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 JUNE 27, 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)
- -------------------------------------------------------------------------------
(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 August 9, 1999.
Common Stock, $0.001 par value 22,944,850
------------------------------ -----------------
Class Number of Shares
<PAGE>
INDEX
PART I. Financial Information Page No.
--------------------- ----------
Item 1. Financial Statements
Consolidated Balance Sheets - June 27, 1999
(Unaudited) and December 27, 1998..........................1
Unaudited Consolidated Statements of
Operations -- For the Six Months Ended
June 27, 1999 and June 28, 1998............................2
Unaudited Consolidated Statements of
Cash Flows -- For the Six Months Ended
June 27, 1999 and June 28, 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.........................................................21
Index to Exhibits..................................................22
<PAGE>
Consolidated Balance Sheets
June 27, December 27,
1999 1998
------------ ------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 17,000 $ 40,000
Accounts receivable, net 1,740,000 2,081,000
Notes receivable - 563,000
Prepaid expenses and other 86,000 97,000
---------- ----------
Total current assets 1,843,000 2,781,000
Property and equipment, net 231,000 220,000
Intangible assets, net 2,096,000 2,174,000
---------- ----------
Total assets $4,170,000 $5,175,000
========== ==========
Liabilities and Stockholders' Deficit
Current liabilities
Checks in excess of cash $ - $ 72,000
Notes payable 10,000 289,000
Line-of-credit 1,225,000 993,000
Accounts payable 656,000 838,000
Accrued expenses 685,000 1,097,000
Accrued payroll tax, interest and penalty 970,000 1,469,000
Preferred stock redemption payable 385,000 635,000
---------- ----------
Total current liabilities 3,931,000 5,393,000
Stockholders' deficit
1996 convertible preferred stock, 10%
cumulative, $1 par value, 488 shares
authorized, 155 issued, 6 and 8 outstanding
at June 27, 1999 and December 27, 1998, - -
respectively, liquidation preference
$98,000 and $120,000
1997 convertible preferred stock, $1 par
value, 300 shares authorized, 167.15
issued, 12 and 19.5 outstanding at June 27,
1999 and December 27, 1998 respectively, - -
liquidation preference $120,000 and
$195,000
1999 series A convertible preferred stock,
$1 par value, 300 shares authorized, 300
and 0 issued and outstanding at June 27,
1999 and December 27, 1998, respectively, - -
liquidation preference $300,000 and $0
1999 series B convertible preferred stock,
$1 par value, 2000 shares authorized, 970
and 0 issued and outstanding at June 27,
1999 and December 27, 1998, respectively,
liquidation preference $970,000 and $0 1,000 -
Common stock, $0.001 par value; 25,000,000
shares authorized, 22,743,569 and
21,500,727 issued and outstanding at
June 27, 1999 and December 27, 1998,
respctively 23,000 22,000
Dividends payable with common stock 38,000 39,000
Additional paid-in capital 14,537,000 12,882,000
Accumulated deficit (14,360,000) (13,161,000)
----------- -----------
Total stockholders' equity (deficit) 239,000 (218,000)
----------- -----------
Total liabilities and stockholders'
equity (deficit) $ 4,170,000 $ 5,175,000
============ ============
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Three For the Three For the Six For the Six
Months Months Months Months
Ended Ended Ended Ended
June 27, June 28, June 27, June 28,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 3,003,000 $ 5,128,000 $ 6,103,000 $ 10,162,000
Direct costs of services 2,346,000 3,854,000 4,813,000 7,763,000
------------ ------------ ------------ ------------
Gross margin 657,000 1,274,000 1,290,000 2,399,000
Selling, general and
administrative expenses 1,166,000 1,632,000 2,276,000 3,187,000
Loss on sale of assets - (223,000) - (223,000)
------------ ------------ ------------ ------------
Net loss from operations (509,000) (581,000) (986,000) (1,011,000)
Interest expense, net 95,000 225,000 213,000 405,000
------------ ------------ ------------ ------------
Net loss $ (604,000) $ (806,000) $ (1,199,000) (1,416,000)
============ ============ ============ ============
Basic loss per common share
(Note 5) $ (.04) $ (.04) $ (.07) $ (.07)
============ ============ ============ ============
Weighted average shares
outstanding 22,410,332 20,919,061 21,973,581 20,148,289
============ ============ ============ ============
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Six Months Ended
June 27, 1999 and
June 28, 1998
-----------------------------
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,199,000) $(1,416,000)
Adjustment to reconcile net income (loss) to
net cash flows (used in) provided by
operating activities
Depreciation and amortization 121,000 339,000
Impairment of goodwill - 573,000
Gain on sale of property and equipment (2,000) -
Options and warrants issued for services 125,000 -
Net changes in current assets and current
liabilities (813,000) 1,129,000
----------- -----------
Net cash flows (used in) provided by
operating activities (1,768,000) 625,000
----------- -----------
Cash flows from investing activities
Proceeds from sale of purchase of property
and equipment 2,000 -
Purchase of property and equipment (54,000) (19,000)
Proceeds from notes receivable 563,000 --
Business acquisition costs, net of cash
acquired - (39,000)
----------- -----------
Net cash flows (used in) investing
activities 511,000 (58,000)
----------- -----------
Cash flows from financing activities
Advances (payments) under financing
agreement, net 232,000 (552,000)
