form_10q-063001.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-24768
MEDIX RESOURCES, INC.
(Exact name of issuer as specified in its charter)
Colorado 84-1123311
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
305 Madison Avenue, Suite 2033, New York, New York 10165
(Address of principal executive offices) (Zip Code)
(212) 697-2509
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 10, 2001.
Common Stock, $0.001 par value 50,955,946
Class Number of Shares
MEDIX RESOURCES, INC.
INDEX
-----
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 2001 (Unaudited) and
December 31, 2000
Unaudited Consolidated Statements of Operations -- For the
Three and Six Months Ended June 30, 2001 and June 30, 2000
Unaudited Consolidated Statements of Cash Flows -- For the
Six Months Ended June 30, 2001 and June 30, 2000
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. Other Information
Signatures
MEDIX RESOURCES, INC.
Consolidated Balance Sheets
June 30, December 31,
2001 2000
----------- -----------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 22,000 $ 1,007,000
Accounts receivable, net - 49,000
Prepaid expenses and other 136,000 225,000
----------- -----------
Total current assets 158,000 1,281,000
Software development costs, net 574,000 371,000
Property and equipment, net 420,000 418,000
Intangible assets, net 2,900,000 3,019,000
----------- -----------
Other assets 69,000 -
----------- ----------
Total assets $ 4,121,000 $ 5,089,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 42,000 $ 137,000
Convertible note payable, net of discount of $337,000 563,000 -
Accounts payable 239,000 159,000
Accrued expenses 661,000 591,000
----------- -----------
Total current liabilities 1,505,000 887,000
----------- -----------
Stockholders' equity
1996 Preferred stock, 10% cumulative convertible, $1
par value; 488 shares authorized; 155 shares issued;
1 share outstanding. - -
1997 Convertible preferred stock, $1 par value; 300
shares authorized; 167.15 shares issued; zero shares
outstanding. - -
1999 Series A convertible preferred stock, $1 par
value; 300 shares authorized; 1,832 shares issued;
zero shares outstanding. - -
1999 Series B convertible preferred stock, $1 par
value; 2,000 shares authorized; 1,832 shares issued;
50 shares outstanding - -
1999 Series C convertible preferred stock, $1 par
value; 2,000 shares authorized; 1,995 shares issued;
375 and 875 shares outstanding. - 1,000
Common stock, $.001 par value; 100,000,000
authorized; 50,006,779 and 46,317,022 issued and
outstanding. 50,000 46,000
Dividends payable with common stock 6,000 5,000
Additional paid-in capital 29,877,000 27,573,000
Accumulated deficit (27,317,000) (23,423,000)
----------- -----------
Total stockholders' equity 2,616,000 4,202,000
----------- -----------
Total liabilities and stockholders' equity $ 4,121,000 $ 5,089,000
=========== ===========
MEDIX RESOURCES, INC.
Unaudited Consolidated Statements of Operations
For the For the
Three Months Three Months For the Six For the Six
Ended Ended Months Ended Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Revenues $ - $ 126,000 $ 30,000 $ 190,000
Direct costs of services 28,000 20,000 34,000 23,000
------------ ------------ ------------ ------------
Gross margin (28,000) 106,000 (4,000) 167,000
------------ ------------ ------------ ------------
Software research and
development costs 320,000 557,000 599,000 786,000
Selling, general and
administrative expenses 1,107,000 1,454,000 3,017,000 2,279,000
------------ ------------ ------------ ------------
Net loss from operations (1,455,000) (1,905,000) (3,620,000) (2,898,000)
Other income - (56,000) - (88,000)
Interest expense 180,000 - 274,000 20,000
------------ ------------ ------------ ------------
Net loss from continuing
operations (1,635,000) (1,849,000) (3,894,000) (2,830,000)
Net gain (loss) from
discontinued operations - - - 650,000
------------ ------------ ------------ ------------
Net loss $ (1,635,000) $(1,849,000) $ (3,894,000) $ (2,180,000)
============ ============ ============ ============
Net loss per common
share-continuing operations $ (0.03) $ (0.04) $ (0.08) $ (.08)
Net income (loss) per common
share-discontinued operations - 0.00 0.00 .02
------------ ------------ ------------ ------------
Net loss per common share $ (0.03) $ (0.04) $ (0.08) $ (.06)
============ ============ ============ ============
Weighted average shares
outstanding 49,196,979 41,585,464 48,313,235 37,086,910
============ ============ ============ ============
MEDIX RESOURCES, INC.
