form-10q_033103
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, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to ___________
Commission File Number: 0-24768
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MEDIX RESOURCES, INC.
(Exact name of issuer as specified in its charter)
Colorado 84-1123311
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
420 Lexington Avenue, Suite 1830 New York, New York 10170
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(Address of principal executive offices) (Zip Code)
(212) 697-2509
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2of the Exchange Act).
[ ] Yes [ X] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 10, 2003.
Common Stock, $0.001 par value 80,767,065
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Class Number of Shares
MEDIX RESOURCES, INC.
INDEX
PART I. Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2003 (Unaudited) and December 31, 2002
Unaudited Consolidated Statements of Operations -- For the Three Months Ended March 31, 2003 and March 31, 2002
Unaudited Consolidated Statements of Cash Flows -- For the Three Months Ended March 31, 2003 and March 31, 2002
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. Other Information
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Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Index to Exhibits
MEDIX RESOURCES, INC.
Consolidated Balance Sheets
March 31, December 31,
2003 2002
------------ ------------
(Unaudited)
Assets
Current assets
Cash .................................................... $ 38,000 $ 1,369,000
Stock subscription receivable ........................... -- 76,000
Note receivable ...................................... 25,000 --
Prepaid expenses and other .............................. 391,000 478,000
------------ ------------
Total current assets ................................ 454,000 1,923,000
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Non-current assets
Property and equipment, net ............................. 255,000 265,000
Goodwill, net ........................................... 1,943,000 1,605,000
------------ ------------
Total non-current assets ............................ 2,198,000 1,870,000
------------ ------------
Total assets .............................................. $ 2,652,000 $ 3,793,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Notes payable ........................................... $ 134,000 $ 175,000
Accounts payable ........................................ 1,256,000 961,000
Accounts payable - related parties ...................... 115,000 130,000
Accrued expenses ........................................ 268,000 736,000
Deferred revenue ........................................ 228,000 173,000
------------ ------------
Total current liabilities ........................... 2,001,000 2,175,000
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Commitments and contingencies
Stockholders' equity
1996 Preferred stock, 10% cumulative convertible, $1
par value, 488 shares authorized, 155 shares issued,
1 share outstanding, liquidation preference $19,000 .... -- --
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, 300 shares issued,
zero shares outstanding ................................ -- --
1999 Series B convertible preferred stock, $1 par
value, 2,000 shares authorized, 1,832 shares issued
and zero shares outstanding ............................ -- --
1999 Series C convertible stock, $1 par value, 2,000
shares authorized, 1,995 shares issued, 75 and 75
shares outstanding, liquidation preference $75,000
and $75,000 ............................................ -- --
Common stock, $0.001 par value, 125,000,000 shares
authorized, 80,767,065 and 77,160,817 issued and
outstanding, respectively .............................. 81,000 77,000
Dividends payable with common stock ..................... 9,000 9,000
Additional paid-in capital .............................. 46,092,000 44,605,000
Accumulated deficit ..................................... (45,531,000) (43,073,000)
------------ ------------
Total stockholders' equity .......................... 651,000 1,618,000
------------ ------------
Total liabilities and stockholders' equity ................ $ 2,652,000 $ 3,793,000
============ ============
See notes to consolidated financial statements.
MEDIX RESOURCES, INC.
Unaudited Consolidated Statements of Operations
For the Three Months Ended
March 31,
----------------------------
2003 2002
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Revenues .............................. $ -- $ 10,000
------------ ------------
Costs and expenses
Software and technology costs ....... 393,000 585,000
Selling, general and administrative
expenses .......................... 1,927,000 890,000
Costs associated with terminated
acquisition ....................... 142,000 --
------------ ------------
Total operating expenses ........ 2,462,000 1,475,000
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Other income (expense)
Other income ........................ 9,000 1,000
Interest expense .................... (3,000) (10,000)
Financing costs ..................... (1,000) (203,000)
------------ ------------
Total other (expense) income .... 5,000 (212,000)
------------ ------------
Loss from continuing operations and net
loss .................................. $ (2,457,000) $ (1,677,000)
------------ ------------
Basic and diluted weighted average
common shares outstanding ............ 79,181,065 57,861,294
============ ============
Basic and diluted loss per common share $ (0.03) $ (0.03)
============ ============
See notes to consolidated financial statements
MEDIX RESOURCES, INC.
