U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended December 27, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ____________
Commission File Number 0-24768
MEDIX RESOURCES, INC.
(Formerly INTERNATIONAL NURSING SERVICES, INC.)
(Name of small business issuer in its charter)
Colorado 84-1123311
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization Identification No.)
7100 E. Belleview Avenue, Suite 301
Englewood, Colorado 80111
(Address of Principal Executive Offices)
Issuer's Telephone Number: (303) 741-2045
Securities Registered Under Section 12(b) of the Exchange Act: None
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock. $.001 Par Value;
1994 Warrants to Purchase Common Stock
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[X]
Registrant's revenues for its most recent fiscal year: $17,412,000
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of April 6, 1999 was approximately
$15,060,000 (for purposes of the foregoing calculation only, each of the
registrant's officers and directors is deemed to be an affiliate).
There were 21,643,581 shares of registrant's Common Stock outstanding as of
April 6, 1999.
Documents incorporated by reference: Portions of the registrant's Proxy
Statement that will be filed with the Securities and Exchange Commission in
connection with the registrant's annual meeting of stockholders are incorporated
by reference into Part III of this Form 10-KSB.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
TABLE OF CONTENTS
PART I ................................................ 1
ITEM 1. DESCRIPTION OF BUSINESS ....................... 1
ITEM 2 DESCRIPTION OF PROPERTY ....................... 9
ITEM 3. LEGAL PROCEEDINGS ............................. 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS ....................................... 11
PART II ............................................... 12
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ........................... 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION .................................. 12
ITEM 7. FINANCIAL STATEMENTS .......................... 19
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE ........ 20
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT ..................... 20
ITEM 10.EXECUTIVE COMPENSATION ........................ 20
ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND AGREEMENT ................................. 20
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 20
ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K .............. 21
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
General
Medix Resources, Inc., a Colorado corporation, formerly known as International
Nursing Services, Inc. (the "Company"), has two principal lines of business,
healthcare services and medical information software.
The Company, doing business as National Care Resources and TherAmerica, Inc.,
provides skilled nursing, therapists, rehabilitation and other medical personnel
for supplemental staffing in home care and in a broad spectrum of health care
and educational facilities. The Company's supplemental staffing services are
provided through a pool of approximately 900 caregivers including licensed and
registered nurses, rehabilitation, physical, respiratory, occupational and
speech therapists, medical social workers, home care aides and other unlicensed
personnel. The Company's supplemental and home care staff currently serves over
300 hospitals, clinics, nursing homes, physician groups, assisted living
facilities, health maintenance organizations and other health care institutions,
a variety of educational facilities and individual home care clients. The
Company operates through offices located in Houston and San Antonio, Texas,
Emeryville and Ontario, California, and Englewood, Colorado. The Company
currently provides supplemental staffing services and therapists in Texas,
Colorado and California. Travel nurses and therapists are provided in seventeen
states and the District of Columbia.
In early 1998, the Company acquired Cymedix Corporation, which has developed an
Internet-based communications and information management product, Cymedix Lynx,
which the Company began marketing to medical professionals nationwide. Growth of
the medical information management marketplace is being driven by the need to
share significant amounts of clinical and patient information between
physicians, their outpatient service providers, hospitals, insurance companies
and managed care organizations. This market is one of the fastest-growing
sectors in healthcare today, commanding a projected two-thirds of health care
capital investments. Cymedix Lynx is a secure medical communications product,
with patent application pending, that makes use of the Internet. Using Cymedix
Lynx, medical professionals can order, prescribe and access medical information
from insurance companies and managed care organizations, as well as from any
participating outpatient service provider such as a laboratory, radiology
center, pharmacy or hospital. The Company will provide its software free of
charge to physicians and clinics, and will collect user fees whenever these
products connect to the Internet. The product's relational database technology
provides physicians with a permanent, ongoing record of each patient's name,
address, insurance or managed care affiliation, referral status, medical
history, personalized notes and an audit trail of past encounters. Physicians
can electronically order medical procedures, receive and store test results,
check patient eligibility, make medical referrals, request authorizations, and
report financial and encounter information in a cost- effective, secure and
timely manner.
During 1999, the Company's Chairman and CEO intends to accomplish the following
goals: (1) the sale of all the business operations of the Company other than the
operations of its wholly-owned subsidiary, Cymedix Lynx Corporation; (2) adding
at least three additional members to the Board of Directors of the Company who
have experience and expertise in one or more disciplines that are important to
the success of a company operating in the computer software business; (3) the
election by the Board of Directors of the Company of a successor President and
Chief Executive Officer who has experience in successfully operating a software
company or marketing medical software products; and (4) obtaining financing to
provide working capital to the Company and to fun the development, marketing,
sales and servicing of Cymedix computer software, in an amount of at least
$1,000,000.
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History of the Company; Acquisitions and Dispositions
The Company was incorporated in the State of Colorado on April 22, 1988. On
August 12, 1988, the Company completed a self-underwritten public offering
pursuant to which an aggregate of 150,100 units, each unit consisting of one
share of common stock and one redeemable warrant, were offered and sold. The
Company received gross proceeds of $150,100 from its initial public offering of
such units. On September 19, 1994, the Company completed a public offering of
225,000 Units, each Unit consisting of two shares of preferred stock, one share
of common stock and three 1994 Warrants. This offering raised gross proceeds of
$5,287,500. $1,937,500 of the proceeds of this public offering was used to
finance the Company's acquisitions in September, 1994 of certain assets of
Paxxon Services, Inc. ("Paxxon Services") and certain assets of Mint Energy
Corporation, doing business as Nurse Connection ("Nurse Connection").
In April 1996, the Company acquired certain assets of Ellis Health Services,
Inc. ("Ellis"). The purchase price for the Ellis assets was $1,025,000. The
purchase price was paid by issuing 256,250 shares of the Company's common stock
and guaranteeing that the former owner of Ellis would receive at least
$1,025,000 in proceeds from the sale of the shares. Ellis had been an affiliated
company of Paxxon Services, Inc., which the Company acquired in September, 1994.
In July 1996, the Company acquired certain assets of STAT Health Care Services,
Inc. ("STAT") for a purchase price of approximately $2,145,000. The purchase
price was paid $1,550,000 in cash, approximately $468,500 worth of common stock
of the Company and warrants to purchase 125,000 shares of common stock at $1.88
per share, which have since expired.
In January 1997, the Company acquired certain assets of Colorado Therapists On
Call, Inc. ("CTOC") and Professional Healthcare Providers, Inc. ("PHP"),
together doing business under the name TherAmerica ("TherAmerica"). The
acquisition was effective January 1, 1997 and the Company paid $2,000,000 in
cash and assumed approximately $175,000 in liabilities for the TherAmerica
assets which was treated as a purchase for accounting purposes.
In September 1997, the Company sold its Denver home care and certified medicare
provider operations for $200,000 in cash. In October 1997, the Company sold the
assets and business of Paxxon Services, one of its New York operations for
$1,468,000. And, in September 1998, the Company sold Ellis and STAT for
$1,463,000. The three New York operations provided approximately $10,262,000 in
revenue for the 1997 fiscal year, and the two remaining New York operations
provided approximately $4,679,000 in revenue for the 1998 fiscal year. The sale
of these operations has and will continue to substantially reduce the Company's
revenues.
In January 1998, the Company acquired Cymedix Corporation, a California
corporation ("Cymedix") which was merged into the Company's own wholly-owned
subsidiary, Cymedix Lynx Corporation, a Colorado corporation, and the Company
issued or committed to issue 7,212,985 shares of its Common Stock to the
shareholders of Cymedix and granted or committed to grant options covering
1,200,000 shares of the Company's Common Stock to employees of the subsidiary.
The Company intends to dispose of all of its healthcare operations if an
adequate price is offered and to focus its operational efforts on the software
products of Cymedix. The Company may pursue other possible acquisitions or
dispositions as opportunities are presented. However, the Company has no other
current agreements, understandings or commitments regarding any other
acquisitions or dispositions. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION - Overview."
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Healthcare Services
Overview. The Company provides medical supplemental staffing, principally to
healthcare institutions in the form of either staffing done on a daily basis or
through travel nurse assignments that are generally thirteen weeks or longer in
length. Health care institutions use supplemental staffing for the following
reasons:
Local and regional health care worker shortages;
Episodic needs for specialty health care during specific disease epidemics;
Increased patient acuity mix within the hospital markets;
Increases in labor intensive medical care technology;
The aging of the population;
Hospital trends to contain costs by cutting back staff positions to a
minimal level and supporting periodic increased occupancy rates with
supplemental staffing;
Early discharge pressures have caused hospitals to provide more outpatient
and home health care programs; and
Numerous health care organizations have developed special or innovative
arrangements for early discharges, including both pre- and post-admission
services.
Proposals to reform the United States healthcare system have been made from time
to time over the last decade, and can be expected to be made in the future.
Legislation at both the federal and state levels have increased government
involvement in health care, lowered reimbursement rates, limited capital
expenditures and otherwise changed the operating environment for the Company's
customers. Future legislation to enact current and future proposals can be
expected. Healthcare facilities have reacted to these proposals and legislation
and the uncertainty surrounding them by curtailing the use of flexible staff,
which adversely affects the Company's business. The Company cannot predict with
any certainty what impact, if any, proposals for healthcare reforms might have
on the Company's business. The healthcare industry is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operations of hospitals and other healthcare facilities. In
addition, major third party payers of hospital services (insurance companies,
Medicare and Medicaid) have significantly revised payment procedures in an
effort to contain health care costs. These developments have negatively impacted
the Company's operations.
Business Strategy The Company's strategy is to provide comprehensive services to
patients located in hospitals, health care organizations, and homes. Staffing is
provided in homes, school settings, hospitals, clinics and physician offices
utilizing a supplemental diversified mix of traditional nursing and other allied
health care professionals such as physical, occupational and respiratory
therapists, home health aides, and other nursing professionals.
The services provided by the Company bridge the gap between hospital and home.
Frequently, the same professionals caring for patients in the hospital setting
are involved in the care at home. Healthcare institutions request that the
Company provide the same trained professional for both home and hospital health
care. This request has driven the Company to provide supplemental staffing,
travel nurse and home health care in each of the geographical markets that the
Company operates.
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Other key elements of the Company's strategy include:
Improvement of customer relationships;
Continued contracting and marketing efforts; and
Expansion services in response to customer demand.
The foregoing business strategies include forward-looking statements, the
realization of which are subject to risks and uncertainties that may be impacted
by certain important factors discussed elsewhere herein. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Forward-Looking Statements and
Associated Risks".
Customers. The Company's customers include, but are not limited to, patients,
hospitals, physicians, third party payers, educational facilities and other
types of health care organizations. Billing, payment arrangements and staffing
agreements with the Company's customers are stipulated by contracts with the
customer. The contracts are not exclusive and do not obligate the customer to
utilize a certain amount of service for any specific period of time. Customers
often use several supplemental staffing agencies to meet their needs and the
Company competes with these agencies on the basis of pricing, availability of
caregivers, and quality of service.
Services. The Company offers a broad range of professional and support services
to meet medical and personal needs in the home or in health care or educational
facilities. The following provides a brief description of the services
customarily provided by skilled nursing personnel and other caregivers placed
with customers.
Registered Nurses provide a broad range of nursing care services, including
skilled observation and assessment, instruction of patients regarding
medical and technical procedures, direct hands-on treatment, and
communication and coordination with the attending physician or other
service agencies.