Unaudited Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
---------------------------------
2001 2000
----------- -----------
Cash flows from operating activities
Net loss $(3,894,000) $(2,080,000)
Adjustments to reconcile net income (loss) to net
cash flows (used in) provided by operating activities
Gain on sale of staffing business - (823,000)
Depreciation and amortization 252,000 132,000
Amortization of discount and
warrants-convertible debt 223,000 -
Options and warrants issued in conjunction with
stock issuance, and for litigation settlement,
respectively 366,000 137,000
Net changes in current assets and
current liabilities 290,000 579,000
----------- -----------
Net cash flows (used in) provided by operating
activities (2,763,000) (2,055,000)
----------- -----------
Cash flows from investing activities
Proceeds from the disposal of staffing business - 500,000
Software development costs incurred (275,000) -
Purchase of property and equipment (64,000) (683,000)
Business acquisition costs, net of cash acquired - (94,000)
----------- -----------
Net cash flows (used in) investing activities (339,000) (277,000)
----------- -----------
Cash flows from financing activities
Advances received on convertible note 1,500,000 -
Advances (payments) under financing agreement, net - (484,000)
Payments on capital leases and debt (98,000) (57,000)
Proceeds from the issuance of common stock 550,000 -
Net proceeds from exercise of options and warrants 165,000 5,347,000
----------- -----------
Net cash flows provided by (used in) financing
activities 2,117,000 4,806,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (985,000) 2,474,000
Cash and cash equivalents at beginning of period 1,007,000 1,229,000
----------- -----------
Cash and cash equivalents at end of period $ 22,000 $ 3,703,000
=========== ===========
Non-cash and investing and financing activities for the six months ended June 30, 2001:
Conversion of preferred stock into common stock (Note 3).
Conversion of $600,000 note payable into 1,088,534 shares of common stock (Note 3).
Financed insurance policies of $3,000 by issuing a note payable.
Non-cash and investing and financing activities for the six months ended June 30, 2000:
Acquisition of the assets and assumption of certain liabilities of a
business from a related party.
Disposal of staffing business.
$400,000 accrued liability for the purchase of a license.
Conversion of a $400,000 note payable into 800,000 shares of common stock.
Conversion of preferred stock into common stock.
MEDIX RESOURCES, INC.
Notes to Unaudited Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments), which are, in
the opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The unaudited
consolidated financial statements as of June 30, 2001 have been derived from
audited financial statements. The unaudited consolidated financial statements
contained herein should be read in conjunction with the financial statements
and notes thereto contained in the Company's Form 10-KSB for the fiscal year
ended December 31, 2000. The results of operations for the six months ended
June 30, 2001 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 2001.
2. INTANGIBLE ASSETS
June 30, 2001
-------------
Goodwill acquired through the Cymedix acquisition,net $ 1,782,000
Goodwill acquired through the Automated Design
Concepts, Inc. acquisition,net 446,000
License agreement with ZirMed.com,net 672,000
-----------
$ 2,900,000
===========
3. EQUITY TRANSACTIONS
During the first six months of 2001, 500 shares of the 1999 Series C
preferred stock were converted into 1,000,000 shares of common stock.
Additionally, the Company received proceeds of $165,000 from the exercise
of stock options and warrants resulting in the issuance of 657,167 shares of
common stock.
In December 2000, the Company obtained a credit facility under which it
issued a convertible promissory note and common stock purchase warrants. The
credit facility provided that the Company could draw against this facility in
tranches as follows: $750,000 upon closing, which occurred January 10, 2001;
$250,000 within 10 days of an effective registration statement, which occurred
February 13, 2001; and $500,000 draws at the 60th day, 90th day and the 150th
day from the effective registration statement. These advances could be made
only if the Company's common stock price remained above $1 for five business
days prior to the draw. During the draw down periods, the Company drew
$1,500,000 under the convertible note. Advances under the convertible note
bear interest at an annual rate of 10% and provide for semi-annual payments on
July 10, 2001 and January 10, 2002. All outstanding balances under this
arrangement are due and payable no later than January 10, 2002. The note
payable balance is also convertible at $.90 per share for up to $750,000 and
any remaining balance at $1.00 per share. The initial $750,000 draw on this
arrangement has an imputed discount recorded, which was valued at $75,000 for
the in-the-money conversion feature of the first advance. In addition, the
noteholder can force a redemption of the note or any portion thereof, for
either cash or stock at the option of the Company, but if for stock, at a
redemption price of eighty (80%) percent of the Volume Weighted Market Price
(as defined) per common share during the twenty (20) Trading Days ending on the
day of the notice delivered by the holder.
