UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 26, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-24768
MEDIX RESOURCES, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1123311
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7100 E. Belleview Ave, Suite 301, Englewood, CO 80111
(Address of principal executive offices) (Zip Code)
(303) 741-2045
--------
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 9, 1999.
Common Stock, $0.001 par value 26,863,691
Class Number of Shares
<PAGE>
INDEX
PART I. Financial Information Page No.
Item 1.Financial Statements
Consolidated Balance Sheets - September 26, 1999
(Unaudited) and December 27, 1998..........................1
Unaudited Consolidated Statements of Operations -- For
the Three and Nine Months Ended September 26, 1999
and September 27, 1998.....................................2
Unaudited Consolidated Statements of Cash Flows -- For
the Nine Months Ended September 26, 1999 and
September 27, 1998.........................................3
Notes to Unaudited Consolidated Financial Statements........4
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of Operations........................8
PART II. Other Information.................................................17
SIGNATURES........................................................20
Index to Exhibits.................................................21
<PAGE>
MEDIX RESOURCES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 26, December 27,
1999 1998
----------- ------------
(Unaudited)
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents .............................. $ 10,000 $ 40,000
Accounts receivable, net ............................... 1,454,000 2,081,000
Notes receivable ....................................... -- 563,000
Prepaid expenses and other ............................. 55,000 97,000
------------ ------------
Total current assets ................................ 1,519,000 2,781,000
Property and equipment, net ............................... 219,000 220,000
Intangible assets, net .................................... 2,056,000 2,174,000
------------ ------------
Total assets .............................................. $ 3,794,000 $ 5,175,000
============ ============
Liabilities and Stockholders' Deficit
Current liabilities
Checks in excess of cash ............................... $ -- $ 72,000
Notes payable .......................................... -- 289,000
Line-of-credit ......................................... 1,087,000 993,000
Accounts payable ....................................... 916,000 838,000
Accrued expenses ....................................... 759,000 1,097,000
Accrued payroll tax, interest and penalty .............. 992,000 1,469,000
Preferred stock redemption payable ..................... 205,000 635,000
------------ ------------
Total current liabilities ........................... 3,959,000 5,393,000
Stockholders' deficit
1996 convertible preferred stock, 10%
cumulative, $1 par value, 488 shares
authorized, 155 issued, 3.5 and 8
outstanding at September 26, 1999 and
December 27, 1998, respectively,
liquidation preference $67,000 and $120,000 ........... -- --
1997 convertible preferred stock, $1 par
value, 300 shares authorized, 167.15
issued, 5 and 19.5 outstanding at September
26, 1999 and December 27, 1998
respectively, liquidation preference
$50,000 and $195,000 .................................. -- --
1999 series A convertible preferred
stock, $1 par value, 300 shares
authorized, 300 and 0 issued and outstanding
at September 26, 1999 and December 27, 1998,
respectively, liquidation preference
$300,000 and $0 ....................................... -- --
1999 series B convertible preferred
stock, $1 par value, 2000 shares
authorized, 1238 and 0 issued and outstanding
at September 26, 1999 and December 27, 1998,
respectively, liquidation preference
$1,238,000 and $0 ..................................... 1,000 --
Common stock, $0.001 par value; 25,000,000
shares authorized, 23,923,691 and
21,500,727 issued and outstanding at
September 26, 1999 and December 27, 1998,
respectively .......................................... 24,000 22,000
Dividends payable with common stock .................... 32,000 39,000
Additional paid-in capital ............................. 15,307,000 12,882,000
Accumulated deficit .................................... (15,529,000) (13,161,000)
------------ ------------
Total stockholders' (deficit) ..................... (165,000) (218,000)
------------ ------------
Total liabilities and stockholders'
(deficit) ........................................ $ 3,794,000 $ 5,175,000
============ ============
</TABLE>
- 1 -
<PAGE>
MEDIX RESOURCES, INC.