Licensed Practical Nurses perform, under the supervision of a registered
nurse, technical nursing procedures, which include injections, dressing
changes, assistance with ambulation and catheter care.
Physical and Rehabilitation Therapists provide services related to the
reduction of pain and improved rehabilitation of joints and muscles,
including strengthening and range-of-motion exercises, heat lamp therapy
and massage.
Occupational Therapists assist patients in restoring their ability to
perform routine activities of daily living by offering instruction in self
care, discussing techniques for coping with physical disability and
suggesting the use of assistant devices or home adaption to make living at
home easier.
Speech Therapists retrain patients who have swallowing difficulties or
speech, language or hearing problems to improve their physical capabilities
or communication abilities.
Respiratory Therapists specialize in the prevention, assessment, treatment,
management, and rehabilitation of individuals with respiratory disorders or
cardiopulmonary disease.
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Home Health and certified Nurse Aides, working under the supervision of a
registered nurse, provide health-related services and personal care such as
assistance with ambulation, limited range- of-motion exercises and
monitoring of vital signs.
Homemakers/Companions provide personal care and assistance with daily
living activities, including bathing, dressing, grooming, meal preparation,
light housekeeping and occasional shopping for essential items.
Rehabilitation Consulting provides medical and vocational counseling,
consulting, training and expert testimony to businesses, employee-patients
and disabled individuals in connection with physical disability
rehabilitation programs and obligations under the Americans with
Disabilities Act.
Recruiting. The Company is active in recruiting skilled nursing personnel and
other caregivers in order to assure availability of personnel as customer demand
warrants. Location of assignment, compensation and benefits are generally the
principal factors considered by medical personnel when determining whether to
contract with a particular flexible staffing business. To date, the Company's
operations have not been adversely affected by the shortage of nurses in certain
geographical regions or specialties.
The Company's ability to deliver quality nursing services is dependent upon the
Company's ability to recruit qualified skilled nursing personnel. The Company's
recruiting efforts include advertising, attendance at national and regional
conventions, personal and professional referrals and participation by the
Company's officers in nursing and other trade associations. The Company has
recruited and continues to recruit medical personnel and has entered into
agreements with other staffing agencies whereby the Company can use the other
agency's personnel under contract. The Company has compiled a listing of over
900 qualified nurses and medical personnel who are classified by skills,
experience and availability for assignment. These nurses and other medical
personnel generally do not work exclusively for the Company. The Company has in
the past been generally successful in meeting its staffing requirements from its
existing pool of caregivers and, in cases where a particular specialty or
expertise was unavailable, the Company has been successful in hiring personnel
on a subcontract basis from other flexible staffing companies.
Marketing and Sales. The Company's clientele currently consists of hospitals and
other healthcare and educational facilities located in Texas, California and
Colorado and its travel nursing and therapist clientele consists of hospitals
and other healthcare facilities in seventeen states and the District of
Columbia. The Company has secured non-exclusive agreements to supply
supplemental staff to these healthcare facilities for a period of between one
and two years. The Company derives a significant portion of its business through
its marketing efforts and expects to continue its marketing efforts to local and
regional hospital chains as the expected consolidation in the health care
industry is anticipated to result in an increasing number of regional and
national hospital chains.
The Company markets its supplemental staffing services principally through
direct contact with hospitals, direct mail, attendance at national and regional
conventions and seminars and telephone solicitations. Management anticipates the
Company will continue to develop its marketing programs.
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The Company's marketing and sales strategy consists of working to increase its
shift count and improve its gross margins with existing clients, bidding
competitively on new contracts and continuing to expand its opportunities to
place its personnel at non-traditional facilities. The Company intends to
utilize the existing infrastructure in each of its branch offices to expand its
service offerings in each branch office.
Competition. The Company's supplemental staffing businesses compete with other
medical recruitment and supplemental staffing organizations which offer the same
or similar services provided by the Company. Many of these competitors have
greater financial and other resources than are available to the Company.
Competition for hospital and other health care clients is generally based on the
ability to provide qualified nurses and medical personnel on a timely basis in a
cost-competitive manner. The Company also experiences competition in recruiting
for professional nursing staff.
The Company believes the key competitive factors in its industry include
service, price and its ability to deliver staff to the geographic area where
needed. The range of specialized services offered, together with the price
charged for the services, are also competitive factors in attracting clients.
Regulation. The healthcare system in the United States is highly regulated at
the federal, state and local level. The object of such regulation is generally
quality and, more recently, cost control. Most individual healthcare providers
are required to be licensed at the state by the states in which the provide
services. As mentioned earlier, over the last decade, several programs have been
proposed to reform the United States healthcare system, and certain legislation
enacted at the federal and state levels. This legislation has generally
increased governmental involvement in healthcare. The Company, as it currently
operates, is not required to be licensed by any governmental agency. Most of the
Company's customers are licensed and the impact of governmental regulation on
these customers has in the past and may in the future adversely affect the
Company's operations. There can be no assurance the Company will be able to
operate profitably in the current regulatory environment.
Several states have enacted legislation requiring providers of supplemental
staffing services to publicly post their billing rates. At least one state has
adopted legislation that provides for regulatory review of such billing rates.
The adoption of similar legislation by other states could have an adverse impact
on the supplemental staffing industry.
The Company is subject to various city, county and state payroll, occupational
and professional licensing laws that apply to medical professionals. Many states
have statutes requiring training, monitoring and regulating of medical
professionals. The Company complies with such requirements as applicable to its
operations and such requirements have not adversely impacted the Company.
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Medical Information Software
In January 1998, the Company acquired a developer of software applications for
medical information management. The acquired business had been organized in
November 1995. The Company's first two software products, Cymedix Lynx and
Universal Data Interface are being marketed to the medical community. Cymedix
Lynx manages remote information distribution in the healthcare industry and
manages information integration. These two products, together with their
relational database technology, will provide physicians with a permanent,
ongoing record of their patients' insurance, managed care affiliation, referral
status, medical history and medical history and diagnosis. Cymedix Lynx is
Internet based, but completely secure, and provides doctors with forms to order
medical procedures, make referrals and check insurance illegibility.
Customers and Marketing. The marketing strategy for the LYNX products of the
Company's subsidiary, Cymedix Lynx Corporation, will focus on the direct cost
savings that can be achieved by using the Internet as the platform for medical
data exchange compared to the current manual and semi-automated practices of
competitors, relying on a combination of mail, telephone, fax or private network
communications. The subsidiary will also emphasize the value added features of
its LYNX software in making the flow of medical data more efficient.
The Company's subsidiary will market LYNX to sponsoring organizations such as
HMOs, hospital-based physicians networks and clinical laboratories that can
offer the product to physicians without charge as a cost savings connectivity
solution for their routine transactions, including medical orders, eligibility
checks, authorization of care and doctor referrals. The subsidiary anticipates
that its LYNX sponsors will charge fees on a per transaction basis. As a result,
participants will only pay for the product when it is used, and the Company's
subsidiary will charge sponsors a per transaction fee based on the type of
transaction.
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Competition can be expected to emerge from established healthcare information
vendors, seeking to capitalize on Cymedix's work in developing and proving the
market. The most likely competitors are companies with a focus on clinical
information systems and enterprises with an Internet commerce or electronic
network focus. Many of these competitors will have access to substantially
greater amounts of capital resources than the Company has access to, for the
financing of technical, manufacturing and marketing efforts. Frequently, these
competitors will have affiliations with major medical product companies or
software developers, who will assist in the financing of such competitor's
product development. The Company will seek to raise capital to develop Cymedix
products in a timely manner, however, so long as the operations of the Company
remain underfunded, as they now are, the Company and its subsidiary will be at a
competitive disadvantage.
Patents, Trademarks and Copyrights. The Company's wholly-owned subsidiary,
Cymedix Lynx Corporation, has filed U.S. patent application, Serial No.
08/950,328, covering its Cymedix Lynx product, on October 14, 1997, and has made
a related filing under the Patent Cooperation Treaty ("PCT") Application No.
PCT/US97/18675. The U.S. application set forth 29 claims for patentability. The
U.S. Patent and Trademark Office ("USPTO") responded in January 1999, approving
5 claims, rejecting 19 claims and stating that 5 claims constitute a separate
invention that requires a separate application. The Company's subsidiary has
responded to the claim denials and expects to file a separate application
relating to the 5 claims that are deemed to be a separate invention. While it is
now clear a patent will be issued in response to the application, it is not
clear what the scope of such patent will be, subject to the outcome of the
subsidiary's response to the USPTO's denials and to the USPTO's response to the
separate application. Four of the ten claims in the PCT application have been
found to contain allowable subject matter (this PCT opinion is advisory and is
not binding on foreign patent offices). The subsidiary has not yet designated
the countries in which national applications will be filed based upon the PCT
application. The subsidiary has also filed applications with the USPTO for
trademark protection of certain "marks" used or to be used with its software
products. To date, the mark "Cymedix" has been approved for registration. The
subsidiary has sought copyright protection in two versions of each of three
modular software components of the Cymedix Lynx product, as well as in a
technical evaluation document that describes the software products. All seven of
these applications have been granted. No assurance can be given that any of the
Company's software products will receive additional patent or other intellectual
property protection.
Regulation. 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
government regulation of, among other things, reimbursement rates and certain
capital expenditures. The Company cannot predict with any certainty what impact,
if any, such increased regulation might have on its results of operations,
financial condition or business. In addition, Medicare has, from time to time,
promulgated regulations concerning anti-fraud and (physician) inducement that
heretofore have not directly affected the marketing of the Company's software
and similar products. However, these regulations, which are usually later
adopted by state-managed Medicaid plans have historically created uncertainty in
the industry.
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The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the regulation of certain computer software products as medical devices
under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has recently indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical device
under the policy, the manufacturers of such products could be required,
depending on the product, to (i) register and list their products with the FDA,
(ii) notify the FDA and demonstrate substantial equivalence to other products on
the market before marketing such products, or (iii) obtain FDA approval by
demonstrating safety and effectiveness before marketing a product. In addition,
such products would be subject to the FDC Acts general controls, including those
relating to good manufacturing practices and adverse experience reporting.
Although it is not possible to anticipate the final form of the FDA'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 Company's results of operations, financial
condition or business.
Employees
Healthcare Services. Exclusive of medical personnel, the Company currently has
30 full-time and 6 part-time administrative employees. The number of caregivers
on assignment varies from day to day. These medical personnel do not necessarily
work full-time shifts and may not work exclusively for the Company. The
Company's employees are not represented by a union and the Company considers its
relations with its employees to be good. The Company currently has in place a
screening process for all prospective medical personnel. The Company has entered
into agreements with other staffing agencies whereby the Company may place
medical personnel currently under contract with other staffing agents.
Medical Information Software. The Company's software subsidiary currently has 13
full-time and 2 part-time employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices are located at 7100 East Belleview Ave., Suite
301, Englewood, Colorado. A summary of the Company's facilities is provided
below:
Square Expiration 1998
Footage Date Rent
----------- ---------- ---------
Houston, Texas .............. 1,749 5/31/00 $ 15,000
San Antonio, Texas .......... 1,270 4/30/01 18,000
Englewood, Colorado ......... 5,236 7/31/03 93,000
Ontario, California ......... 1,151 11/30/01 25,000
Emeryville, California ...... 791 8/31/00 18,000
Thousand Oaks, California ... 3,223 11/30/00 50,000
-------- --------
Totals: 13,420 $219,000
====== =========
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The Company believes these facilities, which are used for administrative
offices, will be suitable for the Company's needs for the foreseeable future.