During February 2001, $100,000 of the convertible note was converted into
111,111 shares of common stock. During April and May, a further $500,000 of
the note was redeemed. These redemptions were satisfied by the issuance of
977,423 shares of common stock.
In connection with this credit facility, the Company also agreed to issue
warrants to purchase common stock to the holder of the convertible promissory
note. The Company issued 750,000 warrants in connection with drawdowns under
the convertible note. The warrants have an exercise price of $1.75 and terms
of two years from the date of issuance. The Company also issued 108,333
warrants to purchase common stock to two finders assisting with the
transaction. The finder warrants also have terms of two years and an exercise
price of $1.75.
The Company has imputed values for the 750,000 and 108,333 warrants
issued to the provider of the credit facility and the finders using the
Black-Scholes Option pricing model as is standard accounting convention. The
first 500,000 warrants issued to the provider of the credit facility were
valued at $249,000 and have been treated as a discount on the debt to be
amortized over its remaining life. The related 83,333 warrants issued to
finders were valued at $42,000 and have been recorded as debt issue costs and
amortized over the remaining life of the debt. The values were determined
using the following assumptions; lives of two years, exercise prices of $1.75,
volatility of 117%, no dividend payment and a risk-free rate of 5.5%. In
connection with the second draw under the credit facility, The Company issued
warrants to purchase 25,000 shares issued to the finders. The warrants have
been valued at $12,000 using the Black-Scholes option-pricing model, and have
been treated as a discount on the debt to be amortized over its remaining
life. In connection with the final draw under the credit facility in May, the
Company issued 250,000 warrants to the provider of the credit facility. The
250,000 warrants issued to the provider of the credit facility were valued at
$209,000 using the Black-Scholes pricing model and have been treated as a
discount on the debt to be amortized over its remaining life.
The Company has entered into an Equity Line of Credit Agreement dated as of
June 12, 2001. Under the agreement, the providers of the Equity Line of Credit
have committed to advance to the Company funds in an amount of up to
$10,000,000, as requested by the Company, over a 24-month period in return for
common stock issued by the Company to the providers. However, the amount that
may be advanced at any time is limited as follows:
o There must be thirteen stock market trading days between any two
requests for advances made by the Company.
o The Company can only request an advance if the volume weighted average
price of the common stock as reported by Bloomberg L.P. for the day
before the request is made is equal to or greater than the volume
weighted average price as reported by Bloomberg L.P. for the 22
trading days before a request is made.
o The Company will not be able to receive an advance amount that is
greater than 175% of the average daily volume of its common stock over
the 40 trading days prior to the advance request multiplied by the
purchase price.
The purchase price for each advance will be equal to 91% of the three lowest
daily volume weighted average prices during the 22 trading days before a
request is made.
The Company will receive the amount requested as an advance within 10 days
of its request, subject to satisfying standard closing conditions. The
issuance of shares of common stock to the providers in connection with the
equity line financing will be exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2) thereof. The Company has agreed to register
for immediate re-sale the shares being issued to the providers of the Equity
Line of Credit before any drawdowns may occur. The related Registration
Statement was declared effective by the SEC on August 6, 2001. The Company has
agreed not to file any other registration statements for the public sale of its
securities for ninety days from the effective date of this Registration
Statement, with certain limited exceptions. The Company has also agreed that
its executive officers and directors will not sell any shares of its common
stock during the ten trading days following any advance request by the
Company.
The Company will pay an aggregate of 7% of each amount advanced under the
equity line financing to two parties affiliated with the providers of the
Equity Line of Credit for their services relating thereto. In addition, upon
the effective date of this Registration Statement registering the securities to
be issued under the Equity Line of Credit, the Company will issue to those same
two parties an aggregate of 132,673 shares of common stock, and on December 9,
2001 (180 days after the date of the Equity Line of Credit Agreement) the
Company will issue to them additional shares of our common stock in an amount
equal to $200,000, divided by the purchase price, as described above, for
shares advanced under the equity line financing as if an advance occurred on
such date. In addition, the Company will pay legal fees in an aggregate amount
of $15,000.
During March 2001, the Company received $350,000 from the noteholder for
the issuance of 636,364 shares of its common stock as a private placement
transaction independent of the credit facility. As a part of this common stock
issuance, the Company issued warrants to purchase 636,364 shares of common
stock at $.80 per share with a term of two years from the date of issuance. As
a result of the share issuance, the Company has recorded an expense of $262,000
in the accompanying financial statements, using the Black-Scholes
option-pricing model. The company also issued warrants to purchase 63,636
shares of common stock at $.80 per share with a term of two years to two
finders assisting the transaction. The finders warrants have been valued at
$40,000 using the Black-Scholes pricing model and have been included as equity
issuance costs in the accompanying financial statements.