Unaudited Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the For the For the For the
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues ............... $ 2,589,000 $ 4,353,000 $ 8,692,000 $ 14,515,000
Direct costs of services 2,038,000 3,354,000 6,851,000 11,117,000
------------ ------------ ------------ ------------
Gross margin ........... 551,000 999,000 1,841,000 3,398,000
Selling, general and
administrative expenses 1,690,000 1,464,000 3,918,000 4,651,000
(Loss) gain on sale of
assets ................ -- (47,000) 2,000 (270,000)
------------ ------------ ------------ ------------
Net loss from operations (1,139,000) (512,000) (2,075,000) (1,523,000)
Interest expense, net .. 80,000 185,000 293,000 590,000
------------ ------------ ------------ ------------
Net loss ............... $(1,219,000) $ (697,000) $ (2,368,000) $ (2,113,000)
============ ============ ============ ============
Basic loss per common
share (Note 5) ........ $ (.07) $ (.03) $ (.13) $ (.10)
============ ============ ============ ============
Weighted average shares
outstanding ........... 23,026,176 21,106,483 22,324,446 20,530,161
============ ============ ============ ============
</TABLE>
- 2 -
<PAGE>
MEDIX RESOURCES, INC.
Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended
September 26, 1999 and
September 27, 1998
----------------------------
1999 1998
----------- -----------
Cash flows from operating activities
Net loss .................................. $(2,368,000) $(2,113,000)
Adjustment to reconcile net loss to net
cash flows (used in) provided by
operating activities
Depreciation and amortization .......... 182,000 506,000
(Gain) loss on sale of property and
equipment ............................. (2,000) 270,000
Options and warrants issued for services 417,000 12,000
Net changes in current assets and
current liabilities ................... (140,000) 1,690,000
Net cash flows (used in) provided
by operating activities ........... (1,911,000) 365,000
----------- -----------
Cash flows from investing activities
Proceeds from sale of divisions ........... -- 1,335,000
Proceeds from sale of property and
equipment ................................ 2,000 --
Purchase of property and equipment ........ (63,000) (34,000)
Proceeds from notes receivable ............ 563,000 95,000
Business acquisition costs, net of cash
acquired ................................. -- (39,000)
----------- -----------
Net cash flows provided by
investing activities ............. 502,000 1,357,000
----------- -----------
Cash flows from financing activities
Advances (payments) under financing
agreement, net ........................... 94,000 (1,658,000)
Payments on capital leases and debt ....... (289,000) (60,000)
Net proceeds from exercise of options and
warrants ................................. 51,000 --
Payments on preferred stock redemptions ... -- (125,000)
Net proceeds from issuance of preferred
stock .................................... 1,523,000 --
Net cash flows provided by (used
in) financing activities .......... 1,379,000 (1,843,000)
----------- -----------
Net decrease in cash and cash equivalents .... (30,000) (121,000)
Cash and cash equivalents, at beginning of
period ...................................... 40,000 158,000
----------- -----------
Cash and cash equivalents, at end of period .. $ 10,000 $ 37,000
=========== ===========
Non-cash investing and financing activities for the nine months ended September
26, 1999:
Issuance of 1,295,241 shares of common stock for a $430,000 reduction in
preferred redemption payable. Issuance of 813,766 shares of common stock
for conversion of 4.5 units of 1996 preferred stock, 14.5 units of 1997
Preferred stock and accrued dividends of $12,000. 1,575,000 options to
purchase common stock valued at approximately $392,000 were granted for
services. 125,000 warrants to purchase common stock valued at
approximately $25,000 were granted for services. Dividends declared
payable in common stock were $5,000.
- 3 -
<PAGE>
MEDIX RESOURCES, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements as of December 27, 1998 have been derived from audited
financial statements, the report on which included an explanatory paragraph
describing uncertainties concerning the Company's ability to continue as a
going concern. The consolidated financial statements should be read in
conjunction with the financial statements and notes thereto contained in the
Company's Form 10-KSB/A for the fiscal year ended December 27, 1998. The
results of operations for the nine months ended September 26, 1999 are not
necessarily indicative of the results for the entire fiscal year ending
December 26, 1999.