Payments on capital leases and debt (279,000) (48,000)
Net proceeds form exercise of options
and warrants 26,000 -
Payments on preferred stock redemptions - (125,000)
Net proceeds from issuance of preferred stock 1,255,000 -
----------- -----------
Net cash flows provided by (used in)
financing activities 1,234,000 (725,000)
----------- -----------
Net decrease in cash and cash equivalents (23,000) (158,000)
Cash and cash equivalents, at beginning of
period 40,000 158,000
----------- -----------
Cash and cash equivalents, at end of period $ 17,000 $ -
=========== ===========
</TABLE>
Non-cash investing and financing activities for the six months ended June 27,
1999:
Issuance of 686,371 shares of common stock for a $250,000 reduction in
preferred redemption payable.
Issuance of 375,848 shares of common stock for conversion of 2 units of
1996 preferred stock, 7.5 units of 1997 Preferred stock and accrued
dividends of $5,000.
450,000 options to purchase common stock valued at approximately $100,000
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 $4,000.
<PAGE>
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
for the fiscal year ended December 27, 1998. The results of operations for the
six months ended June 27, 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. The balance due under the repurchase agreement at June 27, 1999 of
$385,000 may be converted to approximately 1,100,000 shares at a purchase price
of $0.35.
During April and May of 1999, the Company converted 2.0 units of the 1996
preferred and 7.5 units of the 97 preferred to 114,286 and 252,576 shares of
common stock, respectively.
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. There are no dividends unless the Shares
of Common Stock underlying the preferred is not registered with the Securities
and Exchange Commission by September 30, 1999. If the aforementioned
registration is not completed, then the holder receives dividends of 10% per
annum. 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.
<PAGE>
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. There are no dividends unless the
Shares of Common Stock underlying the preferred is not registered with the
Securities and Exchange Commission by September 30, 1999. If the aforementioned
registration is not completed, then the holder receives dividends of 10% per
annum. 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 in
the second quarter of 1999 under its private placement. The Company has received
an additional $168,000 through August 9, 1999 under its private placement.
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.
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.
<PAGE>
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.
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>
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
$285,000 and $288,000 for the three months and six months ended June 27, 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 Sixs Months Ended
------------------------------ ------------------------------
June 27, June 28, June 27, June 28,
1999 1998 1999 1999
-------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (604,000) $ (806,000) $ (1,199,000 $ (1,416,000)
Preferred stock dividends
stated rate (2,000) (2,000) (4,000) (7,000)
Preferred stock dividends -
imputed discount (285,000) - (288,000) -
------------ ----------- ------------ ------------
Net loss applicable to common
stockholders $ (891,000) $ (808,000) $ (1,491,000) $ (1,423,000)
Basic loss per common share $ (0.04) $ (0.04) $ 0.07) $ (0.07)
=========== =========== ============ ============
Weighted average shares
outstanding 22,410,332 20,919,061 21,973,581 20,148,289
=========== =========== ============ ============
</TABLE>
<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 an accumulated
deficit, and a working capital deficit at the end of its most recent fiscal
quarter; (b) the Company's auditors have included a "going concern" exception in
their report on the Company's financial statements; (c) the Company's lack of
working capital and inability to generate positive cash flow from operations may
require the Company to raise additional equity or debt financing in order to
fund operations and the Company may be unable to raise such debt or equity
financing; (d) Nasdaq informed the Company on July 14, 1998 that it was delisted
for non-compliance with a requirement to remain listed on the Nasdaq SmallCap
market. The non-compliance was for failing to maintain tangible net worth of
$2.0 million. Being delisted from the Nasdaq SmallCap market significantly
impedes the Company's ability to raise future equity capital; (e) at August 9,
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 August 9, 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 June 27, 1999 and June 28, 1998
The Company generated approximately $3,003,000 in revenues from operations for
the second quarter of 1999, compared to approximately $5,128,000 in revenues for
the second 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 $1,665,000
in the second 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 first quarter of 1998. These decreases were partially offset by increased
nurse staffing revenues in the Texas, Colorado and Travel divisions. The Company
intends to sell all of its 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.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
- --------------------------------
The Company's gross margin percentage decreased from 25% for the second quarter
of 1998 to 22% for the second quarter of 1999. The decrease is primarily due to
the sale of the higher margin New York divisions.