During May 2001, the Company received $200,000 from the noteholder for
the issuance of 307,692 shares of its common stock, as another private
placement transaction.
4. STOCK OPTIONS
In March 2001, the Company granted options to purchase 484,000 shares at
exercise- prices of $.60 to $.70 per share to current and former employees and
consultants of the Company, under the Company's 1999 Stock Option Plan.
In May and June 2001, the Company granted options to purchase 1,155,000
shares at exercise prices of $.61 to $.92 to current officers and consultants
of the Company, under the Company's 1999 Stock Option Plan.
5. ACCUMULATED DEFICIT
Of the $27,317,000 cumulative deficit at June 30, 2001, the approximate
amount relating to the Company's technology business from inception is
$14,459,000. In addition, a premium of $2,332,000 was paid upon the
acquisition of Cymedix Lynx in 1998, producing a total investment of
$16,791,000 in the technology business to date.
6. RELATED PARTY TRANSACTIONS
During the six month period ended June 30, 2001, the Company had paid
approximately $35,000 to a related party for services. The President of the
Company has an ownership interest in the related party.
7. LITIGATION
During May 2001, the Company settled a lawsuit by paying to the plaintiff
$20,000 and issuing to him, over a period of 18 months, 3-year warrants to
purchase 137,500 shares of the Company's common stock at $0.50. The warrants
issued in this settlement have been valued at $64,000 using the Black-Scholes
pricing model, and have been included as an expense in the accompanying
financial statements.
8. SUBSEQUENT EVENTS
On July 6, 2001, the court approved an agreement entered into by the
Company to settle a lawsuit. The Company agreed to pay to the plaintiff
$35,000 and issue to him 2-year warrants to purchase 195,000 shares of the
Company's common stock at $.50.
During July 2001, the Company received $136,000 as a short term advance
from a related party.
During July 2001, the Company received $200,000 from the noteholder for
the issuance of 296,296 shares of its common stock, as another private
placement transaction.
During August 2001, the Company received $200,000 from the noteholder for
the issuance of 294,118 shares of its common stock, as another private
placement transaction.
On August 6, 2001, the Company made a request for an advance under the
Equity Line. Pursuant to the limitations set forth above, the request was for
the amount, net of commissions, of $182,606 against which 255,000 shares were
issued. The transaction settled on August 13, 2001.
9. NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In June 2001 the Financial Accounting Standards Board issued FASB
Statements 141 and 142. These statements, among other items, deal with the
accounting for business acquisitions and intangible assets including goodwill.
The Company will be adopting these accounting pronouncements on January 1,
2002. Among other items, these new standards will change the accounting for
amortization of goodwill expense and the impairment of goodwill in a manner
different than they have been in the past. Had the statements been applied as
of June 30, 2001, amortization expense of goodwill totaling $119,000 would have
been excluded from the statement of operations and the reported loss for the
six months ended June 30, 2001 would have been approximately $3,775,000 instead
of $3,894,000.
The Company has not yet determined what impact, if any, the
implementation of Statement 142 will have on it's testing for impairment of
goodwill.
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
We are an information technology Company headquartered in New York City,
with offices in Denver, Colorado; Thousand Oaks, California; East Brunswick,
New Jersey; and Atlanta, Georgia. We specialize in the development, marketing
and management of software and connectivity solutions for clinical and business
transactions within the healthcare industry. Through our wholly owned
subsidiary, Cymedix Lynx Corporation, a Colorado corporation, we have developed
Cymedix(R), a unique healthcare communication technology product line. Cymedix(R)
provides instantaneous access to patient clinical, financial and administrative
information. Its software also supplies healthcare institutions, such as health
plans, specialty payors, and hospitals, as well as practicing physicians with a
set of non-invasive technology tools that can be attached to their existing
software applications and provide Internet-enabled transaction capabilities
that facilitate communication among the parties.
Implementation of the Cymedix(R)software suite promises to speed and
improve the efficacy of daily interactions between health caregivers and their
staffs, other ancillary providers (such as labs or pharmacy benefit managers),
insurance companies, hospitals, Integrated Delivery Networks (IDNs) and Health
Management Organizations (HMOs). We believe that the market for robust and
practical healthcare solutions is growing rapidly, and that segment growth will
continue to accelerate as the joined emphases of consumer choice, quality,
administrative service and cost containment ratchets up demand for ever more
efficient and user-friendly methods of delivering quality healthcare.