2. EQUITY TRANSACTIONS
In April 1998, the Company redeemed 76 of its outstanding units of
convertible preferred stock and warrants from the 1997 private placement for
$760,000 to be paid by June 1998. The Company did not make the first payment
due under the redemption agreement by May 1, 1998. As provided in the
repurchase agreement, the missed payment caused the entire $760,000 to be
immediately due and payable, however, the sole obligation of the Company is to
issue shares of its common stock at a purchase price of 75% of the average last
price quoted for ten days prior to the payment deadline. In June 1998, the
Company made payments of $125,000 per the repurchase agreement. In March 1999,
the Company converted $50,000 of the balance due under the repurchase agreement
into 142,857 shares of common stock. In the second quarter of 1999, the Company
converted $200,000 of the balance due under the repurchase agreement into
543,514 shares of common stock. In the third quarter of 1999, the Company
converted $180,000 of the balance due under the repurchase agreement into
608,870 shares of common stock. The balance due under the repurchase agreement
at September 26, 1999 of $205,000 was converted into 820,000 shares of common
stock in October 1999.
During the second quarter of 1999, the Company converted 2.0 units of the
1996 preferred stock and 7.5 units of the 97 preferred stock to 114,286 and
261,562 shares of common stock, respectively. During the third quarter of 1999,
the Company converted 2.5 units of the 1996 preferred stock and 7.0 units of
the 97 preferred stock to 126,786 and 311,132 shares of common stock,
respectively. In October 1999, the Company repurchased 2.5 units of the 96
preferred stock for $25,000.
In April 1999, the Company completed a private placement of units
consisting of one share of 1999 Series A convertible preferred stock (1999 A
Preferred Stock) and one thousand warrants. Each unit was sold for $1,000. The
1999 A Preferred Stock is convertible into common stock at a price of $0.25 per
share from October 1, 1999 through March 1, 2003. Each warrant entitles the
holder to purchase one share of common stock at $1.00 from October 1, 1999 to
October 1, 2000. The Company received $100,000 in March 1999 and $200,000 in
April 1999 under its private placement. In October 1999 and through November 4,
1999, the Company converted 115 shares of the 1999 A Preferred Stock into
460,000 shares of common stock.
In April 1999, the Company initiated a private placement of units
consisting of one share of 1999 Series B convertible preferred stock (1999 B
Preferred Stock) and two thousand warrants. Each unit was sold for $1,000. The
1999 B Preferred Stock is convertible into common stock at a price of $0.50 per
share from October 1, 1999 through October 1, 2003. Each warrant entitles the
holder to purchase one share of common stock at $1.00 from October 1, 1999 to
October 1, 2002. In July 1999, the Company repriced the warrants at $0.50. The
Company received net proceeds of $955,000 and $268,000 in the second and third
quarters of 1999 under its private placement. The Company has received an
additional $594,000 through November 4, 1999 under its private placement. In
October 1999 and through November 9, 1999, the Company converted 855 shares of
the 1999 B Preferred Stock into 1,710,000 shares of common stock.
In October 1999, the Company raised approximately $488,000 net of expenses
through the issuance of $500,000 in 14% Convertible Promissory Note and warrants
to purchase 500,000 shares of the Company's common stock at $0.50 per share.
$500,000 in principle plus accrued interest are payable on June 28, 2000. The
note is convertible into the Company's common stock at a conversion price of
$0.50 per share, for the first 90 days outstanding, and at the lower of $0.50
per share or 80% of the lowest closing bid price for the Common Stock during the
last five trading days prior to conversion, for the remaining life of the note.
The note is secured by the intellectual property of the Company's wholly owned
subsidiary Cymedix Lynx Corporation.
3. STOCK OPTIONS
In January 1999, the Company issued 125,000 warrants to purchase common
stock at $0.21 per share to a consulting firm in conjunction with a financial
advisor services agreement. The Company recorded consulting expense of $25,000
related to the issuance of these warrants.
On January 15, 1999 the Company granted 350,000 options to purchase common
stock, at $0.25 per share, all of which were granted to outside consultants. The
Company recorded consulting expense of $48,000 related to the grant of these
options.
On March 19, 1999 the Company granted 225,000 options to purchase common
stock at $0.25 per share under the Company's 1996 Stock Incentive Plan, all of
which were granted to officers and employees.
In March 1999, the Company granted 181,500 options to purchase common
stock, at $0.25 per share, all of which were granted to employees.
On April 19, 1999 the Company granted 100,000 options to purchase common
stock, at $0.55 per share, all of which were granted to an outside consultant.
The Company recorded consulting expense of $52,000 related to the grant of these
options.
