form_10q-033102
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 MARCH 31, 2002
[ ] 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 incorporation or organization) (I.R.S. Employer
Identification No.)
420 Lexington Avenue, Suite 1830 New York, New York 10170
(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 May 10, 2002.
Common Stock, $0.001 par value 59,471,124
Class Number of Shares
MEDIX RESOURCES, INC.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2002 (Unaudited) and
December 31, 2001............................................2
Unaudited Consolidated Statements of Operations -- For the
Three Months Ended March 31, 2002 and March 31, 2001.........3
Unaudited Consolidated Statements of Cash Flows -- For the
Three Months Ended March 31, 2002 and March 31, 2001.........4
Notes to Unaudited Consolidated Financial Statements..........5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................8
PART II. Other Information
SIGNATURES...........................................................18
Index to Exhibits....................................................18
MEDIX RESOURCES, INC.
Consolidated Balance Sheets
March 31, December 31,
2002 2001
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 307,000 $ 8,000
Prepaid expenses and other 385,000 344,000
----------- -----------
Total current assets 692,000 352,000
Software development costs, net 679,000 649,000
Property and equipment, net 345,000 365,000
Intangible assets, net 1,735,000 1,735,000
----------- -----------
Total assets $ 3,451,000 $ 3,101,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 81,000 $ 158,000
Convertible note payable 1,000,000 -
Accounts payable 445,000 851,000
Accounts payable-related parties - 166,000
Accrued expenses 431,000 450,000
Accrued payroll taxes interest and penalties 131,000 131,000
----------- -----------
Total current liabilities 2,088,000 1,756,000
----------- -----------
Stockholders' equity
1996 Preferred stock, 10% cumulative convertible, $1
par value; 488 shares authorized; 155 shares issued;
1 share 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;
100 and 375 shares outstanding. - -
Common stock, $.001 par value; 100,000,000
authorized; 58,386,516 and 56,651,409 issued and
outstanding. 58,000 56,000
Dividends payable with common stock 7,000 7,000
Additional paid-in capital 37,035,000 35,341,000
Accumulated deficit (35,737,000) (34,059,000)
----------- -----------
Total stockholders' equity 1,363,000 1,345,000
----------- -----------
Total liabilities and stockholders' equity $ 3,451,000 $ 3,101,000
=========== ===========
MEDIX RESOURCES, INC.
Unaudited Consolidated Statements of Operations
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2002 2001
Revenues $ 10,000 $ 30,000
Direct costs of services 214,000 5,000
----------- -----------
Gross (loss) margin (204,000) 25,000
------------ -----------
Software research and development costs 371,000 279,000
Selling, general and administrative expenses 890,000 1,911,000
----------- -----------
Net loss from operations (1,465,000) (2,165,000)
Other income 1,000 -
Interest expense (10,000) -
Financing costs (203,000) (94,000)
----------- -----------
Net loss (1,677,000) (2,259,000)
Net loss per common share $ (0.03) $ (0.05)
=========== ===========
Weighted average shares outstanding 57,861,294 47,419,671
=========== ===========
MEDIX RESOURCES, INC.
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
2002 2001
Cash flows from operating activities
Net loss $(1,677,000) $(2,259,000)
Adjustments to reconcile net income (loss) to net
cash flows (used in) provided by operating activities
Depreciation and amortization 80,000 110,000
Amortization of discount and warrants-convertible
debt 70,000 67,000
Options and warrants issued in conjunction with
stock issuance, consulting, and for litigation
settlement, respectively 149,000 262,000
Net changes in current assets and current liabilities (42,000) 88,000
------------ -----------
Net cash flows (used in) provided by operating
activities (1,420,000) (1,732,000)
----------- -----------
Cash flows from investing activities
Software development costs incurred (81,000) (164,000)
Purchase of property and equipment (9,000) (64,000)
------------ ------------
Net cash flows (used in) investing activities (90,000) (228,000)
----------- ------------
Cash flows from financing activities
Advances received on convertible note 1,000,000 1,000,000
Payments on capital leases and debt (77,000) (72,000)
Proceeds from the issuance of common stock 882,000 350,000
Net proceeds from exercise of options and warrants 4,000 87,000
----------- -----------
Net cash flows provided by (used in) financing
activities 1,809,000 1,365,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 299,000 (595,000)
Cash and cash equivalents at beginning of period 8,000 1,007,000
----------- -----------
Cash and cash equivalents at end of period $ 307,000 $ 412,000
=========== ===========
Non-cash and investing and financing activities for the three months ended March 31, 2002:
Options and warrants valued at $17,000 for services provided.