Forward-Looking Statements and Associated Risks
This Report contains forward-looking statements, which mean that such
statements relate to events or transactions that have not yet occurred, our
expectations or estimates for our future operations and economic performance,
our growth strategies or business plans or other events that have not yet
occurred. Such statements can be identified by the use of forward-looking
terminology such as "might," "may," "will," "could," "expect," "anticipate,"
"estimate," "likely," "believe," or "continue" or the negative thereof or other
variations thereon or comparable terminology. The following paragraphs contain
discussions of important factors that should be considered by prospective
investors for their potential impact on forward-looking statements included in
this Report. These important factors, among others, may cause actual results
to differ materially and adversely from the results expressed or implied by the
forward-looking statements.
We have reported net losses of ($5,415,000), ($4,847,000) and
($5,422,000) for the years ended December 31, 2000, December 31, 1999 and
December 27, 1998. At June 30, 2001 we had an accumulated deficit of
($27,317,000). These losses and negative operating cash flow have caused our
accountants to include a "going concern" qualification, as is standard audit
reporting practice in such circumstances, in their report in connection with
their audit of our financial statements for the year ended December 31, 2000.
In March 2001, the Company divested its web-hosting business and, in
doing so, realized cost savings associated with the furlough of the seven
related staff who were deemed to be nonessential to the Company's core
technology business. In addition, five other administrative and support staff,
not related to the web business but also deemed to be non-essential to the
Company's core technology business, were furloughed as a general cost-saving
measure.
We expect to continue to experience losses, in the near term, as our
software products are not yet deployed in full-scale transaction production mode
and therefore are not generating significant revenue at present. Working
capital is required to support the ongoing development and marketing of the
Cymedix(R)software products until such time as revenue generation can adequately
support the Company. To address this need, in June the Company concluded an
Equity Line financing, the terms of which are outlined in Note No. 3 to the
Unaudited Consolidated Financial Statements. Additional capital will be needed
to fund the projected increased staffing that will be necessary to meet the
Company's commitments in deployment and further software development and to
achieve the projections set forth in our business plan. To meet this need, we
are presently in negotiations with institutional sources regarding a private
placement of equity ("PIPE" transaction).. While there can be no assurance
that additional investments or financings will be available to us as needed,
management fully expects to conclude the necessary financing in the
near-to-medium term. Failure to obtain such capital on a timely basis could
result in lost business opportunities, the sale of the Cymedix(R)business at a
distressed price or the financial failure of our Company.
As our products are only now entering the deployment stage, they have not
yet proven their effectiveness or their marketability on a significant scale.
As a developer of software products, we will be required to anticipate and
adapt to evolving industry standards and new technological developments. The
market for our software products is characterized by continued and rapid
technological advances in both hardware and software development, requiring
ongoing expenditures for research and development, and 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. Our future success, if any, will depend in part upon
our 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 healthcare information systems market. The
introduction of software products in that market has been slow due to the large
number of small practitioners who are resistant to change and the costs
associated with change, particularly in a period of rising pressure to reduce
costs in the market. We are currently devoting significant resources toward the
development of products. There can be no assurance that we will successfully
complete the development of these products in a timely fashion or that our
current or future products will satisfy the needs of the healthcare information
systems market. Further, there can be no assurance that products or
technologies developed by others will not adversely affect our competitive
position or render our products or technologies noncompetitive or obsolete.
Certain of our products provide applications that relate to patient
medical histories and treatment plans. Any failure by our products to provide
accurate, secure and timely information could result in product liability
claims against us by our clients or their affiliates or patients. We maintain
insurance that we believe is adequate to protect against claims associated with
the use of our products, but there can be no assurance that our insurance
coverage would adequately cover any claim asserted against us. A successful
claim brought against us in excess of our insurance coverage could have a
material adverse effect on our 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's time and resources.
We have been granted certain patent rights, trademarks and copyrights.
However, patent and intellectual property legal issues for software programs,
such as the Cymedix(R)products, are complex and currently evolving. Since
patent applications are secret until patents are issued, in the United States,
or published, in other countries, we cannot be sure that we are first to file
any patent application. In addition, there can be no assurance that
competitors, many of which have far greater resources than we do, will not
apply for and obtain patents that will interfere with our ability to develop or
market product ideas that we have originated. Further, the laws of certain
foreign countries do not provide the protection to intellectual property that
is provided in the United States, and may limit our ability to market our
products overseas. We cannot give any assurance that the scope of the rights
we have are broad enough to fully protect our Cymedix(R) software from
infringement.