Selling, general and administrative expenses decreased approximately $466,000
from $1,632,000 in the second quarter 1998 to $1,166,000 in the second quarter
1999. This decrease was primarily 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 $124,000. Cymedix's Selling, general, administrative
expenses were $526,000 in the second quarter 1999 and $402,000 in the second
quarter of 1998.
Loss from operations decreased $72,000 from $581,000 in the second quarter 1998
to $509,000 in the second quarter 1999. The change is primarily due to the loss
on sale of divisions of $223,000 incurred during the second quarter of 1998. The
change was partially offset by the sale of the New York divisions and the
increase in Cymedix's selling, general and administrative expenses.
Interest expense decreased approximately 58% from $225,000 in the second quarter
1998 to $95,000 in the second 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 decreased $202,000 from $806,000 for the second quarter
1998 to $604,000 for the second quarter 1999. The decrease is primarily due to
the reduction in interest expense and other factors discussed above.
Comparison of six months ended June 27, 1999 and June 28, 1998
The Company generated approximately $6,103,000 in revenues from operations for
the six months ended June 27, 1999, compared to approximately $10,162,000 in
revenues for the six months ended June 28, 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 $3,330,000 in the six months ended June 28, 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 six months of 1998. These decreases were
partially offset by increased nurse staffing revenues in the Texas, Colorado and
Travel divisions. The Company intends to sell all of its 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.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Results of Operations (continued)
- ---------------------------------
The Company's gross margin percentage decreased from 24% for the six months
ended June 28, 1998 to 21% for the six months ended June 27, 1999. The decrease
is primarily due to the sale of the higher margin New York divisions.
Selling, general and administrative expenses decreased approximately $911,000
from $3,187,000 in the first six months of 1998 to $2,276,000 in the first six
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 $310,000. Cymedix's selling, general,
administrative expenses were $1,013,000 for the first six months of 1999 and
$703,000 for the first six months of 1998.
Loss from operations decreased $25,000 from $1,011,000 in the six months ended
June 28, 1998 to $986,000 in the six months ended June 27, 1999. The change is
primarily due to the loss on sale of divisions of $223,000 incurred during the
six months ended June 28, 1998. The change was partially offset by the sale of
the New York divisions and the increase in Cymedix's selling, general and
administrative expenses.
Interest expense decreased approximately 47% from $405,000 in the first six
months of 1998 to $213,000 in the first six 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 decreased $217,000 from $1,416,000 for the six months
ended June 28, 1998 to $1,199,000 for the six months ended June 27, 1999. The
decrease is primarily due to the reduction in interest expense and other factors
discussed above.
Liquidity and Capital Resources
- -------------------------------
At June 27, 1999, the Company's current liabilities were approximately
$3,931,000 and current assets were approximately $1,843,000. The Company is
currently delinquent in the payment of certain of its current liabilities. See
"Forward-Looking Statements and Associated Risks" and "Company Specific Factors"
above.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources (continued)
- -------------------------------------------
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 $1,123,000 through August 9,
1999 under this private placement. 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 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. Cymedix Lynx was 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.
Hardware upgrades or replacements are scheduled to be completed by September 30,
1999. The upgraded and replaced systems are scheduled to be tested by October
31, 1999. The Company intends to obtain documentation of year 2000 compliance
from its banks, lending institutions, and
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000 Disclosure (continued)
- --------------------------------
significant customers and vendors by September 30, 1999.