Options valued at $132,000 as financing costs issued to an officer for past financial support.
An accrued liability of $590,000 for warrants earned in 2001 was satisfied by issuing the warrants.
In-the-money conversion feature on convertible debt valued at $70,000.
Non-cash and investing and financing activities for the three months ended March 31, 2001:
Conversion of 500 shares of series C preferred stock into 1,000,000 shares of common stock.
Conversion of $100,000 note payable into 111,111 shares of common stock.
Financed insurance policies of $3,000 by issuing a note payable.
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 March 31, 2002 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-K for the fiscal year
ended December 31, 2001. The results of operations for the three months ended
March 31, 2002 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 2002.
2. INTANGIBLE ASSETS
March 31, 2002
Goodwill acquired through the Cymedix acquisition $ 2,369,000
Less accumulated amortization (634,000)
----------
$ 1,735,000
===========
3. EQUITY TRANSACTIONS
The Company received proceeds of $4,000 from the exercise of stock
options resulting in the issuance of 15,000 shares of common stock during the
first quarter of 2002.
Equity Line
The Company has an Equity Line of Credit Agreement dated as of June 12,
2001, which provides that the Company can put to the provider, subject to
certain conditions, the purchase of common stock of the Company at prices
calculated from a formula as defined in the agreement. 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.
During the period January to March 2002, the Company received $882,000,
net of commissions and escrow fees from Eight equity line advances, resulting
in the issuance of 1,720,107 shares of common stock
MEDIX RESOURCES, INC.
Notes to Unaudited Consolidated Financial Statements
Warrants
As of February 18, 2002, the Company executed a Amended and Restated
Common Stock Purchase Warrant obligating the Company to issue up to 7,000,000
warrants under an agreement with a pharmacy management company for the
Company's proprietary software to be interfaced with core medical service
providers, in which one of the Company's audit committee members is a related
party to the pharmacy management company. The agreement provides for 3,000,000
warrants with an exercise price of $.30, 3,000,000 warrants with an exercise
price of $.50, and 1,000,000 warrants with an exercise price of $1.75 all
expiring September 8, 2004. The right to exercise the warrants are earned in
increments based on certain performance criteria. At December 31, 1999,
1,000,000 of the warrants had been earned. In connection with the 1,000,000
warrants earned, the Company recorded expense of $1,364,000 valued using the
Black-Scholes option pricing model, with assumptions of 132% volatility, no
dividend yield and a risk-free rate of 5.5%. No warrants were earned during
2000. During 2001, 850,000 of the warrants had been earned. In connection
with the obligation to issue the 850,000 warrants earned, the Company recorded
expense of $590,000 during the third quarter of 2001 valued using the
Black-Scholes option pricing model, with assumptions of 132% volatility, no
dividend yield and a risk-free rate of 5.5%.
The Company has the obligation to provide 5,150,000 warrants under the
Amended and Restated Common Stock Purchase Warrant in the future if the
performance criteria specified are met.