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended
March 31,
--------------------------
2003 2002
----------- -----------
Cash flows from operating activities
Net loss ............................. $(2,457,000) $(1,677,000)
----------- -----------
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization ....... 21,000 80,000
Amortization of discount and
warrants-convertible debt ......... -- 70,000
Common stock, options and warrants
issued for settlements, consulting
services and financing costs ....... 72,000 149,000
Net changes in current assets and
current liabilities ................ 56,000 (42,000)
----------- -----------
149,000 257,000
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Net cash used in operating
activities ...................... (2,308,000) (1,420,000)
----------- -----------
Cash flows from investing activities
Software development costs incurred .. -- (81,000)
Purchase of property and equipment ... (1,000) (9,000)
Note Receivable ...................... (25,000) --
Business acquisition costs, net of
cash acquired ....................... (300,000) --
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Net cash used in investing
activities ...................... (326,000) (90,000)
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Cash flows from financing activities
Proceeds from issuance of debt and
notes payable ....................... -- 1,000,000
Principal payments on debt and notes
payable ............................. (68,000) (77,000)
Issuance of preferred and common
stock, net of offering costs ........ 1,209,000 882,000
Proceeds from the exercise of options
and warrants ........................ 162,000 4,000
----------- -----------
Net cash provided by financing
activities ...................... 1,303,000 1,809,000
----------- -----------
Net increase (decrease) in cash ........ (1,331,000) 299,000
Cash - beginning of period ............. 1,369,000 8,000
----------- -----------
Cash - end of period ................... $ 38,000 $ 307,000
=========== ===========
Non-cash and investing and financing activities for the three months ended March
31, 2003:
Options and warrants valued at $72,000 for services provided.
100,000 shares of $0.001 par value common stock valued at $48,000 issued
with cash of $300,000; the total being the purchase price of the ePhysician
Assets.
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.
See notes to consolidated financial statements
MEDIX RESOURCES, INC.
Notes to 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 presented. The unaudited
consolidated balance sheets as of March 31, 2003 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, 2002. The results of operations for the three months ended March 31, 2003
are not necessarily indicative of the results for the entire fiscal year ending
December 31, 2003 or for any other interim period in the fiscal year ending
December 31, 2003.
2. Acquisition Of Assets
On March 4, 2003 the Company purchased from Comdisco Ventures, Inc.,
substantially all the assets formerly used by ePhysician, Inc. in its software
and technology business. Prior to its cessation of operations in 2002,
ePhysician developed and provided ePhysician Practice, a suite of software
products that enables physicians to prescribe medications, access drug reference
data, schedule patients, view formulary information, review critical patient
information and capture charges at the point of care using a Palm OS-based
handheld device and the Internet.
The aggregate purchase price was $348,000, including $300,000 of cash and
100,000 shares of common stock valued at $48,000. The purchase price was
allocated to the assets purchased based on the fair market values at the date of
acquisition as follows:
Computer equipment ................ $ 10,000
Goodwill .......................... 338,000
--------
$348,000
========
3. Goodwill
March 31, December 31,
2003 2002
----------- -----------
Goodwill .......................... 2,577,000 $ 2,239,000
Less accumulated amortization ..... (634,000) (634,000)
Net Goodwill ...................... $ 1,943,000 $ 1,605,000
=========== ===========
Total Net Goodwill at March 31, 2003 includes $1,605,000 related to Goodwill
acquired through the Cymedix acquisition. The balance of $338,000 relates to the
March 2003 acquisition of assets formerly owned by ePhysician, Inc. and has been
assigned to the same reporting unit as the Cymedix goodwill.
4. Equity Transactions
Acquisition of ePhysician Assets
On March 4, 2003, the Company completed the acquisition of certain assets
previously used in the ePhysician business for total consideration of $348,000
comprised of $300,000 in cash and 100,000 shares of the Company's common stock.
The common stock was valued at $48,000 based on the share price on the date of
the closing.
