGE>
(a) Any and all monies received by Global from the operation or sale of
any of the Collateral, whether prior or subsequent to or as a result of a
foreclosure or foreclosure sale of such Collateral, shall be applied by Global
pro rata to amounts due under all of the Loans or toward the payment of
interest, principal, default interest or any other sums due under any of the
Loan Documents .
(b) In the event that a default shall exist under any of the Loan
Documents, after ten (10) days notice to MSOL, if such default has not been
cured, Global may, at its option, declare that a default shall be considered
to exist under each and every one of the Loans, and Global shall be authorized
to proceed with any and all remedies available to Global under any of the Loan
Documents against MSOL, whether or not Global has elected to proceed against
MSOL;
(c) Global may, after notice to and with the consent of, MSOL (which
consent shall not be unreasonably withheld), correct any clerical errors or
omissions that may be present in the Loan Documents executed in connection
with the Loan. MSOL understands that such corrections shall not result in any
increase in the amount of the obligation to be repaid to Global, or any change
of essential terms of repayment of the loan obligation.
5. DEFAULT AND REMEDIES
5.01 Events of Default. Except as otherwise specifically provided herein,
-----------------
if no cure is made within ten (10) days after notice to MSOL as provided in
this Agreement, the occurrence of any one or more of the following events or
the existence of one or more of the following conditions shall constitute an
Event of Default under this Agreement; provided, however, that Global may
resort to the remedies provided herein upon an "Event of Default" only after
the expiration of the 10-day cure period and only if the event or condition
then remains uncured:
(a) Nonpayment: MSOL shall fail to pay when due the full amount of any
----------
payment of principal or interest due under the Note, any other amounts due
under any of the Loan Documents
(b) Other Defaults : The occurrence of any of the following events:
---------------
(1) Any representation or warranty made in writing to Global by MSOL in
connection with the making of the Loan shall prove at any time to have been
incorrect in any material respect when made; or
(2) The breach, default or violation by MSOL of any material obligation,
agreement or covenant contained in any of the Loan Documents executed in
connection herewith by MSOL; or
(3) The holder of any lien or security interest on the Collateral (without
implying the consent of Global to the existence or creation of any such lien
or security interest), declares a default thereunder and accelerates the loan
secured thereby or institutes foreclosure or other proceedings for the
enforcement of its remedies thereunder; or
(4) Any material provision of any of the Loan Documents shall at any time
for any reason cease to be in full force and effect or shall be declared to be
null and void; or
<PAGE>
(5) Any litigation or proceeding which may materially adversely affect the
ability of MSOL to perform its obligations under the Loan Documents; or
(6) MSOL's failure to comply with any other covenants or agreements
contained in any of the Loan Documents and not herein specifically referenced,
unless the same is cured within 10 days after written notice thereof, (or, in
the event such default is not capable of being cured within such period of
time, unless MSOL promptly commences and diligently endeavor to cure such
event of default, but in any event the same must be cured within 30 days after
written notice thereof); or
(7) The occurrence of an event of default under any of the documents,
instruments and agreements which evidence, secure or otherwise relate to any
Additional Obligations
5.02 Remedies. Upon the expiration of the cure period applicable to any
--------
event or condition potentially constituting an Event of Default hereunder, if
that event or condition then remains uncured, constituting an Event of
Default, and at any time thereafter:
(a) All principal, interest and other amounts payable under the Loan
Documents shall, at the option of Global, become immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived by MSOL;
(b) Global may proceed with every remedy available at law or in equity or
provided for in the Loan Documents or in any other document executed in
connection with the loan, in such order or sequence as Global may determine in
its sole discretion, including concurrently, independently, or successively,
and all reasonable expenses incurred by Global in connection with any remedy
shall be deemed indebtedness of MSOL to Global including, but not limited to,
reasonable attorneys' fees incurred by Global.
6. GENERAL PROVISIONS
6.01 Amendments. No provision or term of the Loan Documents may be
----------
amended, modified, revoked, supplemented, waived or otherwise changed except
by a written instrument duly executed by MSOL and Global and designated as an
amendment, supplement or waiver.
6.02 No Waiver. The making of this Agreement shall not waive or impair
---------
any other agreement or security Global may have or hereafter acquire with
respect to the Note. Any waiver shall apply only to the extent specifically
set forth in writing and signed by Global.