The Company believes that all of its properties are adequately insured.
ITEM 3. - 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.
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On March 19, 1998, the Company announced that its wholly-owned subsidiary
Cymedix Lynx Corporation had submitted a formal demand to Andrx Corporation for
treble damages in the amount of $396.6 million, suffered by Cymedix as a direct
and proximate result of the alleged activities of Andrx, its affiliate Cybear,
Inc. and certain individuals. The demand alleges theft and unlawful
appropriation of Cymedix's computer medical software for remote on-line
healthcare providers and Cymedix's Internet medical communications technology,
commonly referred to as Lynx, for which a preliminary U.S. patent was filed on
October 15, 1996 and a final U.S. patent application was filed on October 14,
1997. On April 2, 1998, Andrx and Cybear filed suit in the Circuit Court of
Broward County, Florida, Case No. 98-04613 CACE03, against the Company and its
wholly-owned subsidiary Cymedix Lynx Corporation, alleging libel and slander,
that the Company's claims are false and defamatory, and that damages of such
actions were in excess of $15,000. On June 2, 1998 the Company, and its
subsidiary Cymedix Lynx Corporation, filed suit in the Circuit Court of
Hillsborough County Florida, Case No. CI 94-4621, against Andrx Corporation, its
subsidiary Cybear, Inc., Elliot Hahn, Richard Lucibella, and Jerry Cazzell. On
February 10, 1999, the Company and Andrx announced that their lawsuits had been
settled and a mutual release had been signed. The settlement required Andrx to
pay the Company $125,000.
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.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No vote of security holders was solicited during the last quarter of the fiscal
year ending December 27, 1998.
- 11 -
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the OTC Bulletin Board under the symbol
"MDIX." Prior to the Company's change of name effective February 19, 1998, its
symbol was "NURS." The following table shows high and low bid price information
for each quarter in the last two calendar years as reported by Prophet
Information Services, Inc., a provider of online historical stock price data for
all major U. S. securities markets. Such quotations reflect inter-dealer prices,
without retail mark-ups, markdowns or commissions, and may not necessarily
represent actual transactions. On April 9, 1999, the last sales price was
reported to be $0.70.
Common Stock
Bid Price
----------------------
High Low
---------- ----------
1997 Fiscal Year
First Quarter $ 1.50 $ 0.63
Second Quarter .69 .19
Third Quarter .19 -
Fourth Quarter .38 .13
1998 Fiscal Year
First Quarter $ .38 $ .25
Second Quarter .81 .25
Third Quarter .44 .06
Fourth Quarter .31 .05
There were approximately 448 holders of record (and approximately 2,100
beneficial owners) of the Company's common stock as of April 9, 1999. The number
of record holders includes shareholders who may hold stock for the benefit of
others.
The Company does not expect to pay any dividends on its common stock in the
foreseeable future. Management currently intends to retain all available funds
for the development of its business and for use as working capital. The payment
of dividends on the common stock is subject to the Company's prior payment of
all accrued and unpaid dividends on any preferred stock outstanding.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 is 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.
- 12 -
<PAGE>
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. 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.
- 13 -
<PAGE>
Medical Information Software Operations. The Company, through its subsidiary
Cymedix Lynx Corporation, has only recently begun its medical software line of
business through the acquisition of a development stage medial software
business. The uncertainties and risks that accompany forward- looking statements
are enhanced by the Company's lack of experience in this business. The Company
has no experience in marketing of software products, providing software support
services, evaluating demand for products, financing a software business and
dealing with government regulation of software products. As a developer of
information systems, the Company will be required to anticipate and adapt to
evolving industry standards and new technological developments. The market for
the Company's software products is characterized by continued and rapid
technological advances in both hardware and software development, requiring
ongoing expenditures for research and development and the timely introduction of
new products and enhancements to existing products. The establishment of
standards is largely a function of user acceptance. Therefore, such standards
are subject to change. The Company's future success, if at all, will depend in
part upon its ability to enhance existing products, to respond effectively to
technology changes, and to introduce new products and technologies to meet the
evolving needs of its clients in the health care information systems market. The
Company is currently devoting significant resources toward the development of
products. There can be no assurance that the Company will successfully complete
the development of these products in a timely fashion or that the Company's
current or future products will satisfy the needs of the health care information
systems market. Further, there can be no assurance that products or technologies
developed by others will not adversely affect the Company's competitive position
or render its products or technologies noncompetitive or obsolete.
Certain of the Company's products provide applications that relate to patient
medical histories and treatment plans. Any failure by the Company's products to
provide accurate, secure and timely information could result in product
liability claims against the Company by its clients or their affiliates or
patients. The Company maintains insurance that it believes is adequate to
protect against claims associated with the use of it products, but there can be
no assurance that its insurance coverage would adequately cover any claim
asserted against the Company. A successful claim brought against the Company in
excess of its insurance coverage could have a material adverse effect on the
Company's results of operations, financial condition or business. Even
unsuccessful claims could result in the expenditure of funds in litigation, as
well as diversion of management time and resources.
The success of the Company is dependent to a significant degree on its key
management, sales and marketing, and technical personnel. The Company believes
that its success will also depend upon its ability to attract, motivate and
retain highly skilled, managerial, sales and marketing, and technical personnel,
including software programmers and systems architects skilled in the computer
languages in which the Company's products operate. Competition for such
personnel in the software and information services industries is intense. The
loss of key personnel, or the inability to hire or retain qualified personnel,
could have a material adverse effect on the Company's results of operations,
financial condition or business.
- 14 -
<PAGE>
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.
The U.S. Food and Drug Administration (the "FDA") has promulgated a draft policy
for the regulation of certain computer software products as medical devices
under the 1976 Medical Device Amendments to the Federal Food, Drug and Cosmetic
Act (the "FDC Act") and has recently indicated it may modify such draft policy
or create a new policy. To the extent that computer software is a medical device
under the policy, the manufacturers or such products could be required,
depending on the product, to (i) register and list their products with FDA, (ii)
notify the FDA and demonstrate substantial equivalence to other products on the
market before marketing such products, or (iii) obtain FDA approval by
demonstrating safety and effectiveness before marketing a product. In addition,
such products would be subject to the FDC Acts general controls, including those
relating to good manufacturing practices and adverse experience reporting.
Although it is not possible to anticipate the final form of the FDA" policy with
regard to computer software, the Company expects that, whether or not the draft
is finalized or changed, the FDA is likely to become increasingly active in
regulating computer software that is intended for use in health care settings.
The FDA can impose extensive requirements governing pre- and post-market
conditions such as device investigation, approval, labeling and manufacturing.
In addition, the FDA can impose extensive requirements governing development
controls and quality assurance processes. There can be no assurance that actions
taken by the FDA to regulate computer software products will not have a material
adverse effect on the Company's results of operations, financial condition or
business.
Company Specific Factors. Important factors to be considered in connection with
forward-looking statements include, without limitation, (a) the fact that the
Company has reported net losses in the last several years and has an accumulated
deficit and a working capital deficit at the end of its 1998 fiscal year; (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 will 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 failing to
maintain tangible net worth of $2.0 million, which significantly impedes the
Company's ability to raise future equity capital; (e) at April 9, 1999, the
Company had substantial delinquent liabilities, which, if the creditors
instituted collection proceedings, could cause the 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 April 6, 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.
- 15 -
<PAGE>
Any of these important factors discussed above or elsewhere in this filing could
cause the Company's revenues or net income, or growth in revenues or net income,
to differ materially from prior results. 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 operates and its underfunded
operations, are subject to substantial risks which increase the uncertainty
inherent in such forward-looking statements.
In light of the significant uncertainties inherent in the forward-looking
information included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved.
Going Concern Issues
The Company has suffered recurring losses for the past several years and
incurred net losses for the year ended December 29, 1996 of $858,000, for the
year ended December 29, 1997 of $515,000, and for the year ended December 27,
1998 of $5,442,000. In addition, the Company had a working capital deficit of
$2,612,000 and accumulated deficit of $13,161,000 at December 27, 1998. These
factors, among others, raise a substantial doubt about the ability of the
Company to continue as a going concern. Additionally, the Company has maintained
its existence primarily through equity financing, however, because the Company
currently has outstanding shares, options, and warrants in excess of the
authorized shares the ability of the Company to raise additional equity capital
and the potential to have to repurchase shares to satisfy conversion features
raises substantial doubt about the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should the
Company be unable to continue as a going concern.
Results of Operation
Comparison of Years Ended December 27, 1998 and December 28, 1997
Total net revenues decreased approximately 30% from $24,875,000 for the year
ended December 28, 1997 ("fiscal 1997") to $17,412,000 for the year ended
December 27, 1998 ("fiscal 1998"). The decrease was mainly attributable to the
sales of the homecare division in September 1997, Paxxon in October 1997, and
STAT and Ellis in September 1998. Revenue from the divisions sold were
$4,679,000 in fiscal 1998 and $10,913,000 in fiscal 1997. TherAmerica revenues
were down approximately 48% from $8,388,000 in fiscal 1997 to $5,236,000 in
fiscal 1998. These decreases were partially offset by revenue increases in the
Colorado and travel nursing divisions.
- 16 -
The decrease in TherAmerica revenues has substantially reduced the Company's
revenues. The Company has partially addressed this decrease by implementing
nurse staffing at the two California TherAmerica branches. The sale of the STAT,
Ellis, Paxxon, and the homecare division has and will continue to substantially
reduce the Company's revenues.
The Company's gross margin percentage decreased from 23.5% in fiscal 1997 to
22.7% in fiscal 1998. The decrease was primarily due to the sale of the higher
margin New York divisions, downward marging pressure in the TherAmerica
division, and increased revenues in the lower margin travel nursing division.
Selling, general, and administrative expenses increased approximately $488,000
or 9% from $5,670,000 in the fiscal 1997 to $6,158,000 in fiscal 1998. This
increase includes approximately $1,422,000 of selling, general, and
administrative expenses incurred by Cymedix which was partially offset by a
reduction of $934,000 related to the sale of divisions.
Income(Loss) from operations decreased $5,174,000 from income from operations of
$610,000 in fiscal 1997 to a loss from operations of ($5,422,000) in fiscal
1998. The decrease reflects loss on sale of divisions of $316,000 and impairment
of intangible assets of $2,040,000 in fiscal 1998 compared to a gain on sale of
assets of $422,000 in fiscal 1997 (see Notes [1 and 4] to the Consolidated
Financial Statements). The loss from operations in fiscal 1998 also reflects
increase of selling, general, and administrative expenses related to Cymedix and
the reduction in gross profit discussed in the above paragraphs.
Interest expense decreased approximately 24% from $1,125,000 in fiscal 1997 to
$858,000 in fiscal 1998. The decrease is primarily due to interest paid on a
bridge loan in fiscal 1997 and a reduction in funding costs on accounts
receivable due to the sale of the homecare division, Paxxon, STAT, and Ellis.
The decrease was partially offset by increased accrued interest on late payroll
taxes. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --
Liquidity of Capital Resources" and Notes [1, 3, and 6] to the Consolidated
Financial Statements.
Net loss increased from ($515,000) in fiscal 1997 to ($5,422,000) in fiscal
1998.