On August 16, 1999 the Company granted 3,625,000 options to purchase common
stock at $0.26 per share under the Company's 1999 Stock Incentive Plan, all of
which were granted to directors, officers, employees, and outside consultants.
The Company recorded consulting expense of $262,000 related to the grant of
these options.
4. LITIGATION
On or about November 7, 1997, an action was filed against the Company in
the Eastern District of New York under the caption New York Healthcare, Inc. v.
International Nursing Services, Inc., et al., alleging, among other things,
breach of contract against the Company and seeking damages in excess of $175,000
plus court costs and attorney fees. The Company filed answers and counterclaims
in this action. The Company intends to vigorously defend this action and to
press its counterclaim. The Company does not expect any resolution of this
matter to have a material effect on the Company's financial condition.
On or about April 13, 1999, a subsidiary of the Company was named as a
party in a lawsuit filed in the District Court of Montgomery County, TX under
the caption Marvin Breland, Individually and as Personal Representative of the
Estate of Mildred Breland, deceased vs. The Memorial Hermann Hospital System;
Memorial Hospital - The Woodlands; et al., alleging, among other things,
defendants' acts and omissions constituting negligence were a proximate cause
of the death of Mildred Breland and seeking damages of $1,250,000 plus court
costs and attorney fees. The Company intends to vigorously defend this action.
The Company does not expect any resolution of this matter to have a material
effect on the Company's financial condition.
From time to time, the Company defends itself against allegations by
former employees, claims relating to its software business, and other types of
claims, which are typical for the industries in which it operates, and
generally are substantively immaterial.
In the normal course of business, the Company is party to litigation
related to its staffing employees. The Company maintains insurance to cover
these claims and believes that it will not incur any material losses in excess
of accrued amounts.
5. LOSS PER SHARE
In accordance with the Securities and Exchange Commission's position on
accounting for preferred stock with convertible features that are in the money
at the time of issuance, the Company has imputed a value associated with such
conversion features and has recorded the value as a discount on the preferred
stock. The Company amortizes the imputed discount on the preferred stock over
the period from issuance of the preferred stock to the earliest period at which
the preferred stock becomes convertible. As the Company's 1999 Series A and B
Preferred Stock issuances are not convertible until October 1, 1999, the Company
has amortized the imputed discount as a component of dividends on preferred
stock over the period from date of issue through September 30, 1999. The Company
recorded additional dividends to preferred stockholders of approximately
$314,000 and $602,000 for the three months and nine months ended September 26,
1999, 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.
Loss per share applicable to common stockholders is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss .................. $ (1,219,000) $ (697,000) $ (2,368,000) $ (2,113,000)
Preferred stock dividends -
stated rate .............. (1,000) (2,000) (5,000) (9,000)
Preferred stock dividends -
imputed discount ......... (314,000) -- (602,000) --
------------ ------------ ------------ ------------
Net loss applicable to
common stockholders ...... $ (1,534,000) $(699,000) $(2,975,000) $ (2,122,000)
============ ============ ============ ============
Basic loss per common share $ (0.07) $ (0.03) $ (0.13) $ (0.10)
============ ============ ============ ============
Weighted average shares
outstanding .............. 23,026,176 21,106,483 22,324,446 20,530,161
============ ============ ============ ============
</TABLE>
6. SUBSEQUENT EVENTS
In October 1999, the Company closed its two California therapy staffing
offices. The offices were closed due to significantly reduced therapy staffing
revenues, slower than expected growth in nurse staffing revenues, and ongoing
operating losses. The Company recorded accrued expenses of approximately
$56,000 related to the closures in the third quarter of 1999.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company's revenues are provided primarily from its supplemental
staffing of therapy and nursing professionals. The Company intends to dispose
of its supplemental staffing business if an adequate price is offered. Until
such a sale occurs, and if the Company's projections for the supplemental
staffing portion of its business are met, such business should provide adequate
cash flow to fund the operation of such portion of the Company's business for
the next twelve months.
The Company's medical information software business (Cymedix) will require
adequate funding in order to continue its efforts to bring its products to
market. Such funding is not currently secured. If the Company sells its
supplemental healthcare staffing business, the proceeds of such sale will not be
sufficient to fund the shortfall in the currently budgeted Cymedix operations
for the next twelve months. The Company will attempt to fund Cymedix's
development through raising capital in the private debt or equity markets. The
Company may not be successful in raising such capital. In which case, the
continued operation of the Company as a going concern would be doubtful.