Litigation or regulatory proceedings may be necessary to protect our
intellectual property rights, such as the scope of our patents. In fact, the
computer software industry in general is characterized by substantial
litigation. Such litigation and regulatory proceedings are very expensive and
could be a significant drain on our resources and divert resources from product
development. There is no assurance that we will have the financial resources
to defend our patent rights or other intellectual property from infringement or
claims of invalidity.
We also rely upon unpatented proprietary technology and no assurance can
be given that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to or disclose
our proprietary technology or that we can meaningfully protect our rights in
such unpatented proprietary technology. We will use our best efforts to
protect such information and techniques, however, no assurance can be given
that such efforts will be successful. The failure to protect our intellectual
property could cause us to loose substantial revenues and to fail to reach our
financial potential over the long term.
The healthcare and medical services industry in the United States is in a
period of rapid change and uncertainty. Governmental programs have been
proposed, and some adopted, from time to time, to reform various aspects of the
U.S. healthcare delivery system. Some of these programs contain proposals to
increase government involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for our customers. Particularly, the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and the
regulations that are being promulgated thereunder are causing the healthcare
industry to change its procedures and incur substantial cost in doing so. In
addition many individual state legislatures have passed or proposed regulations
relating to healthcare reform. We cannot predict with any certainty what
impact, if any, proposals for healthcare reforms and HIPAA required regulations
might have on our software business.
As with any business, growth in absolute amounts of selling, general and
administrative expenses or the occurrence of extraordinary events could cause
actual results to vary materially and adversely from the results contemplated
by the forward-looking statements. Budgeting and other management decisions
are subjective in many respects and thus susceptible to incorrect decisions and
periodic revisions based on actual experience and business developments, the
impact of which may cause us to alter our marketing, capital expenditures or
other budgets, which may, in turn, affect our 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 our control. Although we believe 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 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 us or any other person that our objectives or
plans for the Company will be achieved.
Results of Operation
Comparison of The Three Months Ended June 30, 2001 and June 30, 2000
Total revenues for the three months ended June 30, 2001, were $0 compared
with $126,000 for the three months ended June 30, 2000. The decrease is
comprised of a $58,000 decrease in ADC revenues (ADC was acquired by the
Company in February 2000 and divested in March 2001) and a $68,000 decrease in
Cymedix pilot program fees. Research and development costs decreased
approximately $237,000 or 43% from $557,000 for the three months ended June 30,
2000, to $320,000 for the three months ended June 30, 2001. This decrease
represents the Company's salary reduction and layoff plan that was put into
effect during the first quarter of 2001. This decrease is largely related to
the divested ADC web development and hosting business.
Selling, general, and administrative expenses decreased approximately
$347,000 or 24% from $1,454,000 for the three months ended June 30, 2000, to
$1,107,000 for the three months ended June 30, 2001. The decrease is
attributed to decreases in administrative staffing levels, which occurred
during the first quarter of 2001 and effected second quarter results.
Interest expense increased approximately 100% from $0 for the three months
ended June 30, 2000 to $180,000 for the three months ended June 30, 2001. This
increase is the result of interest expense incurred on the convertible note
that was obtained during January 2001, as well as amortization of discounts
attributed to the convertible note, warrants and offering costs.
Interest income decreased 100% from $56,000 for the three months ended
June 30, 2000 to $0 for the three months ended June 30, 2001. The decrease is
due to a decrease in cash available for investment that was used for operations.
Net loss decreased approximately $214,000 from $1,849,000 for the three
months ended June 30, 2000, to $1,635,000 for the three months ended June 30,
2001, due to the reasons discussed above.
Comparison of The Six Months Ended June 30, 2001 and June 30, 2000
Total revenues for the six months ended June 30, 2001, were $30,000
compared with $190,000 for the six months ended June 30, 2000. The decrease
represents an increase in ADC revenues (ADC was acquired by the Company during
February 2000), offset by a decrease in Cymedix pilot program fees.
Research and development costs decreased approximately $187,000 or 24%
from $786,000 for the six months ended June 30, 2000, to $599,000 for the six
months ended June 30, 2001. This decrease represents the Company's salary
reduction and layoff plan that was put into effect during the first quarter of
2001.
Selling, general, and administrative expenses increased approximately
$738,000 or 32% from $2,279,000 for the six months ended June 30, 2000, to
$3,017,000 for the six months ended June 30, 2001. The increase is attributed
to Black-Scholes expense of $366,000 incurred as a result of a warrant issued
in connection with common stock issuances a legal settlement, increases in
administrative staff, primarily executive management, and increased
depreciation expense related to fixed asset purchases.