Liquidity and Capital Resources
The Company's current liabilities at December 27, 1998 aggregated approximately
$5,393,000 and current assets at December 27, 1998 aggregated approximately
$2,781,000. The Company is currently delinquent in the payment of certain of its
current liabilities. Such obligations include federal income tax withholdings
from employees and employer payroll taxes. As of April 9, 1999 the Company was
current on all federal payroll tax deposits. Penalties and inerest due to the
IRS on late payroll tax deposits are still outstanding. The Company is also in
default on a delinquent note payable assume din the Cymedix merger. The note
payable is secured by the intellectual property of Cymedix. If the note holder
were to foreclose its security interest, the ability of Cymedix to generate
future revenues would be adversely affected. See Note 6 to the Consolidated
Financial Statements.
In order for the Company to meet its current obligations, including penalties
and interest on late payroll tax deposits, management anticipates the need to
raise additional debt or equity capital or sell assets (see Forward-Looking
Statements and Associated Risks, including Company Specific Factors). However,
there are no current agreements in place to engage in any such transactions. In
1999, the Company completed a private placement for $300,000. The Company has
received $250,000 through April 7, 1999 under its private placement. See Note 12
to the Consolidated Financial Statements. The Company is currently pursuing
other scenarios to raise additional capital.
- 17 -
<PAGE>
On September 14, 1998, the Company sold its two remaining two New York
operations for approximately $1,463,000 payable with $1,000,000 in cash and
approximately $463,000 in notes. The cash proceeds from the sale were primarily
used to reduce the balance on the Company's line-of-credit. In February 1999,
the Company accepted a prepayment on the notes of approximately $463,000.
Proceeds from the prepayment were used to pay dilinquent IRS payroll tax
deposits. In the three and a half months subsequent to the sale, the Company
received approximately $1,600,000 in cash receipts from the collection of New
York accounts receivable. During 1999, the Company expects to receive $500,000
from the same source. These cash receipts will not provide adequate funds to
support the projected development and marketing costs of the Cymedix software
products.
Sales of Cymedix software products have not met, and on-site testing of
installed products has taken longer than, the Company's initial expectations.
See "Forward-Looking Statements and Associated Risks - Medical Information
Software Operations" and "Company Specific Factors" above.
The two New York operations that were sold, provided $7,090,000 in revenues for
the 1997 fiscal year and $4,679,000 in revenues for the first nine months of
1998 prior to their sale. The sale of these operations will significantly reduce
the Company's revenues. The Company will need to obtain additional financing or
sell additional assets in order to generate sufficient cash to support its
operations, including the development of a marketing of Cymedix software
products, for the next twelve months. In 1999, the Company completed a private
placement for $300,000. The Company has received $250,000 through April 7, 1999
under its private placement. See Note 12 to the Consolidated Financial
Statements. The Company is currently pursuing other scenarios to raise
additional capital.
The Company has historically released certain of its checks in anticipation of
receiving cash proceeds from its line of credit agreement. The Company does not
have an arrangement with its banks to cover checks presented in excess of its
collected cash balance; however, this situation has not occurred as the Company
releases its checks as close as possible to its funding date.
The Nasdaq Stock Market, Inc. delisted the Company's common stock from trading
on the Nasdaq SmallCap Market, effective at the close of business on July 14,
1998, for failure to satisfy the revised listing maintenance standards adopted
by The Nasdaq Stock Market, Inc. last year. The Company's common stock is
eligible to trade on the OTC Bulletin Board. Information about the OTCBB can be
found on the Internet at www.OTCBB.com. However, quotes for stock traded on the
OTC Bulletin Board are not published in major newspapers, and can only be found
in specialized publications or on the Internet. Being delisted from the Nasdaq
SmallCap Market significantly impedes the Company's ability to raise equity
capital.
In the light of such delisting, the Company determined that it would not be in
the best interests of its shareholders to complete the reverse stock split that
had been approved by its shareholders at its Annual Meeting of Shareholders held
on May 29, 1998, and the Board of Directors exercised its authority to abandon
the reverse stock split.
- 18 -
<PAGE>
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
independantly 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 August 31,
1999. The upgraded and replaced systems are scheduled to be tested by September
30, 1999. The Company intends to obtain documentation of year 2000 compliance
from its banks, lending institutions, and significant customers and vendors by
June 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 $15,000 and software upgrades should be
less than $10,000. If required, an independent certification of the Cymedix
software products would cost approximately $20,000.
ITEM 7. FINANCIAL STATEMENTS
Attached hereto and filed as a part of this Form 10-KSB are the Consolidated
Financial Statements of the Company.
- 19 -
<PAGE>
MEDIX RESOURCES, INC.
AND SUBSIDIARIES
Consolidated Financial Statements
December 27, 1998
<PAGE>
MEDIX RESOURCES, INC. AND SUBSIDIARIES
Table of Contents
Page
Independent Auditors' Report........................................F-1
Financial Statements
Consolidated Balance Sheet......................................F-3
Consolidated Statements of Operations...........................F-4
Consolidated Statement of Changes in Stockholders' Deficit......F-5
Consolidated Statements of Cash Flows...........................F-6
Notes to Consolidated Financial Statements..........................F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Medix Resources, Inc.
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Medix Resources,
Inc. and Subsidiaries, as of December 27, 1998, and the related consolidated
statements of operations and changes in stockholders' deficit, and cash flows
for the years ended December 27, 1998 and December 28, 1997. These consolidated
financial statements are the responsibility of the management of Medix
Resources, Inc. and Subsidiaries. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Medix
Resources, Inc. and Subsidiaries, as of December 27, 1998, and the results of
their operations and their cash flows for the years ended December 27, 1998 and
December 28, 1997 in conformity with generally accepted accounting principles.
<PAGE>
To the Board of Directors and Stockholders
Medix Resources, Inc.
Page Two
The accompanying consolidated financial statements have been prepared assuming
that Medix Resources, Inc. will continue as a going concern. As further
discussed in Note 1 to the consolidated financial statements, the Company has
incurred operating losses for the past several years and has a deficit in
working capital and stockholders' equity which raises substantial doubt about
its ability to continue as a going concern. Additionally, the Company has
maintained its existence primarily through equity financing, however, because
the Company currently has outstanding shares, options and warrants in excess of
the authorized shares the ability of the Company to raise additional equity
capital and the potential to have to repurchase shares to satisfy conversion
features raises substantial doubt about the Company's ability to continue as a
going concern. Current management's plans in regards to this matter are also
discussed in Note 1. The consolidated financial statements do not include any
adjustments that might result from these uncertainties.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 2, 1999
Denver, Colorado
<PAGE>
MEDIX RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
December 27, 1998
Assets
Current assets
Cash .................................................... $ 40,000
Accounts receivable, net of allowance of $509,000 ....... 2,081,000
Notes receivable ........................................ 563,000
Prepaid expenses and other .............................. 97,000
------------
Total current assets ................................. 2,781,000
Property and equipment, net ............................... 220,000
Other assets
Intangible assets, net .................................. 2,174,000
Total ..................................................... $ 5,175,000
Liabilities and Stockholders' Deficit
Current liabilities
Checks written in excess of bank balance ................ $ 72,000
Notes payable ........................................... 289,000
Line-of-credit .......................................... 993,000
Accounts payable ........................................ 838,000
Accrued expenses ........................................ 1,097,000
Accrued payroll taxes, interest and penalties ........... 1,469,000
Preferred redemption payable ............................ 635,000
------------
Total current liabilities ............................ 5,393,000
Commitments and contingencies
Stockholders' deficit
Preferred stock, 10% cumulative convertible, $1 par value
488 shares authorized, 155 issued, 8.00 outstanding, ... --
liquidation preference $120,000
1997 convertible preferred stock, $1 par value 300 shares
authorized 167.15 shares issued, 19.50, liquidation .... --
preference $195,000
Common stock, $.001 par value, 25,000,000 shares
authorized, 21,500,727 issued and outstanding .......... 22,000
Dividends payable with common stock ..................... 39,000
Additional paid-in capital .............................. 12,882,000
Accumulated deficit ..................................... (13,161,000)
------------
Total stockholders' deficit .......................... (218,000)
Total ..................................................... $ 5,175,000
See notes to consolidated financial statements.
F-3
<PAGE>
MEDIX RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the For the Year
Year Ended Ended
December 27, December 28,
1998 1997
------------- --------------
<S> <C> <C>
Revenues .................................... $ 17,412,000 $ 24,875,000
Direct costs of services .................... 13,462,000 19,017,000
------------ ------------
Gross margin ................................ 3,950,000 5,858,000
Selling, general, and administrative expenses 6,158,000 5,670,000
Impairment of goodwill ...................... 2,040,000 --
(Loss) gain on sale of divisions ............ (316,000) 422,000
------------ ------------
(Loss) income from operations ............... (4,564,000) 610,000
Interest expense ............................ 858,000 1,125,000
------------ ------------
Net loss .................................... $ (5,422,000) $ (515,000)
============ ============
Basic loss per common share ................. $ (.26) $ (.15)
============ ============
Weighted average common shares outstanding .. 20,772,801 9,848,824
============ ============
See notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
MEDIX RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes In Stockholders' Deficit
For the Years Ending December 27, 1998 and December 28, 1997
<TABLE>
<CAPTION>
----------------------------- ----------------------- ---------------------
Number of Number of Number of
Shares Amount Shares Amount Shares Amount
------------ ------------ ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance - December 29, 1996 ............... 5,688,292 $ 6,000 155.50 $ -- -- $--
1997 preferred stock issuance, before
imputed discount ......................... -- -- -- -- 167.15 --
Imputed dividend on 1997 preferred stock .. -- -- -- -- -- --
Exercise of 1996 unit options ............. -- -- 20.00 -- -- --
Offering costs on 1997 preferred stock .... -- -- -- -- -- --
Imputed value of issuance of warrants in
connection with debt issued .............. -- -- -- -- -- --
Imputed dividend on 1997 preferred stock as
a result of warrant repricings ........... -- -- -- -- -- --
Conversion of preferred stock and accrued
dividends of $71,000 ..................... 7,042,256 7,000 (149.25) -- (66.65) --
Common stock issued for satisfaction
of debt .................................. 100,000 -- -- -- -- --
Common stock issued for services .......... 13,019 -- -- -- -- --
Net loss .................................. -- -- -- -- -- --
Dividends declared ........................ -- -- -- -- -- --
------------ ------------ ------ ------ ------ ---
Balance - December 28, 1997 ............... 12,843,567 13,000 26.25 -- 100.50 --
Common stock issued in connection with
Cymedix merger ........................... 7,212,987 7,000 -- -- -- --
Issuance of options and warrants in
connection with Cymedix merger ........... -- -- -- -- -- --
Conversion of preferred stock and accrued
dividends ................................ 1,118,270 2,000 (18.25) -- (5.00) --
Common stock issued in connection with
purchase of warrants ..................... 175,900 -- -- -- -- --
Common stock and warrants issued in
settlement ............................... 150,000 -- -- -- -- --
1997 preferred stock redemption payable ... -- -- -- -- (76.00) --
Net loss .................................. -- -- -- -- -- --
Dividends declared ........................ -- -- -- -- -- --
------------ ------------ ------ ------ ------ ---
Balance at December 27, 1998 .............. 21,500,724 $ 22,000 8.00 $ -- 19.50 $--
============ ============ ====== ====== ====== ===
</TABLE>
<TABLE>
<CAPTION>
Dividend
Payable With
Paid-in Common Accumulated
Capital Stock Deficit Total