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.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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
medical 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.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 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.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 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's 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 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 has reported net losses in the last several years and has a negative
net worth, and a working capital deficit at the end of its most recent fiscal
quarter; (b) the Company's auditors have included a "going concern" exception in
their report on the Company's financial statements; (c) the Company's lack of
working capital and inability to generate positive cash flow from operations may
require the Company to raise additional equity or debt financing in order to
fund operations and the Company may be unable to raise such debt or equity
financing; (d) Nasdaq informed the Company on July 14, 1998 that it was delisted
for non-compliance with a requirement to remain listed on the Nasdaq SmallCap
market. The non-compliance was for failing to maintain tangible net worth of
$2.0 million. Being delisted from the Nasdaq SmallCap market significantly
impedes the Company's ability to raise future equity capital; (e) at November 4,
1999 the Company had substantial delinquent liabilities, which, if the creditors
instituted collection proceedings, could cause financial failure of the Company
if payment could not be made or extension arrangements could not be negotiated;
and (f) various other factors may cause actual results to vary materially from
the results contemplated in any forward-looking statements included in this
filing. No assurances can be given that the foregoing factors will not result in
a material adverse effect on the Company and its operations.
As of November 4, 1999, the Company does not have a source of funds for the
funding of the development of its Cymedix software products. The Company is
currently pursuing sources of funds, but no assurance can be given that the
Company will be successful.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Any of these important factors discussed above or elsewhere in this filing
could cause the Company's revenues or results of operations, or growth in
revenues or results of operations, to differ materially from prior results.
Failure to obtain financing on a timely basis could result in loss of business
opportunities, the sale of the Cymedix business at a distressed price or the
financial failure of the Company. In addition, growth in absolute amounts of
selling, general and administrative expenses or the occurrence of extraordinary
events could cause actual results to vary materially from the results
contemplated by the forward-looking statements. Budgeting and other management
decisions are subjective in many respects and thus susceptible to
interpretations and periodic revisions based on actual experience and business
developments, the impact of which may cause the Company to alter its marketing,
capital expenditures or other budgets, which may, in turn, affect the Company's
results of operation.
Assumptions relating to the foregoing involve judgments with respect to,
among other things, future economic, competitive and market conditions, and
future business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company. Although the
Company believes the assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could prove inaccurate, and therefore, there
can be no assurance that the results contemplated in the forward-looking
statements will be realized. In addition, the business and operations of the
Company, because of the industries in which it operates and its underfunded
operations, are subject to substantial risks which increase the uncertainty
inherent in such forward-looking statements.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
Results of Operations
Comparison of three months ended September 26, 1999 and September 27, 1998
The Company generated approximately $2,589,000 in revenues from operations
for the third quarter of 1999, compared to approximately $4,353,000 in revenues
for the third quarter of 1998. The decrease in sales for the quarter is due
primarily to the sale of two New York divisions, STAT and Ellis, in September
1998. The two New York divisions generated revenues of approximately $1,410,000
in the third quarter of 1998. The sale of these operations has and will continue
to significantly reduce the Company's future revenues. Therapist staffing
revenues in California and Colorado were also down significantly from the third
quarter of 1998. These decreases were partially offset by increased nurse
staffing revenues in the Texas, Colorado and Travel divisions. In October 1999,
the Company closed its two California therapist staffing offices. The offices
were closed due to significantly reduced therapy staffing revenues, slower than
expected growth in nurse staffing revenues, and ongoing operating losses. The
two California offices generated revenues of approximately $392,000 in the third
quarter 1999 and $908,000 in the third quarter 1998. The Company intends to sell
all of its remaining staffing operations. These operations currently represent
all of the Company's revenues. If completed, Cymedix would be the Company's only
business operation. Cymedix does not currently generate any revenue.
The Company's gross margin percentage decreased from 23% for the third
quarter of 1998 to 21% for the third quarter of 1999. The decrease is primarily
due to the sale of the higher margin New York divisions.
Selling, general and administrative expenses increased approximately
$226,000 from $1,464,000 in the third quarter 1998 to $1,690,000 in the third
quarter 1999. This increase was primarily due to the increase in selling,
general, administrative expenses incurred by Cymedix of approximately $428,000.