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.
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.
<TABLE>
<CAPTION>
Security No. of Exemption
Issued Date Shares Consideration Purchasers Called
- ------------ ------ -------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Common Stock Apr 428,571 Conversion of Debt Private Investors Section 3(a)(9)
Common Stock Jun 114,943 Conversion of Debt Private Investors Section 3(a)(9)
Common Stock Apr 276,190 Conversion of Private Investors Section 3(a)(9)
Preferred
Common Stock May 90,672 Conversion of Private Investors Section 3(a)(9)
Preferred
Common Stock Jun 8,986 Conversion of Private Investors Section 3(a)(9)
Preferred
Common Stock Apr 323,050 Exercise of Private Investors Section 4(2)
warrants and
options
Units of Apr 200 $ 200,000 Private Investors Section 4(2) &
Series A Regulation D
Preferred
Stock
Units of Apr 645 $ 645,000 Private Investors Section 4(2) &
Series B Regulation D
Preferred
Stock
Units of May 300 $ 300,000 Private Investors Section 4(2) &
Series B Regulation D
Preferred
Stock
Units of Jun 25 $ 25,000 Private Investors Section 4(2) &
Series B Regulation D
Preferred
Stock
</TABLE>
Item 3. Defaults Upon Senior Securities
None.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on June 11, 1999 in Denver, Colorado
for the purpose of electing a board of directors, authorizing an increase in the
number of authorized shares, 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 Shares Shares Shares
Voted Voted Voted Voted
For Against Withhold Abstain
--------- -------- --------- ---------
<S> ` ` <C> <C> <C>
1 Election of directors
John P. Yeros (3-year term) 8,350,048 - 256,453 -
Joel C. Newman (3-year term) 8,470,738 - 135,763 -
Thomas Oberle (2-year term) 8,470,738 - 135,763 -
John R. Prufeta (2-year term) 8,470,738 - 135,763 -
Brian McLean (1-year term) 8,470,738 - 135,763 -
Douglas Stahl (1-year term) 8,470,738 - 135,763 -
2 Approval of increase in number
of authorized shares 8,155,635 429,712 - 21,154
3 Approval of independent auditors 8,469,617 135,269 - 1,615
</TABLE>
Shareholders of record for purposes of this annual meeting were determined as of
April 16, 1999 and total shares able to be voted were 21,785,899. The Company's
bylaws require a quorum of 33.33% of the outstanding shares to be present at the
meeting, either in person or by proxy. Therefore, all proposals were approved by
the shareholders.
Item 5. Other Information
None.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Included as exhibits are the items listed on the Exhibit Index.
The Registrant will furnish a copy of any of the exhibits listed
below upon payment of $5.00 per exhibit to cover the costs to the
Registrant of furnishing such exhibit.
b. Reports on Form 8-K during the quarter reported on.
Filing Date Items
----------- -------
May 5, 1999 Item 5, reporting press release on the repayment of
a secured loan payable to Global Med Technologies,
Inc.
April 19, 1999 Item 5, reporting press release on expanding board
and completing private placement.
<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: August 11, 1999
MEDIX RESOURCES, INC.
(Registrant)
/s/ John P. Yeros
-------------------
John P. Yeros
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ David Kinsella
--------------------
David Kinsella
Controller
(Principal Financial and Accounting Officer)
<PAGE>
INDEX TO EXHIBITS
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-END> JUN-27-1999
<CASH> 17,000
<SECURITIES> 0
<RECEIVABLES> 2,340,000
<ALLOWANCES> 600,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,843,000
<PP&E> 636,000
<DEPRECIATION> 405,000
<TOTAL-ASSETS> 4,170,000
<CURRENT-LIABILITIES> 3,931,000
<BONDS> 0
0
1,000
<COMMON> 23,000
<OTHER-SE> 14,575,000
<TOTAL-LIABILITY-AND-EQUITY> 4,170,000
<SALES> 3,003,000
<TOTAL-REVENUES> 3,003,000
<CGS> 2,346,000
<TOTAL-COSTS> 2,346,000
<OTHER-EXPENSES> 1,166,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,000
<INCOME-PRETAX> (604,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (604,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (604,000)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