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balance - December 29, 1996 .............. $ 10,199,000 $ 66,000 $ (7,224,000) $ 3,047,000
1997 preferred stock issuance, before
imputed discount ......................... 1,672,000 -- -- 1,672,000
Imputed dividend on 1997 preferred stock .. -- -- -- --
Exercise of 1996 unit options ............. 200,000 -- -- 200,000
Offering costs on 1997 preferred stock .... (152,000) -- -- (152,000)
Imputed value of issuance of warrants in
connection with debt issued .............. 134,000 -- -- 134,000
Imputed dividend on 1997 preferred stock as
a result of warrant repricings ........... -- -- -- --
Conversion of preferred stock and accrued
dividends of $71,000 ..................... 64,000 (71,000) -- --
Common stock issued for satisfaction
of debt .................................. 100,000 -- -- 100,000
Common stock issued for services .......... 18,000 -- -- 18,000
Net loss .................................. -- -- (515,000) (515,000)
Dividends declared ........................ (44,000) 44,000 -- --
------------ ------------ ------------ ------------
Balance - December 28, 1997 ............... 12,191,000 39,000 (7,739,000) 4,504,000
Common stock issued in connection with
Cymedix merger ........................... 1,385,000 -- -- 1,392,000
Issuance of options and warrants in
connection with Cymedix merger ........... 37,000 -- -- 37,000
Conversion of preferred stock and accrued
dividends ................................ 9,000 (11,000) -- --
Common stock issued in connection with
purchase of warrants ..................... -- -- -- --
Common stock and warrants issued in
settlement ............................... 31,000 -- -- 31,000
1997 preferred stock redemption payable ... (760,000) -- -- (760,000)
Net loss .................................. -- -- (5,422,000) (5,422,000)
Dividends declared ........................ (11,000) 11,000 -- --
------------ ------------ ------------ ------------
Balance at December 27, 1998 .............. $ 12,882,000 $ 39,000 $(13,161,000) $ (218,000)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
MEDIX RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the For the Year
Year Ended Ended
December 27, December 28,
1998 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Net loss ................................... $ (5,422,000) $ (515,000)
------------ ------------
Adjustments to reconcile net loss to net
cash provided by operating activities -
Depreciation and amortization ............. 654,000 606,000
Common stock issued for services .......... -- 18,000
Impairment of goodwill .................... 2,040,000 349,000
Basis in assets of divisions sold ......... -- 770,000
Loss on sale of divisions and fixed assets 334,000 --
Imputed interest expense on convertible
debt ..................................... -- 134,000
Change in assets and liabilities -
Accounts receivable, net ................. 2,478,000 (57,000)
Prepaid expenses and other ............... 42,000 (108,000)
Checks written in excess of bank balance 72,000 (65,000)
Accounts payable and accrued expenses ... 864,000 (279,000)
------------ ------------
6,484,000 1,368,000
Net cash provided by operating
activities .......................... 1,062,000 853,000
------------ ------------
Cash flows from investing activities
Proceeds from sale of divisions 1,350,000 --
Business acquisitions (net of cash acquired) (20,000) (2,000,000)
Purchase of property and equipment ......... (35,000) (21,000)
Proceeds from the sale of fixed assets ..... 3,000 57,000
Issuance of notes receivable ............... -- (491,000)
Payments on notes receivable ............... 93,000 --
------------ ------------
Net cash provided by (used in)
investing activities ............... 1,391,000 (2,455,000)
------------ ------------
Cash flows from financing activities
Proceeds from issuance of debt and notes
payable ................................... 43,000 1,000,000
Advances under financing agreement ......... 17,425,000 23,589,000
Payments under financing agreement ......... (19,975,000) (23,364,000)
Principal payments on debt and notes payable (64,000) (1,185,000)
Issuance of preferred and common stock, net
of offering costs ......................... -- 1,720,000
------------ ------------
Net cash (used in) provided by
financing activities ............ (2,571,000) 1,760,000
------------ ------------
Net (decrease) increase in cash ............. (118,000) 158,000
Cash, beginning of period ................... 158,000 --
------------ ------------
Cash, end of period ......................... $ 40,000 $ 158,000
============ ============
</TABLE>
Supplemental disclosure of cash flow information:
Cash paid during the year for interest was $496,000 and $972,000 for
December 27, 1998 and December 28, 1997, respectively.
Continued on next page.
See notes to consolidated financial statements.
F-6
<PAGE>
MEDIX RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Continued from previous page.
Non-cash investing and financing activities:
During 1998, the Company acquired Cymedix Corporation, and received certain
assets and liabilities in exchange for 7,212,987 shares of the Company's
common stock (Note 2). Assets and liabilities acquired included: Cash of
$20,000; Fixed Assets of $21,000; Forgiveness of $298,000 note receivable;
$250,000 Note Payable; and Other Liabilities of $380,000.
During 1998, the Company capitalized as additional paid-in-capital $68,000
of settlements.
During 1998, the Company converted 18.25 units of preferred stock, 5.0
units of 1997 preferred stock and accrued dividends of $11,000 to 1,118,270
shares of common stock.
During 1998, the Company sold two divisions with net book value of goodwill
of $2,038,000 for cash of $1,000,000 and notes receivable of $463,000 (Note
4).
During 1998, the Company accrued a liability to purchase $760,000 of
preferred stock.
Dividends declared payable in common stock were $11,000 and $44,000 for
December 27, 1998 and December 28, 1997, respectively.
During 1997, the Company issued 100,000 shares of common stock valued at
$100,000 for the satisfaction of debt.
During 1997, the Company issued 13,019 shares of common stock valued at
$18,000 for services provided by non-employees.
See notes to consolidated financial statements.
F-7
<PAGE>
MEDIX RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Organization and Significant Accounting Policies
Organization
Medix Resources, Inc. (formerly International Nursing Services, Inc.) and
subsidiaries (the Company) provide temporary nurses (registered and/or
licensed), therapists, nurse assistants, and other caregivers to nursing homes,
other long-term health-care facilities, hospitals, and private residences.
The Company changed its name to Medix Resources, Inc. during the year ended
December 27, 1998 to more accurately reflect the types of services it will be
providing in the future related to the development of healthcare related
software (Note 2).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Medix
Resources, Inc. and its wholly-owned subsidiaries, National Care Resources -
Colorado, Inc., National Care Resources - Texas, Inc., TherAmerica, Inc. and
Cymedix, Lynx Corporation. All intercompany transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Checks Issued in Excess of Bank Balance
As disclosed in Note 6, the Company assigns its receivables with recourse to
financial institutions. These assignments are done and cash is received weekly.
The Company in anticipation of this funding issues checks which are in excess of
recorded deposits. Checks are never issued in excess of the expected funding
amounts.
Concentration of Credit Risk
The Company maintains cash in depository accounts which, at times, may exceed
FDIC insurance limits. At December 27, 1998 balances in excess of FDIC limits
were approximately $37,000.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of accounts receivable. The Company grants credit
to health-care facilities primarily in California, Colorado, New York, and
Texas; however, travel nurses are made available throughout the United States.
The Company periodically performs credit analysis and monitors the financial
condition of its clients in order to minimize credit risk.
<PAGE>
Note 1 - Organization and Significant Accounting Policies (continued)
Financial Instruments
The carrying value of the Company's accounts and notes receivable, accounts
payable and accrued expenses approximate their fair values due to the short-term
nature of the financial instruments.
Due to current interest rates available to the Company for debt being similar to
rates on the Company's remaining maturities, the fair value of existing debt
approximates its carrying value.
Revenue Recognition
Revenue is recognized when services are rendered at the net realizable amounts
expected to be received from payers, patients and others. Amounts reimbursed by
certain payers of healthcare services are subject to examination and adjustment.
These adjustments are accrued throughout the year and adjusted in future periods
as the final settlements are determined. At December 27, 1998, the Company has
recorded a liability of $194,000 for the amount due for the difference between
actual costs and costs to be reimbursed. This liability was recorded as a
reduction in revenue.
Income Taxes
The Company recognizes deferred tax liabilities and assets based on the
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements that will result in taxable or deductible
amounts in future years. The Company's temporary differences result primarily
from the cash to accrual transition adjustment due to a required change from the
cash to accrual basis and depreciation and amortization.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the related assets which
range from five to seven years.
Intangible Assets
Intangible assets are stated at cost, and consist of goodwill, non-compete
agreements and acquisition costs. Goodwill and non-compete agreements are
amortized using the straight-line method over fifteen and three years,
respectively.
Acquisition costs represents costs incurred in connection with the Company's
proposed acquisitions. Acquisition costs will be included in the purchase price
of the acquisitions if successful, or expensed in operations if the acquisitions
are unsuccessful.
<PAGE>
Note 1 - Organization and Significant Accounting Policies (continued)
Intangible Assets (continued)
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recovered. The Company looks primarily to the undiscounted future cash flows
of its acquisition in its assessment of whether or not goodwill and other
intangibles have been impaired.
In 1998, the Company's revenue from its TherAmerica Division decreased
significantly. This was primarily a result of a change in rate structure from
medicare related to physical therapy and also a result decreased revenue as
hospitals and third party users started hiring therapists rather than using
external sources. As a result of these decreases, the Company reviewed its
future projected cash flows from TherAmerica and determined that under the
current market and rate structure, TherAmerica would not generate positive cash
flow after general and administrative expenses, and as a result impaired
goodwill associated with TherAmerica totaling $2,040,000 at December 27, 1998.
Reclassifications
Certain amounts in the 1997 consolidated financial statements have been
reclassified to conform to the 1998 presentation.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expenses for the
years ended December 27, 1998 and December 28, 1997 were approximately $100,000
and $180,000, respectively.
Basic Loss Per Share
The Company adopted the provisions of Statement of Financial Accounting Standard
No. 128, "Earnings Per Share" (FAS 128). All dilutive potential common shares
have an antidilutive effect on diluted net loss per share and therefore have
been excluded in determining net loss per share. The Company's basic and diluted
loss per share are equivalent and accordingly only basic loss per share has been
presented.
Continued Existence
The Company has suffered recurring losses for the past several years and
incurred a net loss for the year ended December 27, 1998 of $5,422,000. In
addition, the Company had a working capital deficit of $2,612,000 and was
delinquent to the Internal Revenue Services for approximately $1,154,000 and
various states for $310,000 in past due payroll taxes, interest and penalties.
These factors, among others, raise substantial doubt about the ability of the
Company to continue as a going concern.
Subsequent to December 27, 1998, the Company paid $450,000 of the amount
representing the unpaid federal payroll taxes, exclusive of interest and
penalties.
<PAGE>
Note 1 - Organization and Significant Accounting Policies (continued)
Continued Existence (continued)
At December 31, 1998, the Company had common stock outstanding of 21,500,724
issuable shares. In addition, warrants and options to acquire common stock
totaled 7,675,069. Also, as discussed in Note 8, the Company may be obligated to
issue 1,800,000 shares of common stock in satisfaction of its liability to
purchase 1997 preferred stock units and 310,000 shares upon conversion of a note
payable. The common stock under conversion features exceeds common stock
authorized by approximately 6,400,000 shares. If the Company is unable to obtain
shareholder approval to increase its authorized stock in excess of 25,000,000
shares, it may be required to purchase stock in the open market to satisfy
outstanding options, warrants and conversion features. If all conversion
features were exercised at the current market price of $.35 this liability would
approximate $2,240,000.
Management's plans in regard to these matters include holding a shareholder
meeting to increase its authorized stock and pursuing a number of alternatives
for additional financing which may include the sale of its remaining divisions
or a public and/or private offering of the Company's securities (Note 12). The
Company is currently holding discussions with investment bankers and financial
institutions related to an offering of securities and new debt financing.