Convertible Loan
The Company entered into a secured convertible loan agreement with a
Company, dated February 19, 2002, pursuant to which we borrowed $1,000,000 from
WellPoint Health Networks Inc. The loan becomes payable on February 19, 2003,
if not converted into our common stock. The loan earns annual interest at a
floating rate of 300 basis points over prime, as it is adjusted from time to
time, which is also payable at maturity and may be converted into common
stock. Conversion into common stock is at the option of either WellPoint or
Medix at a contingent conversion price. The conversion price will be either
(i) at the price at which additional shares are sold to other private placement
investors if Medix obtains written commitments for at least an additional
$4,000,000 of equity by the close of business on September 30, 2002, from
persons not affiliates of WellPoint, and if such sales are closed by the
maturity date of the loan, or (ii) at a price equal to 80% of the then-current
Fair Market Value (as defined below) if Medix is unable to obtain a written
commitment for the additional equity investment by the close of business on
September 30, 2002 or close the sales by the maturity date. For this purpose,
"Fair Market Value" shall be the average closing price of Medix common stock for
the twenty trading days ending on the day prior to the day of the conversion.
The Company has recorded financing costs during the first quarter of 2002
associated with this loan agreement as a result of the in-the-money conversion
feature totaling $70,000. The loan is secured by the grant of a security
interest in all Medix's intellectual property, including its patent, copyrights
and trademarks. While Medix can cure a default in the repayment of the loan at
the fixed maturity date by the forced conversion of the loan into its common
stock, a cross default, breach of representation or warranty, and bankruptcy or
similar event of default will trigger the foreclosure provision of the security
agreement.
MEDIX RESOURCES, INC.
Notes to Unaudited Consolidated Financial Statements
4. STOCK OPTIONS
During the first quarter of 2002, the Company granted options to purchase
1,007,500 shares at exercise- prices of $.59 to $.94 per share to current
employees and directors of the Company, under the Company's 1999 Stock Option
Plan. During the quarter, 15,000 stock options were exercised.
5. RELATED PARTY TRANSACTIONS
The Company received advances from a related party in 2001 that totaled
$166,000 at December 31, 2001. The entire amount was repaid during February
2002.
6. SUBSEQUENT EVENT
During April 2002, the Company initiated a private placement of its $.001 par
value common stock. A total of 3,452,500 units were placed through May 14,
2002, each consisting of one share of common stock and one warrant. Subscribers
purchased each unit for $0.40 and are entitled to exercise warrant rights to
purchase one share of the common stock of the company at a purchase price of
$.0.50 per share for a five year period on or after September 1, 2002 and prior
to September 1, 2007. The Company received a total of $1,381,000 from this
private placement through May 14, 2002. The Company has committed to register
the above underlying shares in a registration statement with the Securities and
Exchange Commission within 90 days of completion of the offering.
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 Agoura Hills, California, Greenwood Village, Colorado and
Marietta, Georgia. We specialize in the development, marketing and management of
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. Created by a team of healthcare
professionals, Cymedix's Connectivity Services software provides healthcare
institutions, such as health plans, insurers and hospitals, as well as
practicing physicians, with a set of non-invasive technology tools to enable
Internet-based health care transactions among all parties.
Implementation of the Cymedix(R)products 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 will grow 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 ($10,636,000), ($5,415,000) and
($4,847,000) for the years ended December 31, 2001, 2000 and 1999,
respectively. At March 31, 2002 we had an accumulated deficit of
($35,737,000). These losses and negative operating cash flow have caused our
accountants to include a "going concern" qualification in their report in
connection with their audit of our financial statements for the year ended
December 31, 2001.
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
We expect to continue to experience losses, in the near term, as our
connectivity products are not yet deployed in full-scale transaction production
and therefore are not generating significant revenue. Working capital is
required to support the ongoing development and marketing of the Cymedix(R)
service products until such time as revenue generation can support the Company
financially. To address this need, 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 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.
We have recently entered into a secured financing arrangement. The use of
secured borrowings increases the risk of loss of the assets used to secure the
borrowing. If an event of default occurs under the security agreement, the
lender will be able to foreclose on the assets used to secure the borrowing and
sell those assets to the highest bidder. In addition, it is generally believed
that foreclosure sales, which are "distress sales", will not maximize the
proceeds that are paid for the assets being sold. The loan we entered into is
secured by the grant of a security interest in all Medix's intellectual
property, including its patent, copyrights and trademarks. While Medix can
cure a payment default by the forced conversion of the loan into its common
stock, a bankruptcy or similar event of default will trigger the foreclosure
provision of the security agreement.