Interest expense increased approximately 1270% from $20,000 for the six
months ended June 30, 2000 to $274,000 for the six months ended June 30, 2001.
This increase is the result of interest expense incurred on the convertible
note that was obtained during January 2001, as well as amortization of
discounts attributed to the convertible note, warrants and offering costs.
Interest income decreased 100% from $88,000 for the six months ended June
30, 2000 to $0 for the six months ended June 30, 2001. The decrease is due to
a decrease in cash available for investment that was used for operations.
Net loss from continuing operations increased approximately $1,064,000
from $2,830,000 for the six months ended June 30, 2000, to $3,894,000 for the
six months ended June 30, 2001, due to all of the reasons discussed above.
Net loss increased approximately $1,714,000 from $2,180,000 for the six
months ended June 30, 2000, to $3,894,000 for the six months ended June 30,
2001, due to the reasons discussed above.
Liquidity and Capital Resources
We have $22,000 in cash as of June 30, 2001 with net working capital deficit of
$(1,347,000) at June 30, 2001. During the six months ended June 30, 2001, net
cash used in operating activities was $2,734,000. During the six months ended
June 30, 2001, we raised approximately $715,000 from the exercise of options
and warrants, and the issuance of common stock. As noted above, we are
presently in negotiations with institutional sources regarding debt and equity
instruments to fund the Company. While there can be no assurance that
additional investments or financings will be available to us as needed,
management fully expects to conclude the necessary financing in the
near-to-medium term. Failure to obtain such capital on a timely basis could
result in lost business opportunities, the sale of the Cymedix(R)business at a
distressed price or the financial failure of our Company.
In February of 2000, we sold the assets of our remaining staffing
businesses for $1,000,000. The purchase price was paid with $500,000 cash at
closing and a $500,000 subordinated note, which was payable in May 2001. The
subordinated note was repaid on December 29, 2000.
During December 2000, the Company obtained a credit facility under which
it has borrowed $1,500,000 pursuant to a convertible promissory note. $100,000
of the convertible note bas been converted into 111,111 shares of common
stock. During April and May 2001, a further $500,000 principal amount of the
note was redeemed. The redemption was satisfied by the issuance of 977,423
shares of common stock.
During March 2001, the Company received $350,000 for the issuance of
636,364 shares of its common stock. During May, 2001, the Company received
$200,000 for the issuance of 307,692 shares of its common stock.
Subsequent to June 30, 2001 and through August 10, 2001, the Company
received approximately $22,000 from the exercise of options and warrants,
$200,000 for the issuance of 296,296 shares of its common stock, an additional
$200,000 for the issuance of 294,118 shares of its common stock, and
approximately $136,000 in short-term advances from a related party. The Company
received an additional $182,606, net of commissions, as the first advance under
the equity line.
As of August 10, 2001, we had outstanding 5,136,000 warrants with a total
exercise price of $2,568,000, which are callable for $.01 per warrant upon
thirty days written notice However, there can be no assurance that any of
these warrants will be exercised
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On June 1, 2000, an action was filed in the District Court of the City
and County of Denver, Colorado, against Medix Resources, Inc., and its
wholly-owned subsidiary, Cymedix Lynx Corporation, under the caption Michael J.
Ruxin v. Cymedix Lynx Corporation, and Medix Resources, Inc. (Case
No.00CV2997), alleging that a predecessor company of Cymedix Lynx Corporation
had promised to issue stock options to the plaintiff but had failed to honor
that promise. Plaintiff was claiming the right to receive an option to
purchase 90,000 shares of Medix common stock at approximately $0.44 per share.
Plaintiff sought damages in an amount to be determined at trial, plus
prejudgment interest, costs, including attorney's fees, and such further relief
as the Court deems just and proper. On June 15, 2001, we agreed to settle the
matter by paying the plaintiff $35,000 and issuing to him 2-year warrants to
purchase 195,000 shares of the Company's common stock at $.50. The settlement
was approved by the court on July 6, 2001. The case has been dismissed with
prejudice.