Additionally, during the year ended December 27, 1998 (Note 2), the Company
merged with Cymedix Corporation, which has developed software for the secure
exchange of medical data on the Internet. Cymedix is in its development stage,
and no significant revenue has been generated from its software products. There
can be no assurance that the Cymedix Corporation merger will produce positive
cash flows, or that the Company will be able to obtain any additional future
financing on terms acceptable to the Company.
The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
Note 2 - Acquisitions
Cymedix Corporation
In January 1998, the Company acquired all of the issued and outstanding common
shares of Cymedix Corporation for $2,345,000. To finance the acquisition, the
Company issued 7,212,987 shares of common stock valued at $1,392,000 assumed
liabilities of $630,000 consisting of notes payable of $250,000, accounts
payable and accrued expenses of $380,000 and paid $25,000 in cash and
forgiveness of $298,000 of advances. The merger has been accounted for as a
purchase.
<PAGE>
Note 2 - Acquisitions (continued)
Cymedix Corporation (continued)
The purchase price has been allocated as follows:
Cash $ 5,000
Property and equipment 21,000
Excess of cost over net assets acquired
(goodwill) 2,319,000
----------
$2,345,000
==========
The following table reflects the unaudited historical and pro forma results of
the Company's 1998 acquisitions.
<TABLE>
<CAPTION>
(Unaudited)
Medix Combined
Historical(1) Cymedix Adjustments(1) Totals
------------ ------------ ------------ ------------
Year Ended December 28, 1997
<S> <C> <C> <C> <C>
Revenues ................................... $ 24,875,000 $ -- $ -- $ 24,875,000
============ ============ ============ ============
Net (loss) ................................. $ (515,000) $ (922,000) $ (156,000) $ (1,593,000)
Preferred stock dividends .................. (972,000) (29,000) 29,000 (972,000)
------------ ------------ ------------ ------------
Net (loss) applicable to
common shareholders ....................... $ (1,487,000) $ (951,000) $ (127,000) $ (2,565,000)
============ ============ ============ ============
Basic net (loss) per common
share ..................................... (0.09) (0.05) (.01) (.15)
============ ============ ============ ============
Weighted average shares
outstanding ............................... 16,828,824 16,828,824
============ ============
</TABLE>
(1)Adjustments relate to the amortization of goodwill, and dividends on
convertible preferred stock converted into common stock in the merger have
been eliminated.
Note 3 - Balance Sheet Disclosures
Property and equipment consists of the following:
Furniture and fixtures $ 93,000
Computer hardware and software 491,000
584,000
--------
Less accumulated depreciation (364,000)
--------
$220,000
========
<PAGE>
Note 3 - Balance Sheet Disclosures (continued)
Depreciation expense was $96,000 and $121,000 for the years ended December 27,
1998 and December 28, 1997, respectively.
Intangible assets consist of the following:
Goodwill related to Cymedix $2,319,000
Less accumulated amortization and
impairment (145,000)
---------
$2,174,000
=========
Amortization expense was $558,000 and $485,000 for the years ended December 27,
1998 and December 28, 1997, respectively. As discussed in Note 4, the Company
entered into an agreement to sell two entities at a price which would have
resulted in on a loss of approximately $350,000. Accordingly, the Company
impaired the related carrying value of goodwill on these two entities by
approximately $350,000 in 1997.
Accrued liabilities consist of the following:
Health claims payable $ 254,000
Amount due under Cymedix acquisition 138,000
Amounts due Medicare 194,000
Other 511,000
--------
$1,097,000
==========
At various times during the year the Company was delinquent with payroll tax
deposits. At December 27, 1998, $606,000 was accrued for estimated interest and
penalties.
Note 4 - Sale of Operating Divisions
In February of 1998, the Company sold the balance of the trade receivables of
Paxxon to the purchasor at a discount of $35,000 which has been offset against
the gain on sale of Paxxon.
During the 3rd quarter of 1998, the Company consummated the sale of Ellis and
STAT for approximately $1,000,000 in cash and two note receivables for $325,000
each (Note 5). The Ellis and STAT sale resulted in a loss of $666,000.
In April 1998, the Company entered into an agreement to sell its remaining
staffing service businesses. In connection with the sale, the Company received a
deposit of $350,000. The purchaser defaulted on the terms of the sales agreement
and the Company retained the deposit. This has been reflected as a reduction in
the loss on sale of divisions.
<PAGE>
Note 4 - Sale of Operating Divisions (continued)
In February of 1997 the Company sold its Medicare division for $200,000 in cash
which resulted in a gain of $190,000. The purchasor did not assume any prior
liabilities associated with operations prior to the acquisition. The Company
believes it has adequate reserves for any final adjustment which may occur.
During the 4th quarter of 1997, the Company entered into an agreement to sell
Paxxon Services, Inc. (Paxxon) for $1,468,000. The Company consummated the sale
of Paxxon in the 4th quarter of 1997 for approximately $1,275,000 cash and a
$193,000 note receivable (Note 5). The Paxxon sale resulted in a gain of
$581,000.
Note 5 - Notes Receivable
December 31,
------------------------
1998 1997
----------- ----------
As part of consideration for the sale of
Paxxon (Note 4), the Company received a
note receivable in the amount of
$192,795 that accrues interest at 5.75%.
Two principal and accrued interest
payments of $100 ,000 each are due in
May 1998 and November 1998. Payment
on the note is collateralized by a
pledge of a subordinate interest in the
debtors accounts receivable. $100,000 $193,000
The Company advanced $298,000 to Cymedix
prior to the merger. This amount was
included as part of the purchase price
allocation during 1998 (Note 2). - 298,000
As part of consideration for the sale
of STAT and Ellis (Note 4), the Company
received two note receivables in the
amount of $325,000 each, the second of
which was adjusted downward by $187,000
in accordance with the sale contract,
based on the divisions revenues
subsequent to the sale. Paid in full in
March 1999. 463,000 -
-------- --------
$563,000 $491,000
======== ========
<PAGE>
Note 6 - Line-of-Credit
The Company has entered into an agreement with a financial institution for a
revolving line-of-credit with a maximum principal balance of $5,000,000 which is
limited by a borrowing base calculation of 80% of qualified accounts receivable.
Interest accrues on the outstanding balance at 2% above bank prime (9.75% at
December 27, 1998). Additionally, the Company is required to pay the lender a
loan management fee on a monthly basis equal to 0.35% of the average outstanding
principal balance of the preceding month. Interest and fees paid to this
financial institution for the year ended December 27, 1998 and December 28, 1997
approximated $470,000 and $650,000, respectively. The outstanding principal
balance including accrued interest and fees was $993,000 at December 28, 1997.
The agreement expires May 2000 and can be terminated by the lender without
notice or by the Company with a thirty day notice to the lender and payment of
defined early payment penalties. The loan is collateralized by substantially all
the Company's assets. Subsequent to year end, the line-of-credit was reduced to
$1,500,000.
December 31,
------------------------
1998 1997
----------- ----------
Note payable - corporation, interest accrues
at a bank prime plus 2% (9.75% at December 27,
1998). The note is currently in default as
the maturity date was June 30, 1998. The loan
is collateralized by a security interest in all
of Cymedix assets and is convertible, at the
options of the holder, into approximately
310,000 shares of shares of Medix Resources,
Inc.'s common stock. $250,000 $ -
Note payable - finance company, interest accrues
at 9.67%, principal and interest are payable
in full in August 1999. 39,000 -
-------- ----------
$289,000 $ -
======== ==========
Note 7 - Commitments and Contingencies
Operating Leases
The Company leases office facilities and equipment under non-cancelable
operating leases. Rent expense for the years ended December 27, 1998 and
December 28, 1997 was $318,000 and $289,000, respectively.
Future minimum lease payments under these leases are approximately as follows:
Fiscal Year Ended December Amount
1999 $351,000
2000 248,000
2001 158,000
2002 94,000
2003 54,000
--------
$905,000
========
<PAGE>
Note 7 - Commitments and Contingencies (continued)
Litigation
During the fourth quarter of 1997, an action was filed against the Company in
the Eastern District of New York under the caption New York Healthcare, Inc. v.
International Nursing Services, Inc., et al., alleging, among other things,
breach of contract against the Company and seeking damages in excess of $175,000
plus court costs and attorney fees. The Company filed answers and counterclaims
in this action. The Company intends to vigorously defend this action and to
press its counterclaim. The Company does not expect any possible resolution of
this matter to have a material effect on the Company's financial condition.
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>
Note 8 - Stockholders' Deficit
1996 Private Placement
In July and September 1996, the Company completed a private placement of 244
units, each unit consisting of a share of convertible preferred stock, $10,000
per unit, $1 par value ("1996 Preferred Stock"), a warrant to purchase 8,000
shares of the Company's common stock at $2.50 per share and a unit purchase
option to purchase an additional unit at $10,000 per unit.
Approximately $1,550,000 of the proceeds raised was used to fund the cash
purchase portion of STAT. A shareholder who participated in the placement of the
private placement was paid a commission of $117,000 in 1996 and issued a warrant
to purchase 100,000 shares of common stock at $2.00 per share. The warrant price
was subsequently reduced to $.63 per share in 1997 resulting in an imputed
preferred stock dividend of $375,000.
In 1997 a Unit Holder who held 20 Units exercised their Unit purchase option
resulting in gross proceeds to the Company of $200,000. The Unit holder
immediately converted the preferred to common resulting in the issuance of
257,028 shares of common stock in January 1997.
During 1997, 129.25 units (with accrued dividends) were converted to 3,133,361
shares of common stock. During 1998, an additional 18.25 units were converted
resulting in the issuance of an additional 939,320 shares of common stock in
1998.
1997 Private Placement
In January and February 1997, the Company completed a private placement of
167.15 Units, each unit consisting of one share of convertible preferred stock,
$10,000 per unit, $1 par value, "1997 Preferred Stock", and a warrant to
purchase 10,000 shares of common stock at $1.00 per share. The convertible
preferred stock carries no dividend if the underlying common stock is included
in an effective registration statement within 90 days of the date of the
agreement. After 90 days, if the underlying shares are not included in an
effective registration statement, the dividend rate becomes 18%. In addition,
the preferred stock contains a redemption feature whereby if the underlying
common stock which the preferred shares are convertible into is not effectively
registered by the second anniversary date of each respective unit, the holder at
their option may redeem the preferred shares for $10,000 back plus all accrued
unpaid dividends. The Company raised gross proceeds of $1,672,000 from this
private placement. Commissions of $100,000 were paid to individuals who assisted
in the private placement who are also shareholders of the Company. The Company
received net proceeds of approximately $1,520,000 from the sale of the 1997
preferred stock.
During 1997, 66.65 units were converted to 3,651,867 shares of common stock. In
1998, an additional 5.0 units were converted resulting in the issuance of
178,950 shares of common stock.
<PAGE>
Note 8 - Stockholders' Deficit (continued)
Preferred Redemption Payable
During 1998, the Company entered into an agreement with holders of 76.0 units of
1997 preferred stock to repurchase those units. The total redemption price was
$760,000 and was payable in installments due April 15, May 15 and September 1,
1998. The holders had the option to convert the redemption price into common
stock at $.50 a share. If the Company did not make payments on the required due
dates then the Company is obligated to issue common stock at a price equal to
75% of the NASDAQ Small Cap Market Price. The Company paid $125,000 leaving
$635,000 due under these agreements. Based on the terms of default, this equates
to a price of $.35 per share, the Company may be obligated to issue 1,800,000
shares of common stock in satisfaction of the liability.