We are still in the process of gaining experience in marketing
technology-based service products, providing support services, evaluating
demand for products, financing a technology business and dealing with
government regulation of various products. While we are putting together a
team of experienced executives, they have come from different backgrounds and
may require some time to develop an efficient operating structure and corporate
culture for our company. We believe our structure of multiple offices serves
our customers well, but it does present an additional challenge in building our
corporate culture and operating structure.
Our products are in the integration and deployment stages, and have
proven their effectiveness with some sponsors. We have not yet proven our
technology with a significant number of physicians. As a developer of service
products, we will be required to anticipate and adapt to evolving industry
standards and new technological developments. The market for our connectivity
products and services 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.
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The success of our products and services in generating revenue may be
subject to the quality and completeness of the data that is generated and
stored by the physician or other healthcare professional and entered into our
interconnectivity systems, including the failure to input appropriate or
accurate information. Failure or unwillingness by the healthcare professional
to accommodate the required information quality may result in the payor
refusing to pay Medix for its services.
The introduction of connectivity products in that market has been slow
due to the large number of small practitioners who are resistant to change, as
well as the financial investment or workflow interruptions 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
medication 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 currently 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. The limits of that coverage are $2,000,000 in the aggregate and $1,000,000
per occurrence. 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 time and resources.
We have been granted certain patent rights, trademarks and copyrights
relating to its software business. However, patent and intellectual property
legal issues for software programs, such as the Cymedix 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
software from infringement.
Litigation or regulatory proceedings may be necessary to protect our
intellectual property rights, such as the scope of our patent. 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
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 have been notified by a party that it believes our
pharmacy product may infringe on patents that it holds. We have retained
patent counsel who made an investigation and determined, in its opinion, that
our pharmacy product does not infringe on the identified patent. We have
responded to the initial notice based on our counsel's opinion. At this time,
no legal action has been instituted.
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 lose 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,
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. Although we expect these regulations to have the beneficial effect
of spurring adoption of our software products, we cannot predict with any
certainty what impact, if any, these and future healthcare reforms might have
on our software business.
In connection with our equity line of credit financing, we have
registered 9,500,000 shares with the SEC for sale by the providers of the
financing, of which 4,796,763 shares remain available for issuance as of May
10, 2002. The shares are issued to the equity line providers at a floating
price based on a discount to market price of the common stock. As a result, the
lower the stock price around the time the equity line is drawn on, the more
common shares the holder gets. To the extent that the equity line providers
sells our common stock, the market price of the common stock may decrease due
to the additional shares in the market. This could allow the providers to
receive a greater amount of the stock in future draws on our equity line of
credit, the sale of which could further depress the stock price. The
significant downward pressure on the price of our common stock as the equity
line providers receive common stock in connection with draws on our equity line
of credit and then sell material amounts of the stock, could encourage short
sales, which could place further downward pressure on the price of our common
stock. The issuance of the common stock in connection with our equity line of
credit may result in substantial dilution to the common stock holdings of other
holders of our common stock. Any agreement to sell, or convert debt or equity
securities into, common stock at a future date and at a price based on the then
current market price will provide an incentive to the investor or third parties
to sell the common stock short to decrease the price and increase the number of
shares they may receive in a future purchase, whether directly from us or in
the market. Both our equity line of credit and our outstanding $1,000,000
convertible promissory note are priced at a discount to the market price at the
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
time of a future draw or conversion.