Cymedix's Selling, general, and administrative expenses were $735,000 in the
third quarter 1999 and $307,000 in the third quarter of 1998. The Company also
recorded $292,000 in consulting expense for issuance of options in the third
quarter 1999. The increase was partially offset by the sale of the New York
divisions, related corporate downsizing, and a reduction in amortization related
to the fourth quarter 1998 impairment of intangible assets.
Loss from operations increased $627,000 from $512,000 in the third quarter
1998 to $1,139,000 in the third quarter 1999. The change is primarily due to the
increase in Cymedix's Selling, general, and administrative expenses and the
consulting expense related to issuance of options.
Interest expense decreased approximately 57% from $185,000 in the third
quarter 1998 to $80,000 in the third quarter of 1999. The decrease is primarily
due to a reduction in accrued interest on delinquent payroll taxes and a
reduction in the outstanding line-of-credit balance related to the sale of the
New York divisions.
The Company's net loss increased $522,000 from $697,000 for the third
quarter 1998 to $1,219,000 for the third quarter 1999. The change is primarily
due to the increase in Cymedix's Selling, general, and administrative expenses
and the consulting expense related to issuance of options. The increase was
partially offset by the reduction in interest expense and other factors
discussed above.
Comparison of nine months ended September 26, 1999 and September 27, 1998
The Company generated approximately $8,692,000 in revenues from operations
for the nine months ended September 26, 1999, compared to approximately
$14,515,000 in revenues for the nine months ended September 27, 1998. The
decrease in sales for the period is due primarily to the sale of two New York
divisions, STAT and Ellis, in September 1998. The two New York divisions
generated revenues of approximately $4,690,000 in the nine months ended
September 27, 1998. The sale of these operations has and will continue to
significantly reduce the Company's future revenues. Therapist staffing revenues
in California and Colorado were also down significantly from the first nine
months of 1998. These decreases were partially offset by increased nurse
staffing revenues in the Texas, Colorado and Travel divisions. In October 1999,
the Company closed its two California therapist staffing offices. The offices
were closed due to significantly reduced therapy staffing revenues, slower than
expected growth in nurse staffing revenues, and ongoing operating losses. The
two California offices generated revenues of approximately $1,469,000 in the
nine months ended September 26, 1999 and $3,052,000 in the nine months ended
September 27, 1998. The Company intends to sell all of its remaining staffing
operations. These operations currently represent all of the Company's revenues.
If completed, Cymedix would be the Company's only business operation. Cymedix
does not currently generate any revenue.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The Company's gross margin percentage decreased from 23% for the nine
months ended September 27, 1998 to 21% for the nine months ended September 26,
1999. The decrease is primarily due to the sale of the higher margin New York
divisions.
Selling, general and administrative expenses decreased approximately
$733,000 from $4,651,000 in the first nine months of 1998 to $3,918,000 in the
first nine months of 1999. This decrease was primary due to the sale of the New
York divisions, related corporate downsizing, and a reduction in amortization
related to the fourth quarter 1998 impairment of intangible assets. The decrease
was partially offset by an increase in selling, general, administrative expenses
incurred by Cymedix of approximately $777,000. Cymedix's selling, general, and
administrative expenses were $1,748,000 for the first nine months of 1999 and
$971,000 for the first nine months of 1998.
Loss from operations increased $552,000 from $1,523,000 in the nine months
ended September 27, 1998 to $2,075,000 in the nine months ended September 26,
1999. The change is primarily due to the increase in Cymedix's selling, general
and administrative expenses. This increase was partially offset by the loss on
sale of divisions of $223,000 incurred during the nine months ended
September 27, 1998, the sale of the New York divisions, related corporate
downsizing, and a reduction in amortization related to the fourth quarter 1998
impairment of intangible assets.
Interest expense decreased approximately 50% from $590,000 in the first
nine months of 1998 to $293,000 in the first nine months of 1999. The decrease
is primarily due to a reduction in accrued interest on delinquent payroll taxes
and a reduction in the outstanding line-of-credit balance related to the sale
of the New York divisions.
The Company's net loss increased $255,000 from $2,113,000 for the nine
months ended September 27, 1998 to $2,368,000 for the nine months ended
September 26, 1999. The increase is primarily due to the increase in Cymedix's
selling, general, and administrative expenses and other factors discussed above.