Litigation Settlement
During the year ended December 31, 1998, the Company settled a legal dispute in
which it was the defendant by issuing 150,000 shares of common stock.
Warrants
On January 28, 1997, the Company issued a convertible note for proceeds of
$1,000,000 from a shareholder of the Company. Interest accrued on the note at
12.5% and the note matured on January 27, 1998. The Company also issued a
warrant to purchase 200,000 shares of common stock at $1.1875 per share until
July 31, 1999 to the convertible note holder. The Company recorded an imputed
discount on the convertible debenture of $134,000 using the Black-Scholes option
pricing model related to the issuance of the warrant to purchase 200,000 shares
of common stock at $1.1875 per share. The Company amortized the imputed discount
over the expected term of the related debt. On May 28, 1997, the Company paid
$500,000 of principal plus accrued interest to the noteholder, and the exercise
price of the warrant was reduced to $0.27 from $1.19. The reduction of the
exercise price resulted in no material change to the imputed discount due to a
decrease in the market value of the Company's stock. During the forth quarter of
1997 the Company paid the remaining $500,000 plus accrued interest from proceeds
received on the Paxxon Sale.
Stock Options
In May 1988, the Company adopted an incentive stock option plan (ISO), which
provides for the grant of options representing up to 100,000 shares of the
Company's common stock to officers and employees of the Company upon terms and
conditions determined by the Board of Directors. Options granted under the plan
are generally exercisable immediately and expire up to ten years after the date
of grant. Options are granted at a price equal to the market value at the date
of grants, or in the case of a stockholder who owns greater than 10% of the
outstanding stock of the Company, the options are granted at 110% of the fair
market value.
<PAGE>
Note 8 - Stockholders' Deficit (continued)
Stock Options (continued)
In 1994, the Board of Directors established, the Omnibus Stock Plan of 1994
(1994 Plan) and reserved 500,000 shares of the Company's common stock for grant
under terms which could extend through January 2004. All options and warrants
issued under this plan are non-qualified. Grants under the 1994 Plan may be to
employees, non-employee directors, and selected consultants to the Company, and
may take the form of non-qualified options, not lower than 50% of fair market
value. To date, the Company has not issued any options below fair market value
at the date of grant.
In 1996, the Board of Directors established the 1996 Stock Option Plan (the
"1996 Plan") with terms similar to the 1994 Plan. The Board of Directors of the
Company reserved 4,000,000 shares of common stock for issuance under the 1996
Plan.
The following is a summary of options and warrants granted, all of which expire
at various times through 2008.
<TABLE>
<CAPTION>
Number of Options
--------------------
Exercise Exercise
Price Number of Price
Plan Non-Plan Per Share Warrants Per Share
--------- -------- ------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding
December 29,
1996 1,343,125 7,500 $0.63 - $6.00 5,547,604 $1.00 - $5.00
Options/warrants
granted 3,019,155 (1) - $0.25 - $1.00 4,535,126 (2) $0.15 - $2.50
Unit options
canceled - - (4,744,376)(2) $2.50
Cancellations (1,920,935)(1) - $0.63 - $3.25 - $0.27 - $2.50
---------- -------- ------------- --------- -------------
Outstanding
December 28,
1997 2,441,345 7,500 $0.25 - $6.00 5,338,354 $0.15 - $5.00
Options/warrants
granted 2,040,000 123,056(3) $0.02 - $0.50 375,000 $0.12 - $0.19
Cancellations (400,780) - $0.19 - $1.88 (869,400) $1.00 - $4.00
Purchased - - - (1,380,000)(4) $0.63
--------- ------- ------------- ----------- -------------
Outstanding
December 27,
1998 4,080,565 130,550 $0.02 - $6.00 3,463,954 $0.12 - $5.00
========= ====== ============= ========= =============
</TABLE>
<PAGE>
Note 8 - Stockholders' Deficit (continued)
(1)Includes 1,223,326 options that were canceled and reissued at an exercise
price of $0.25 to $1.00 to officers, directors, and employees of the Company.
The options were originally exerciseable between $0.63 and $3.25. Net new
issues were 1,794,729 and net canceled were 696,509.
(2)Includes 287,626 warrants that were canceled and reissued at an exercise
price of $0.25 to an officer of the Company. The warrants were originally
exerciseable at $1.75. Also includes the cancelation of 204 Unit Options in
exchange for the cancellation and reissue of the related warrant with an
exercise price of $0.63. The warrants were previously exerciseable at $2.50.
Millenco note warrants were issued on January 28, 1997 at $1.19, Millenco
also exercised 20 unit options on 1996 preferred stock. On August 15, 1997
the warrants were canceled and reissued at an exercise price of $0.63. The
warrants were originally exerciseable at $1.25. Net new issues were 1,871,500
and net canceled were 163,750.
(3)Inconnection with the acquisition of Cymedix, the Company issued options to
acquire 123,050 shares of stock at approximately $.02. The Company imputed
a value of approximately $37,000 to the options using the Black Scholes
pricing model.
(4)In 1998, the Company purchased 1,380,000 warrants to acquire common stock
at $.63 per share by issuing 175,900 shares of common stock. Since this
transaction involved equity components, no gain or loss was recorded on the
transaction.
The weighted average exercise price of options and warrants outstanding at
December 27, 1998 is $1.03.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Corporation's two stock option plans been
determined based on the fair value at the grant date for awards consistent with
the provisions of SFAS No. 123, the Corporation's net loss and loss per share
would have been increased to the pro forma amounts indicated below:
1998 1997
----------- ----------
Net loss - as reported $(5,422,000) $(515,000)
Net loss - pro forma (5,899,000) (1,963,000)
Basic loss per share - as reported (.26) (.15)
Basic loss per share - pro forma (.28) (.30)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997, respectively: dividend yield of
0%; expected volatility of 173% and 128%, respectively; discount rate of 5.5%
and 5.5%, respectively; and expected lives of 10 years.
<PAGE>
Note 9 - Income Taxes
As of December 27, 1998, the Company has net operating loss (NOL) carryforwards
of approximately 7,500,000 which expire in the years 1999 through 2013. The
utilization of the NOL carryforward is limited to $469,000 on an annual basis
due to an effective change in control which occurred as a result of the 1996
private placement. Due to the existence of net operating losses incurred by the
Company which raise substantial doubt about the Company's ability to continue as
a going concern, the Company has concluded it is more likely than not that it
will not realize its deferred tax asset and accordingly has established a
valuation allowance of $7,500,000.
Note 10 - Loss Per Common Share
In accordance with the SEC's position on preferred stock with convertible
features that are in the money at the time of issuance, the Company has imputed
a value associated with such conversion features and has recorded the value as a
discount on the preferred stock. The Company amortizes the imputed discount on
the preferred stock over the period from issuance of the preferred stock to the
earliest period at which the preferred stock becomes convertible. As the
Company's 1997 preferred stock issuances are immediately convertible, the
Company has amortized the entire imputed discount as a component of dividends on
preferred stock. The Company recorded additional dividends to preferred
stockholders of approximately $553,000 for the years ended December 29, 1997,
which represents an imputed increase to the dividend yield and not a contractual
obligation on the part of the Company to pay such imputed dividends.
The Company has also imputed additional dividends on the 1997 preferred stock of
$375,000 as a result of the repricing of the exercise price associated with the
related warrants issued. The Company repriced the warrant exercise price as an
inducement for holders not to convert their 1997 preferred stock into shares of
common stock.
<PAGE>
Note 10 - Loss Per Common Share (continued)
December 31,
-----------------------
1998 1997
----------- ---------
Net loss $5,422,000 $515,000
Preferred stock dividends based on stated rate 11,000 44,000
Preferred stock dividends based on imputed
discount at issuance - 553,000
Preferred stock dividends imputed associated
with related warrant repricing - 375,000
---------- ---------
Net loss applicable to common stockholders $5,433,000 $1,487,000
========== ==========
Basic loss per common share $ (.26) $ (.15)
========== ==========
Weighted average shares outstanding 20,772,801 9,848,824
========== ==========
Note 11 - Retirement Savings Plan
Effective March 25, 1997, the Company adopted a defined contribution retirement
savings plan which covers all employees age 21 or older with one thousand hours
of annual service. Matching contributions are made by the Company at $0.25 for
each $1 that the employee contributes up to 8% of compensation. Company
contributions vest as follows:
Years of Service Vested
1 10%
2 20%
3 30%
4 40%
5 60%
6 80%
7 100%
Contributions for the years ended December 27, 1998 and December 28, 1997 were
$21,000 and $35,000, respectively.
Note 12 - Subsequent Events (Unaudited)
In 1999, the Company completed a private placement of units consisting of 1999
Series A convertible preferred stock (1999 Preferred Stock) and a warrant. The
Preferred Stock is convertible into common stock at a price of $.25 per share
from December 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.
The warrant entitles the holder to purchase one share of common stock at $1 from
October 1, 1999 to October 1, 2000. The Company has received $250,000 through
April 7, 1999 under its private placement.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
ITEM 10. EXECUTIVE COMPENSATION
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by the above four Items is omitted because the Company
intends to file a proxy statement with the Commission pursuant to Regulation 14A
not later than 120 days after the close of the fiscal year in accordance with
General Instruction E(3) to Form 10-KSB. The information called for by these
Items is incorporated herein by reference to the proxy statement.
- 20 -
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B. The Company will furnish
to its shareholders of record as of the record date for its 1999 Annual
Meeting of Stockholders, a copy of any of the exhibits listed below upon
payment of $.25 per page to cover the costs of the Company of furnishing
the exhibits.
Exhibit No. Description
3.1.1Articles of incorporation of the Company as filed on April 22, 1988 with
the Secretary of State of the State of Colorado, incorporated by reference
to Exhibit 3.1.1 to the Registration Statement on Form SB-2(Reg. No.
33-81582-D), filed with the SEC in July 14,1994 (the "1994 Registration
Statement").
3.1.2Articles of Amendment to Articles of Incorporation of the Company as filed
on May 24, 1988 with the Secretary of State of the State of Colorado,
incorporated by reference to Exhibit 3.1.2 to the 1994 Registration
Statement.
3.1.3Articles of Amendment to Articles of Incorporation of the Company as filed
on February 16, 1990 with the Secretary of State of the State of Colorado,
incorporated by reference to Exhibit 3.1.3 to the 1994 Registration
Statement.
3.1.4Articles of Amendment to Articles of Incorporation of the Company as filed
on August 12, 1994 with the Secretary of State of the State of Colorado,
incorporated by reference to Exhibit 3.1.4 to Amendment No. 1 to the 1994
Registration Statement, filed with the SEC on August 15, 1994.
3.1.5Articles of Amendment to Articles of Incorporation of the Company as filed
on September 12, 1994 with the Secretary of State of the State of Colorado,
incorporated by reference to Exhibit 3.1.5 to Amendment No. 3 to the 1994
Registration Statement, filed with the SEC on September 12, 1994.
3.1.6Certificate of Designation of 1996 Convertible Preferred Stock,
incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the
Registration Statement of the Company on Form S-3, filed with the SEC
October 10, 1996.
3.1.7Articles to Amendment to Articles of Incorporation filed with the
Secretary of State of the State of Colorado on October 9, 1996,
incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the
Registration Statement of the Company on Form S-3 filed with the SEC on
October 10, 1996.
3.1.8Articles of Amendment containing Articles of Designation of 1997
Convertible Preferred Stock, incorporated by reference to Exhibit 3.1.8 to
the Company's Form 10-KSB filed with the SEC on March 31, 1997.