As of May 10, 2002, before any adjustment for our recently completed unit
offering of common stock and warrants, we had 59,471,124 shares of common stock
outstanding. As of that date, approximately 25,169,837 shares were issuable
upon the exercise of outstanding options, warrants or other rights, and the
conversion of preferred stock. Most of these shares will be immediately
saleable upon exercise or conversion under registration statements we have
filed with the SEC. The exercise prices of options, warrants or other rights
to acquire common stock presently outstanding range from $0.19 per share to
$4.97 per share. During the respective terms of the outstanding options,
warrants, preferred stock and other outstanding derivative securities, the
holders are given the opportunity to profit from a rise in the market price of
the common stock, and the exercise of any options, warrants or other rights may
dilute the book value per share of the common stock and put downward pressure
on the price of the common stock. The existence of the options, conversion
rights, or any outstanding warrants may adversely affect the terms on which we
may obtain additional equity financing. Moreover, the holders of such
securities are likely to exercise their rights to acquire common stock at a
time when we would otherwise be able to obtain capital on terms more favorable
than could be obtained through the exercise or conversion of such securities.
See also the impact of our equity line of credit financing discussed in the
above paragraph.
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.
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 These Three Months Ended March 31, 2002 and March 31, 2001
Total revenues for the three months ended March 31, 2002, were $10,000
compared with $30,000 for the three months ended March 31, 2001. The decrease
represents a decrease in ADC hardware sales.
Direct costs increased $209,000 from $5,000 at March 31, 2001 to $214,000
at March 31, 2002. The increase reflects expenses incurred by the company for
licenses and service fees incurred in 2002 related to establishment of
infrastructure necessary to provide connectivity services to our customers.
Research and development costs increased approximately $92,000 or 33% from
$279,000 for the three months ended March 31, 2001, to $371,000 for the three
months ended March 31, 2002. This increase represents the Company's continued
efforts in developing internal use software to be used in providing
connectivity solutions to our customers.
Selling, general, and administrative expenses decreased approximately
$1,021,000 or 53% from $1,911,000 for the three months ended March 31, 2001, to
$890,000 for the three months ended March 31, 2002. The decrease is due to
cost cutting measures implemented by the company during 2001, which resulted in
the following decreases from March 31, 2002 to March 31, 2001:
o Salaries and wages, $(381,000).
o Travel and entertainment, $(37,000)
o Consulting fees, $(101,000)
o Legal fees, $(36,000)
o Black Scholes expense related to options and warrants granted to
non-employees for services, $(245,000).
Net loss from continuing operations decreased approximately $700,000 from
$2,165,000 for the three months ended March 31, 2001, to $1,465,000 for the
three months ended March 31, 2002, due to all of the reasons discussed above.
MEDIX RESOURCES, INC.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Financing costs increased in 2002 due to a charge for an in-the-money
conversion feature valued at $70,000 on our $1,000,000 convertible note payable
issued during the quarter to a related entity, in addition to a charge of
$132,000 being recorded for options issued to an officer of the Company for
past financial support. These financing charges in 2002 were offset by
financing costs incurred in 2001 of $94,000 related to a $2.5 million
convertible debt credit facility available that did not exist in 2002.
Total net loss decreased approximately $582,000 from $2,259,000 for the
three months ended March 31, 2001, to $1,677,000 for the three months ended
March 31, 2002, also due to the reasons discussed above.
Liquidity and Capital Resources
We have $307,000 in cash as of March 31, 2002 with net working capital
deficit of $(1,397,000) at March 31, 2002. During the three months ended March
31, 2002, net cash used in operating activities was $1,420,000. During the
three months ended March 31, 2002, we raised $1,886,000 from the exercise of
options and warrants, and the issuance of common stock and issuance of
convertible debt. As noted above, we are presently in negotiations with
institutional sources regarding debt and equity instruments to fund the
Company. Management fully expects to conclude the necessary financing in the
near term. The additional cash generated allowed us to pay down outstanding
accounts payable.
The Company entered into a secured convertible loan agreement with a Company,
dated February 19, 2002, pursuant to which we borrowed $1,000,000 from
WellPoint Health Networks Inc. The loan becomes payable on February 19, 2003,
if not converted into our common stock. Interest is at a floating rate of 300
basis points over prime, as it is adjusted. Conversion into common stock is at
the option of either WellPoint or Medix at a contingent conversion price. The
loan is secured by the grant of a security interest in all Medix's intellectual
property, including its patent, copyrights and trademarks. See footnote 3 to
the Financial Statements.