6.03 MSOL Not Released. Without affecting any obligation of MSOL under
-----------------
this Agreement, Global without notice or demand may renew or extend the terms
and conditions of the Loan, Loan Documents or any of the Collateral, take or
release any other collateral as security for the Loan and add or release any
guarantor, endorser, surety or other party to the Loan, Additional Obligations
or Collateral.
6.04 Legal Opinion. At the time of the closing of the Loan, MSOL shall
-------------
tender to Global a legal opinion from Legal Counsel of MSOL's choosing,
addressed and in form acceptable to Global as counsel to MSOL, offering such
counsel's opinion on: the capacity and legal authority of MSOL under its
corporate documents and California law and the legality, validity,
enforceability and priority of the security interests granted in this Loan and
Security
<PAGE>
Agreement and any UCC forms filed in connection herewith. With respect to any
other issues, the parties shall seek whatever independent legal advice they
deem suitable or prudent.
6.05 Certificate of Officers MSOL. At the time of the closing of the Loan
----------------------------
the President and/or Chief Financial Officer of MSOL shall prepare and execute
a certificate addressed and in form acceptable to Global representing and
warranting to Global that MSOL shall operate its business prudently and in the
ordinary course consistent with previous business practices.
6.06 Severability. Whenever possible, each provision of the Loan
------------
Documents shall be interpreted so as to be effective and valid under Colorado
law. Should any provision, covenant or agreement contained herein be deemed
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions of this Agreement shall not be
impaired thereby, nor shall the validity, legality or enforceability of any
such defective provision by in any way affected or impaired in any other
jurisdiction.
6.07 Successors and Assigns Bound; Assignment. The covenants and
--------------------------------------------
agreements contained herein shall bind and inure to the benefit of MSOL and
Global, their legal representatives, successors and assigns but this Agreement
may not be assigned by either party without the prior written consent of the
other.
6.08 No Third Party Benefits. This Agreement is made in connection with a
-----------------------
Letter of intent dated February __, 1996 and the merger contemplated thereby,
for the sole benefit of MSOL and Global, and their respective legal
representatives, successors and assigns, and no other person or persons shall
have any rights or remedies under or by reason of this Agreement; however,
nothing contained herein shall impair or diminish the rights of parties to any
other agreements, including employment agreements between MSOL and its
personnel, to which reference is made herein or which are required to be
entered into pursuant hereto.
6.09 Headings. The captions and headings of the paragraphs in the
--------
Agreement are for convenience only and are not used to interpret or define the
provisions of the Agreement.
6.10 Governing Law and Jurisdiction. This Agreement and the Loan
---------------------------------
Documents or any other documents executed in connection with the Loan shall be
governed by and interpreted in accordance with the laws of the State of
Colorado. MSOL agrees and confesses that personal jurisdiction with respect
to any proceedings which arise hereunder shall be proper if such proceedings
are conducted in Denver District Court, State of Colorado.
6.11 Notice. Any notice, request, demand or other communication required
------
or permitted hereunder or required by law shall be in writing addressed to the
addressee at the address shown on the first page of this Agreement or the Note
or to such different address as the intended addressee shall have designated
by written notice sent in accordance herewith and actually received by the
other party and shall be effective upon:
(i) Delivery of the same in person to the intended addressee; or
(ii) One day after deposit of the same with a responsible overnight
courier service (such as Federal Express) for delivery to the intended
addressee; or
<PAGE>
(iii) Actual receipt by the intended addressee after deposit of the same
in the United States mail, postage prepaid, certified or registered mail,
return receipt requested.
IN WITNESS WHEREOF, this Loan Agreement is executed as of the day and year
first set forth above.
GLOBAL DATA TECHNOLOGIES, INC.
By:
Michael I. Ruxin, Chairman and Chief
Executive Officer
MEDSOFT ONLINE, INC.
By:
Keith Berman, President
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
No. 333-12241 and 333-24659 of Medix Resources, Inc. (formerly International
Nursing Services, Inc.) on Forms S-3 of our report dated March 18, 1998
appearing in this annual report on Form 10-K of Medix Resources, Inc.
(formerly International Nursing Services, Inc.) for the year ended
December 28, 1997
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
21. Subsidiaries
INS Acquisition Sub, Inc.
National Care Resources - Colorado, Inc.
National Care Resources - New York, Inc.
National Care Resources - Texas, Inc.
National Care Resources - Travel, Inc.
JJ Care Resources
TherAmerica, Inc.
Cymedix Lynx Corporation