Liquidity and Capital Resources
At September 26, 1999, the Company's current liabilities were
approximately $3,959,000 and current assets were approximately $1,519,000. The
Company is currently delinquent in the payment of certain of its current
liabilities. On September 6, 1999, the U.S. Internal Revenue Service informed
the Company that, by its calculations, $478,000 was owned to the Service in
delinquent federal income tax withholdings from employees and employer payroll
taxes, interest and penalties. The Company disputes the claim that it is
delinquent in the payment of any Federal income tax payroll withholdings or
employer payroll taxes, although it does owe a yet to be determined amount of
interest and penalties on amounts of withholding taxes that were delinquent but
had been paid earlier this year. On September 14, 1999, the Service indicated
that the Company had until October 14, 1999 to pay all delinquent amounts,
including interest and penalties, and if such amounts were not paid by that
time, the Service would place a tax lien on the Company's assets. By October 14,
1999, the Company paid the Service approximately $457,000 of the Service's
$478,000 balance and made arrangements to pay an additional $21,000 in November
1999. The Company is seeking a clarification from the Service regarding the
amounts paid and is appealing some of the penalties incurred. In addition, the
Company owes approximately $300,000 in delinquent state income tax withholdings
from employees and employer payroll taxes, interest and penalties. The Company
also is attempting to determine the exact amounts owed to the states and make
payments in an orderly manner. At September 26, 1999, the Company had accrued
$992,000 in current liabilities for payroll taxes, interest and penalty. See
"Forward-Looking Statements and Associated Risks" and "Company Specific Factors"
above.
In order for the Company to meet its current obligations, management
anticipates the need to raise additional debt or equity capital or sell assets
(see Forward-Looking Statements and Associated Risks, including Company Specific
Factors). In April 1999, the Company completed a private placement for $300,000.
The Company received $100,000 in March 1999 and $200,000 in April 1999 from the
private placement. In April 1999, the Company initiated another private
placement. The Company has received net proceeds of $1,817,000 through November
4, 1999 under this private placement. In October 1999, the Company raised
approximately $488,000, net of expenses, through the issuance of $500,000 in 14%
Convertible Promissory Note and warrants to purchase 500,000 shares of the
Company's common stock at $0.50 per share. The Company intends to sell its
staffing operations to raise additional capital. However, there are no current
agreements in place to engage in such a transaction.
Proceeds from the issuance of the note and the private placements will not
provide adequate funds to support the projected development and marketing costs
of the Cymedix software products. Sales of Cymedix software products have not
met, and on-site testing of installed products has taken longer than, the
Company's initial expectations. See "Forward-Looking Statements and Associated
Risks Medical Information Software Operations" and "Company Specific Factors"
above.
The 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 currently utilizes an external vendor for hardware and packaged
software support. The external vendor has tested all hardware, operating
systems, and software for year 2000 compliance. The external vendor identified
13 PC's that are not compliant and would require replacement or upgrades. The
Company uses current versions of widely used publicly available software for its
accounting and other data processing requirements. The Company has obtained year
2000 certification from these software vendors. The certification for the
Company's accounting software involves an upgrade to the version currently in
use. All of Cymedix Lynx Corporation's software products were designed to be
year 2000 compliant. The Cymedix software products have been tested internally
and have been found to be compliant. The Company does not anticipate the need to
have the Cymedix software products independently certified due to it's recent
development and Y2K compliant operating system. The Company's relations with
banks, lending institutions, current and future customers and vendors may be
impacted by their ability to become year 2000 compliant.
As of November 4, 1999, hardware upgrades and replacements were complete
except for PC replacements in the Houston, San Antonio, and Denver staffing
offices which are scheduled to be completed by December 3, 1999. The
Company has obtained documentation on year 2000 compliance from its
banks, lending institution.
The Company does not feel costs relating to year 2000 will have a material
effect on the Company's financial statements. Hardware replacements or upgrades
related to year 2000 should be less than $20,000 and software upgrades should be
less than $10,000. If required, an independent certification of the Cymedix
software products would cost approximately $20,000.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On or about November 7, 1997, an action was filed against the Company in
the Eastern District of New York under the caption New York Healthcare, Inc. v.