Options and Warrant Exercise
During the quarter ended March 31, 2003, the Company received proceeds of
$162,000 from the exercise of stock options and warrants resulting in the
issuance of 355,000 shares of common stock. In the comparable period of 2002,
the Company received proceeds of $4,000 from the exercise of stock options and
warrants resulting in the issuance of 15,000 shares of common stock.
Warrants
The company issued warrants to a shareholder to purchase 1,305,283 shares
of common stock at an exercise price of $0.50 that expire February 5, 2006, and
have been treated as a capital transaction with no net value being recorded to
equity.
At March 31, 2003 the Company had the obligation to provide 5,150,000
warrants under the Amended and Restated Common Stock Purchase Warrant with
WellPoint Pharmacy Management if certain performance criteria specified are met.
No additional warrants were earned during the first quarter of 2003. Had all of
the remaining performance criteria been met at March 31, 2003, the fair value of
the related warrants and resulting expense would have been approximately
$397,000, using the Black-Scholes option pricing model, with assumptions of 104%
volatility, no dividend yield and a risk-free rate of 5.5%.
Private Placements
During January and February 2003, the Company completed a private placement
of its $.001 par value common stock and raised proceeds of $1,209,000, net of
$51,000 in fees. A total of 3,151,250 units were placed, 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 January 1, 2003 and prior to January 1, 2008. The Company
registered the above shares and shares covered by the warrants in a registration
statement with the Securities and Exchange Commission.
During April 2003, the Company completed the private placement of $400,000
in convertible notes. The notes have an 18-month term, bear interest at 7% per
annum and are convertible into common stock at a price of $0.15 per share. The
Company received a total of $351,000 from this placement net of offering costs
of $49,000. In connection with this transaction, the Company issued warrants to
purchase 1.5 million shares of common stock at an exercise price of $0.01 per
share, which we valued at $400,000 based on running a Black Scholes calculation
limited to the amount of proceeds received of $400,000. The Company will record
this transaction and related discount of $400,000, which will be amortized as
finance costs over the next 18 months. The Company has committed to register the
shares underlying the convertible notes in a registration statement to be filed
with the Securities and Exchange Commission within 90 days of completion of the
offering.
5. Stock Options
During the first quarter of 2003, the Company issued to employees options
to purchase 615,000 shares of common stock at exercise prices ranging from $0.29
to $0.68. Such options have been granted under the 1999 Plan. The Black-Scholes
option-pricing model estimates the options fair value to be $289,000 by
considering the following assumptions: the options exercise price and expected
life, the underlying current market price of the stock and expected volatility,
expected dividends and the risk free interest rate corresponding to the term of
the option.
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 plan. Had compensation cost for the Company's options issued to
employees been determined based on the fair value at the grant date for awards
consistent with the provisions of SFAS No. 123, as amended by SFAS No. 148, the
Company's net loss and basic loss per common share would have been changed to
the pro forma amounts indicated below:
For the Three Months Ended
March 31,
---------------------------
2003 2002
----------- ------------
Net loss - as reported ............................... $(2,457,000) $ (1,677,000)
Deduct recorded employee compensation expense ..... -- --
Add fair value of employee compensation expense ... (289,000) (498,000)
----------- ------------
Net loss per common share - pro forma ................ $(2,746,000) (2,175,000)
Basic loss per common share - as reported ............ $ (0.03) $ (0.03)
Basic loss per common share - pro forma .............. $ (0.04) $ (0.04)
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 the Three Months Ended
March 31,
---------------------------
2003 2002
----------- ------------
Approximate risk free rate ........................... 4.50% 4.50%
Average expected life ................................ 5 years 5 years
Dividend yield ....................................... 0% 0%
Volatility ........................................... 97% 95%
6. Related Party Transactions
During February 2002, the Company repaid an advance from a related party in
the amount of $166,000. During the third quarter of 2002, the Company received
$130,000 from a related party in the form of a loan. At March 31, 2003, $115,000
of that loan remains outstanding. Payment terms agreed with the related party
call for repayment of the loan in May 2003.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company develops and intends to market healthcare communication technology
products for electronic prescribing of drugs, laboratory orders and laboratory
results. These technologies are designed to provide connectivity of medical
related information between point-of-care providers ("POCs") (i.e. physician or
caretaker) and specific healthcare value chain intermediaries ("HVCIs") (e.g.
pharmacy, lab, pharmacy benefit managers, pharmaceutical companies, etc.). The
Company's technology is designed to improve the accuracy and the efficiency of
the processes of drug prescribing and the ordering of laboratory tests and the
receiving of laboratory results.