- 21 -
<PAGE>
3.1.9Articles of Amendment to Articles of Incorporation of the Company as filed
on November 14, 1997 with the Secretary of State of the State of Colorado
incorporated by reference to Exhibit 3.1.9 to the Company's Form 10-KSB
filed with the SEC on March 30, 1998.
3.1.10 Articles of Amendment to Articles of Incorporation of the Company as
filed on February 17, 1999 with the Secretary of State of the State of
Colorado, incorporated by reference to Exhibit 3.1.10 to the Company's Form
10-KSB filed with the SEC on March 30, 1998.
3.1.11 Articles of Amendment to Articles of Incorporation of the Company as
filed on March 17, 1999 with the Secretary of State of the State of
Colorado, incorporated by reference to Exhibit 3.1.11 to the Company's Form
10-KSB filed with the SEC on March 30, 1998.
3.2.1Amended and Restated By-Laws of the Company, incorporated by reference to
Exhibit 3.2.2 to Amendment No. 1 to the Registration Statement filed with
the SEC on August 15, 1994.
4.1 Form of specimen certificate for common stock of the Company, incorporated
by reference to Exhibit 4.1. to the Company's Form 10-KSB filed with the
SEC on March 30, 1998.
4.2.1Form of specimen certificate for 1994 Warrants of the Company,
incorporated by reference to Exhibit No. 4.1.3 to Amendment No. 1 to the
1994 Registration Statement, filed with the SEC on August 15, 1994.
4.2.2Form of Warrant Agreement by and between the Company and American
Securities Transfer, Inc., incorporated by reference to Exhibit No. 4.1.4
to Amendment No. 2 to the 1994 Registration Statement, filed with the SEC
on September 1, 1994.
4.3 Form of Representative`s Warrants issued by the Company to the
underwriters' representative in connection with the Company's 1994 public
offering, incorporated by reference to Exhibit No. 4.2 to Amendment No. 3
to the 1994 Registration Statement, filed with the SEC on September 12,
1994 .
4.4 Form of 1996 Unit Warrant, incorporated by reference to Exhibit 4.1 to
Amendment No. 1 to the Registration Statement of the Company on Form S-3
filed with the SEC on October 10, 1996.
4.5 Warrant issued January 28, 1997 to Millenco, L.P, incorporated by reference
to Exhibit 4.9 to the Company's Form 10-KSB filed with the SEC on March 31,
1997.
4.6 Form of 1997 Unit Warrant, incorporated by reference to Exhibit 4.11 to the
Company's Form 10-KSB filed with the SEC on March 31, 1997.
- 22 -
<PAGE>
10.1 Employment Agreement, dated January 7, 1997, by and between John Yeros and
the Company, incorporated by reference to Exhibit 10.22 to the Company's
Form 10- KSB filed with the SEC on March 31, 1997.
10.2.1 Incentive Stock Option Plan, adopted May 5, 1988, authorizing 100,000
shares of common stock for issuance pursuant to the Plan, incorporated by
reference to Exhibit No. 10.2.1 of the 1994 Registration Statement.
10.2.2 Omnibus Stock Option Plan, adopted effective January 1, 1994, authorizing
500,000 shares of common stock for issuance pursuant to the Plan,
incorporated by reference to Exhibit No. 10.2.2 of the 1994 Registration
Statement.
10.2.3 1996 Stock Incentive Plan, adopted by the Company's Board of Directors on
November 27, 1996, authorizing 4,000,000 shares of common stock for
issuance pursuant to the Plan., incorporated by reference to Exhibit 10.2.3
to the Company's Form 10-KSB filed with the SEC on March 30, 1998.
10.3 Asset Purchase and Sale Agreement, dated May 2, 1994 and as amended June 1,
1994, by and between the Company and Paxxon Services, Inc., incorporated by
reference to Exhibit 2.2 to the 1994 Registration Statement.
10.6 Asset Purchase and Sale Agreement dated April 15, 1994 and as amended June
1, 1994, by and between the Company and Mint Energy Corporation, d/b/a the
Nurse Connection, incorporated by reference to Exhibit 2.4 to the 1994
Registration Statement.
10.7 Asset Purchase Agreement between the Company and STAT Health Care Services,
Inc. dated January 10, 1996, incorporated by reference to Exhibit 10.18 to
Form 8-K of the Company, filed with the SEC on January 11, 1996.
10.8 Asset Purchase and Sale Agreement, dated as of April 17, 1996, by and
between Ellis Home Care Services, Inc., JJ Care Resources, Inc. and the
Company, incorporated by reference to Exhibit No. 10.1 to Form 8-K of the
Company, filed with the SEC in April 1996.
10.9 First Amendment to Purchase Agreement, dated as of July 17, 1996, between
the Company, JJ Care Resources, Inc. and STAT Health Care Services, Inc.,
incorporated by reference to Exhibit 10.19 to Form 8-K of the Company,
filed with the SEC on August 1, 1996.
10.10Form of Registration Rights/Purchase Agreement relating to 1996 Unit
Offering, incorporated by reference to Exhibit 10.1 to Amendment No. 1 to
the Registration Statement of the Company on Form S-3, filed with the SEC
on October 10, 1996.
10.10Asset Purchase Agreement, dated as of January 31, 1997 by and among
Colorado Therapists on Call, Inc., Professional HealthCare Providers, Inc.,
CoreStaff, Inc. and the Company, incorporated by reference to Exhibit 2.1
to the Form 8-K of the Company filed on February 14, 1997.
- 23 -
<PAGE>
10.11Form of Registration Rights/Purchase agreement relating to 1997 unit
offering, incorporated by reference to Exhibit 10.21 to the Company's Form
10-KSB filed with the SEC on March 31, 1997.
10.12Loan and Security Agreement, dated May 28, 1997, by and between National
Care Resources - New York, Inc., National Care Resources - Texas, Inc., JJ
Care Resources, Inc., National Care Resources - Colorado, Inc.,
TherAmerica, Inc. and International Nursing Services, Inc. and HCFP
Funding, Inc., incorporated by reference to Exhibit 10.23 in the Company's
Form 10 - QSB for the Quarterly Period ended June 29, 1997.
10.13Agreement of Purchase and Sale (Assets), dated as of September 1, 1997, by
and between National Care Resources, Inc. and Life Source Service, Inc.,
incorporated by reference to Exhibit 2.1 in the Company's Form 10-QSB for
the Quarterly Period ended September 28, 1997, filed with the SEC on
November 14, 1997.
10.14Purchase and Sale Agreement, between International Nursing Services, Inc.,
National Care Resources - New York, Inc., National Health Enterprises - NV,
Inc., and National Health Enterprises, Inc., dated October 19, 1997,
incorporated by reference to Exhibit 99.1 to the Company's Current Report
on Form 8-K filed with the SEC on November 26, 1997.
10.15Agreement and Plan of Merger, dated as of November 17, 1997, among
International Nursing Services, Inc., Cymedix Lynx Corporation and Cymendix
Corporation, incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K filed with the SEC on December 24, 1997.
10.16Amendment No. 1 to Agreement and Plan of Merger, dated as of December 10,
1997, among International Nursing Services, Inc., Cymedix Lynx Corporation
and Cymedix Corporation, incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K filed with the SEC on December 24,
1997.
10.17Stipulation of Settlement between Ellis Home Care Services, Inc. and the
Company, incorporated by reference to Exhibit 10.1 to the Company's Form
10-QSB for the Quarterly Period ended September 28, 1997, filed with the
SEC on November 14, 1997.
10.18Judgment against the Company in favor of Ellis Home Care Services, Inc.,
incorporated by reference to Exhibit 99 to the Company's Form 10-QSB for
the Quarterly Period ended September 28, 1997, filed with the SEC on
November 14, 1997.
10.19Settlement and Release Agreement, dated November 22, 1996, among Cymedix
Corporation, Keith Berman, Global Med Technologies, Inc. and Mick Ruxin,
incorporated by reference to Exhibit 10.19 to the Company's Form 10-KSB,
filed with the SEC on March 30, 1998.
- 24 -
<PAGE>
10.20Loan and Security Agreement, dated February 26, 1996, between MedSoft
OnLine, Inc. and Global Med Technologies, Inc., incorporated by reference
to Exhibit 10.20 to the Company's Form 10-KSB, filed with the SEC on March
30, 1998.
10.21Loan and Security Agreement, dated May 28, 1997, by and between National
Care Resources - New York, Inc., National Care Resources - Texas, Inc., JJ
Care Resources, Inc., National Care Resources - Colorado, Inc. TherAmerica,
Inc. and International Nursing Services, Inc. and HCFP Funding, Inc.,
incorporated by reference to Exhibit 10.23 to the Company's Form 10-QSB,
filed with the SEC on August 13, 1997.
10.22Purchase and Sale Agreement, dated September 14, 1998, among Premier Home
Health Care Services, Inc., National Care Resources-New York, Inc., and
Medix Resources, Inc., incorporated by reference to Exhibit 10.23 to the
Company's Form 8-K, filed with the SEC on September 28, 1998.
21. Subsidiaries of the Company.*
23. Consent of Ehrhardt Keefe Steiner & Hoffman PC, independent certified
public accountants for the Company, to the incorporation by reference of
its report dated April 2, 1999, appearing elsewhere in this From 10-KSB
into the Company's Registration Statement on Form S-2 (reg. No. 333- ).*
27. Financial Data Schedule.*
*Filed herewith
(b) Reports on Form 8-K. The Company filed one report on Form 8-K during
the last quarter of 1998 as follows:
1. Report filed with the SEC on November 13, 1998, reporting under
Item 5 the issuance of a press release announcing the initiation
of an Internet based medical communications network product pilot
project.
- 25 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on behalf by the undersigned,
thereunto duly authorized on April 12, 1999.
INTERNATIONAL NURSING SERVICES, INC.
By: /s/ John P. Yeros
John P. Yeros,
Chairman of the Board and Chief
Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities indicated and on the dates indicated.
Signature Title Date
/s/ John P. Yeros Chairman of the Board
------------- and Chief Executive April 12, 1999
John P. Yeros officer (Principal Executive
Officer)
/s/ David Kinsella
-------------- Controller (Principal
David Kinsella Accounting and Financial
Officer) April 12, 1999
/s/ Thomas J. Oberle Director
---------------- April 12, 1999
Thomas J. Oberle
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements No.
333-12241 and 333-24659 of Medix Resources, Inc. (formerly International Nursing
Services, Inc.) on Forms S-3 of our report dated April 2, 1999 appearing in this
annual report on Form 10-KSB of Medix Resources, Inc. for the year ended
December 27, 1998.
April 12, 1999
Denver, Colorado
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> DEC-27-1998
<CASH> 40,000
<SECURITIES> 0
<RECEIVABLES> 3,153,000
<ALLOWANCES> 509,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,781,000
<PP&E> 584,000
<DEPRECIATION> 364,000
<TOTAL-ASSETS> 5,175,000
<CURRENT-LIABILITIES> 5,393,000
<BONDS> 0
0
0
<COMMON> 22,000
<OTHER-SE> 12,921,000
<TOTAL-LIABILITY-AND-EQUITY> 5,175,000
<SALES> 17,412,000
<TOTAL-REVENUES> 17,412,000
<CGS> 13,462,000
<TOTAL-COSTS> 13,462,000
<OTHER-EXPENSES> 6,158,000
<LOSS-PROVISION> 2,356,000
<INTEREST-EXPENSE> 858,000
<INCOME-PRETAX> (5,422,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,422,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,422,000)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