International Nursing Services, Inc., et al., alleging, among other things,
breach of contract against the Company and seeking damages in excess of $175,000
plus court costs and attorney fees. The Company filed answers and counterclaims
in this action. The Company intends to vigorously defend this action and to
press its counterclaim. The Company does not expect any resolution of this
matter to have a material effect on the Company's financial condition.
On or about April 13, 1999, a subsidiary of the Company was named as a
party in a lawsuit filed in the District Court of Montgomery County, TX under
the caption Marvin Breland, Individually and as Personal Representative of the
Estate of Mildred Breland, deceased vs. The Memorial Hermann Hospital System;
Memorial Hospital - The Woodlands; et al., alleging, among other things,
defendants' acts and omissions constituting negligence were a proximate cause
of the death of Mildred Breland and seeking damages of $1,250,000 plus court
costs and attorney fees. The Company intends to vigorously defend this action.
The Company does not expect any resolution of this matter to have a material
effect on the Company's financial condition.
From time to time, the Company defends itself against allegations by former
employees, claims relating to its software business, and other types of claims,
which are typical for the industries in which it operates, and generally are
substantively immaterial.
In the normal course of business, the Company is party to litigation
related to its staffing employees. The Company maintains insurance to cover
these claims and believes that it will not incur any material losses in excess
of accrued amounts.
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
Unregistered sales of securities by the Company for the quarter reported
on. See Note 2 to the unaudited consolidated financial statements elsewhere
herein for a description of the terms of the Units of Series B Preferred Stock
and warrants.
<TABLE>
<CAPTION>
Security No. of Exemption
Issued Date Shares Consideration Purchasers Claimed
- ------------- --------- ---------- ------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Common Stock Jul 144,138 Conversion Private Section
of Debt Investors 3(a)(9)
Common Stock Aug 197,531 Conversion Private Section
of Debt Investors 3(a)(9)
Common Stock Sep 267,201 Conversion Private Section
of Debt Investors 3(a)(9)
Common Stock Jul 57,143 Conversion Private Section
of Investors 3(a)(9)
Preferred
Common Stock Sep 380,775 Conversion Private Section
of Investors 3(a)(9)
Preferred
Common Stock Sep 133,334 $25,000 Private Section
for Investors 4(2)
exercise
of
options
Units of Jul 61 $61,000 Private Section
Series B Investors 4(2) &
Preferred Regulation D
Stock &
warrants
Units of Aug 107 $107,000 Private Section
Series B Investors 4(2) &
Preferred Regulation D
Stock &
warrants
Units of Sep 100 $100,000 Private Section
Series B Investors 4(2) &
Preferred Regulation D
Stock &
warrants
</TABLE>
Item 3. Defaults Upon Senior Securities
None.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Included as exhibits are the items listed on the Exhibit Index. The
Registrant will furnish a copy of any of the exhibits listed below
upon payment of $5.00 per exhibit to cover the costs to the
Registrant of furnishing such exhibit.
b. Reports on Form 8-K during the quarter reported on.
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: November 4, 1999
MEDIX RESOURCES, INC.
(Registrant)
/s/ John R. Prufeta
John R. Prufeta
Chief Executive Officer
(Principal Executive Officer)
/s/ John P. Yeros
John P. Yeros
Chairman
/s/ David Kinsella
David Kinsella
Controller
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> SEP-27-1999
<CASH> 10,000
<SECURITIES> 0
<RECEIVABLES> 2,054,000
<ALLOWANCES> 600,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,519,000
<PP&E> 645,000
<DEPRECIATION> 426,000
<TOTAL-ASSETS> 3,794,000
<CURRENT-LIABILITIES> 3,959,000
<BONDS> 0
0
1,000
<COMMON> 24,000
<OTHER-SE> 12,339,000
<TOTAL-LIABILITY-AND-EQUITY> 3,794,000
<SALES> 8,692,000
<TOTAL-REVENUES> 8,692,000
<CGS> 6,851,000
<TOTAL-COSTS> 6,851,000
<OTHER-EXPENSES> 3,916,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 293,000
<INCOME-PRETAX> (2,368,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,368,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,368,000)
<EPS-BASIC> (.13)
<EPS-DILUTED> (.13)
</TABLE>