Forward-Looking Statements and Associated Risks
This Report contains forward-looking statements, which 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, as
well as other factors described in our Annual Report on Form 10-K for the year
ended December 31, 2002, 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 ($9,014,000), ($10,636,000) and ($5,415,000)
for the years ended December 31, 2002, 2001, and 2000, respectively, and a net
loss of ($2,457,000) for the three months ended March 31, 2003. At March 31,
2003 we had an accumulated deficit of ($45,531,000). 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, 2002.
We expect to continue to experience losses, in the near term, until such
time as our technologies can be successfully deployed with physicians and
produce revenue. The continuing development, marketing and deployment of our
technologies will depend upon our ability to obtain additional financing. We are
funding our operations now through the sale of our securities. There can be no
assurance that additional investments or financings will be available to us on
favorable terms, or at all, as needed to support the development and deployment
of our technologies. Failure to obtain such capital on a timely basis could
result in lost business opportunities, the sale of our technology at a
distressed price or the financial failure of our company. We currently have
125,000,000 shares of common stock authorized for issuance under our certificate
of incorporation, and as of March 31, 2003, had 80,767,065 outstanding shares of
common stock and 36,247,226 shares of common stock reserved for issuance under
existing options, warrants and outstanding shares of our convertible preferred
stock. We intend to request that our shareholders approve, at a special meeting
of shareholders, an increase in the number of shares of common stock that we are
authorized to issue. However, we cannot predict the outcome of that vote. If our
shareholders do not approve of the increase in the number of shares of common
stock that we are authorized to issue, we will be unable to raise additional
capital.
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 professionals 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 our 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 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 has made a preliminary investigation and determined that our product
does not infringe on the identified patents. 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.
As of April 30, 2003, we had 80,767,065 shares of common stock outstanding.
As of that date, approximately 33,283,059 shares were issuable upon the exercise
of outstanding options, warrants or other rights, and the conversion of
preferred stock and convertible debentures. 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 $0.01 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.
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 Operations
At present we are not receiving revenue from the sale of our products.
Software and technology costs totaled $393,000 during the quarter ended
March 31, 2003, a $192,000 decrease over the prior year's spending of $585,000.
In 2002, technology costs included $80,000 in license fees related to
technologies that are no longer in use and $50,000 of amortized capitalized
development expenses. Effective the end of 2002, the Company will not be
capitalizing its software development expenses. In 2003, software development
salaries and benefits were approximately $62,000 lower than the comparable
period in 2002 reflecting a reduction in technology staffing.
Selling, general, and administrative expenses totaled $1,927,000 during the
quarter ended March 31, 2003, versus $890,000 in the comparable period last
year. Consulting expenses amounted to $447,000 as the Company increased spending
to develop marketing relationships in newly defined market segments. Fees for
legal services amounted to $246,000 and primarily relate to Securities and
Exchange Commission registration requirements and activities associated with
various business development initiatives. Accounting expenses in the quarter of
$240,000 are primarily due to activities in support of Securities and Exchange
Commission filings and business development initiatives.
The comparison to prior year is also impacted by the funding of corporate
advertising initiatives in 2003 ($51,000) and 2002 capitalized software
development expenses ($81,000). These increases are somewhat mitigated by lower
expenses for occupancy ($80,000) and compensation ($58,000) during the quarter
ended March 31, 2003.
Costs associated with terminated acquisitions amount to $142,000 and relate
to the write-off of certain expenses associated with the PocketScript
acquisition. We entered into an agreement to acquire PocketScripts, LLC in
December 2002; the agreement was terminated in March 2003.
Other income/expense reflects a net income of $5,000, which is
substantially improved versus the prior year expense of $212,000. The 2002 net
expense included $132,000 being recorded for options issued to an officer of the
Company for past financial support in addition to a charge for an in-the-money
conversion feature valued at $70,000 on a $1,000,000 convertible note payable.