On July 11, 2000, an action was filed in the United States District
Court, Southern District of New York, against Medix Resources, Inc., under the
caption Guli R. Rajani v. Medix Resources, Inc. (00CIV. 5061), alleging that
the Company granted to plaintiff the right to purchase preferred stock
convertible into the Company's common stock and warrants to purchase the
Company's common stock in connection with the Company's private financings
during 1999, and then failed to permit plaintiff to purchase shares in those
financings. Plaintiff sought damages of $12,600,000, plus interest thereon,
alleging that such damages resulted from the Company's failure to let him
purchase securities in the private offerings. On May 2, 2001, we agreed to
settle the matter by paying the plaintiff $20,000 and issuing to him, over a
period of 18 months, 3-year warrants to purchase 137,500 shares of the
Company's common stock at $0.50. The settlement was approved by the Court on
May 3, 2001. The case has been dismissed with prejudice.
On September 27, 2000, an action was filed in the United States District
Court, Eastern District of New York, against Medix Resources, Inc., under the
caption, Yecheskel Munk and The Nais Corporation, v. Medix Resources, Inc.
f/k/a International Nursing Services, Inc. (CV 00 5816), alleging that the
Company had failed to properly and fully convert the Company's convertible
preferred stock held by one of the Plaintiffs, and had failed to maintain the
registration for public sale with the Securities and Exchange Commission of
shares underlying warrants held by both Plaintiffs. Plaintiffs seek damages of
approximately $2,700,000, plus interest thereon. Management intends to
vigorously defend this action and does not expect any resolution of this matter
to have a material adverse effect on the Company's financial condition.
On July 5, 2001, we received a written claim on behalf of a former
employee whose employment terminated in 1998 and related to the temporary
staffing business which was divested under the previous management of the
Company. The claim relates to alleged unpaid severance and options that the
Company is alleged to have wrongfully failed to permit the the employee to
exercise. No amount of damages was claimed in the letter. Based on a
preliminary investigation, we have denied any liability in this matter, and do
not expect any resolution of the matter, if legal action is taken, to have a
material adverse impact on the Company.
From time to time, the Company is involved in claims and litigation that
arise out of the normal course of business. Currently, other than as discussed
above, there are no pending matters that in Management's judgment might be
considered potentially material to us. Management does not believe that any of
the litigation described above will have a material adverse effect on the
Company.
Item 2. Changes in Securities and Use of Proceeds
Set forth below are the unregistered sales of securities by the Company
for the quarter reported on. See Note 6 to the unaudited consolidated
financial statements elsewhere herein for a description of the terms of the
Units of Preferred Stock and warrants.
Security Number of Exemption
Issued Date Shares Consideration Purchasers Claimed
------------ -------- --------- ------------- ---------- ----------
Common Stock April 23, 213,274 Redemption of RoyCap, Section 4(2)
2001 $100,000 Inc.
principal amount
of note
Common Stock May 1, 15,000 Exercise of Private Section 4(2)
2001 options Investor
Common Stock May 10, 614,251 Redemption of RoyCap, Section 4(2)
2001 $300,000 Inc.
principal amount
of note
Common Stock May 31, 149,898 Redemption of RoyCap, Section 4(2)
2001 $100,000 Inc.
principal amount
of note
Common Stock May 23, 307,692 $200,000 RoyCap, Section 4(2)
2001 Inc.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Included as exhibits are the items listed on the Exhibit Index.
The Registrant will furnish a copy of any of the exhibits listed
below upon payment of $5.00 per exhibit to cover the costs to the
Registrant of furnishing such exhibit.
None
b. Reports on Form 8-K during the quarter reported on:
1) Form 8-K, filed with the Commission on April 5, 2001, reporting
in Item 5 a press release announcing the signing of a definitive
agreement with Kaiser Permanente Georgia for participation in a
physician connectivity program.
2) Form 8-K, filed with the Commission on April 11, 2001, reporting
in Item 5 a press release announcing the licensing of the
Company's Cymedix(R) Universal Interface (CUI) to iScribe, Inc.
3) Form 8-K, filed with the Commission on April 23, 2001, reporting
in Item 5 a press release announcing the Company's role in
handheld and wireless device integration for Wellpoint Pharmacy
Management.
4) Form 8-K, filed with the Commission on May 24, 2001, reporting in
Item 5 a press release announcing the appointment of Louis E.
Hyman as permanent Chief Technology Officer.
5) Form 8-K, filed with the Commission on June 12, 2001, reporting
in Item 5 Information About the Company's Current Executive
Officers.
6) Form 8-K, filed with the Commission on June 22, 2001, reporting
in Item 5 a press release announcing the private placement of an
equity line financing with Cornell Capital Partners, L.P., a New
York based institutional investment fund which provides finance
to companies in emerging growth markets.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: August 13, 2001
MEDIX RESOURCES, INC.
(Registrant)
/s/ Gary L. Smith
Gary L. Smith
Executive Vice President
(Principal Financial and Chief Financial Officer)