During April 2002, the Company initiated a private placement of its $.001 par
value common stock. A total of 3,452,500 units were placed through May 14,
2002, each consisting of one share of common stock and one warrant. Subscribers
purchased each unit for $0.40 and are entitled to exercise warrant rights to
purchase one share of the common stock of the company at a purchase price of
$.0.50 per share for a five year period on or after September 1, 2002 and prior
to September 1, 2007. The Company received a total of $1,381,000 from this
private placement through May 14, 2002. The Company has committed to register
the above underlying shares in a registration statement with the Securities and
Exchange Commission within 90 days of completion of the offering.
MEDIX RESOURCES, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On August 7, 2001, a former officer of the Company filed an action in the
District Court of Arapahoe County, Colorado, against the Company and its former
President and CEO. The plaintiff alleges (1) breach of an employment
agreement, a stock option agreement and the related stock option plan, (2) a
duty of good faith and fair dealing, and (3) violation of the Colorado Wage
Claim Act. Plaintiff's seeks unspecified damages to be determined at jury
trail, including interest, punitive damages, plaintiff's attorney fees, and a
50% penalty under the Colorado Wage Claim Act. The Company and its
co-defendants have answered the plaintiff's complaint, denying any liability.
The court set discovery to be completed by July 31, 2002, and the trial to
begin on September 9, 2002. Management of the Company 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 or results of
operation. Currently an estimate of possible loss to the Company if
unsuccessful in defending this action cannot be made.
On December 17, 2001, Plaintiff, Vision Management Consulting, L.L.C.,
filed suit against us in the Superior Court of New Jersey, Law Division - Essex
County, entitled Vision Management Consulting, L.L.C. v. Medix Resources, Inc.,
Docket No. ESX-L-11438-01. The complaint alleges breach of contract, unjust
enrichment, breach of duty in good faith and fair dealing and
misrepresentations by us in connection with a negotiated settlement agreement,
which had resulted from claims between the parties arising out of the
termination of operations by our Automated Design Concepts division earlier in
2001. Plaintiff seeks $150,000 in damages, together with attorneys fees, costs
of suit and interest on judgement, as well as such further relief as the Court
deems just and equitable. We have answered the plaintiff's complaint, denying
any liability and setting forth a counterclaim seeking the award to us of our
costs of defending this action and such further relief as the Court deems just
and proper. 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 results of operations or financial condition. The Court has
appointed a mediator for the case to try to facilitate a settlement between the
parties. Currently an estimate of possible loss to the Company if unsuccessful
in defending this action cannot be made.
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.
MEDIX RESOURCES, INC.
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 January 1,214,492 $611,466 Cornell Section 4(2)
2002 Capital
partners,
LP and
Dutchess
Private
Equities
Fund, LP
Common Stock February 251,396 $139,930 Cornell Section 4(2)
2002 Capital
partners,
LP and
Dutchess
Private
Equities
Fund, LP
Common Stock March 2002 254,219 $131,898 Cornell Section 4(2)
Capital
partners,
LP and
Dutchess
Private
Equities
Fund, LP
Common Stock January 15,000 $3,750 Bill Lyons Section 4(2)
2002
MEDIX RESOURCES, 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.
b. Reports on Form 8-K during the quarter reported on:
1) Form 8-K, filed with the Commission on January 18, 2002, reporting in
Item 5 a press release announcing that the Company will be a
presenter at UBS Warburg's Global Healthcare Conference.
2) Form 8-K, filed with the Commission on March 4, 2002, reporting in Item 5
a press release announcing an investment in the Company of
$1,000,000.
3) Form 8-K, filed with the Commission on March 25, 2002, reporting
in Item 5 a press release announcing an upcoming telephonic
progress report to shareholders and the public.
MEDIX RESOURCES, INC.
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: May 15, 2002
MEDIX RESOURCES, INC.
(Registrant)
/s/ Patricia A. Minicucci
-------------------------
Patricia A. Minicucci
Executive Vice President
(Acting Principal Financial and Chief Financial Officer)