Net loss for the three months ended March 31, 2003 total $ 2,457,000, as
compared with a net loss of $1,677,000 for the three months ended March 31,
2002.
Liquidity and Capital Resources
In the current quarter, the Company provided advances of $25,000 pursuant
to a promissory note to a company that has technology that the Company is
potentially interested in acquiring (either whole or in part). No agreement
exists for the acquisition of this technology, and there can be no assurance
that the Company will desire to acquire the technology or that an agreement can
be reached with this Company.
As of March 31, 2003 the Company has $38,000 in cash and a net working
capital deficit of ($1,547,000). During the three months ended March 31, 2003,
our cash and cash equivalents decreased by $1,331,000. Net cash used in
operating activities was $2,308,000 reflecting our net loss of $2.5 million.
During the three months ended March 31, 2003, net cash used in investing
activities was $326,000, reflecting the $300,000 cash part of the ePhysician
assets acquisition and the $25,000 Note Receivable referred to in the prior
paragraph.
During the three months ended March 31, 2003, the Company raised
$1,303,000, net, from financing activities; reflecting $1,209,000 from the
issuance of common stock net of offering costs of $51,000 and $162,000 from the
exercise of options. These financing amounts were partially offset by principle
payments on debt of $ 68,000.
We are funding our operations now through the sale of our securities. There
can be no assurance that additional investments or financings will be available
to us on favorable terms, or at all, as needed to support the development and
deployment of our technologies. Failure to obtain such capital on a timely basis
could result in lost business opportunities, the sale of our technology at a
distressed price or the financial failure of our company. See "Forward Looking
Statements and Associated Risks".
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We do not hold or engage in transactions with market risk sensitive
instruments.
Item 4. Controls and Procedures
Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Securities Exchange Act Rule 13a-14. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to us (including our consolidated
subsidiaries) required to be included in our periodic SEC filings. There have
been no significant changes in our internal controls or in other factors that
could significantly affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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
below, there are no pending matters that in management's judgment might be
considered potentially material to us.
Tufts Associated Health Plans, Inc. has threatened to commence litigation
against us for allegedly breaching the Services and Support Agreement between
Tufts and the Company. Tufts has alleged that because of the termination of the
merger agreement between the Company and PocketScript, the Company is unable to
provide the products and services as contemplated by the Services and Support
Agreement and is in "material breach" thereunder. We disagree with Tufts'
allegations. At this time, litigation has not been commenced.
A party has notified us that it believes our pharmacy product may infringe
on patents that it holds. We have retained patent counsel who has made a
preliminary investigation and determined that our product does not infringe on
the identified patents. At this time no legal action has been instituted.
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.
Security Number of Exemption
Issued Date Shares Consideration Purchasers Claimed
------------- ---------- ------------ --------------- ------------- ------------
Common Stock A total of
and Warrants 2
covering January accredited
Common Stock 2003 355,000 $ 162,000 investors Section 4(2)*
Common Stock February 6,302,500 $ 1,260,500 A total of Section 4(2)*
and Warrants 2003 9
covering accredited
Common Stock investors
Common Stock March Purchase of 1 accredited Section 4(2)
2003 assets from investor
100,000 Comdisco
Ventures, Inc.**
* The Company issued the identified securities in private placement
transactions to accredited investors who invested in the Company. The
6,657,500 shares of common stock including those covered by warrants were
not registered under the Securities Act of 1933 (the "Act") for purposes of
the initial issuance of the shares to the investors. For purposes of the
initial issuance, the Company relied upon the exemption from registration
afforded by Section 4(2) of the Act. To support such exemption, the
investors made various investment representations to the Company and the
certificates representing the warrants and the shares of common stock bore
a restrictive legend.
** In March 2003, the Company acquired certain assets from Comdisco Ventures,
Inc. that were formerly used by ePhysician, Inc. The Company paid $300,000
in cash and issued 100,000 shares of its common stock as consideration for
the acquisition. The 100,000 shares of common stock were not registered
under the Securities Act of 1933 (the "Act") for purposes of the initial
issuance of the shares. For purposes of the initial issuance, the Company
relied upon the exemption from registration afforded by Section 4(2) of the
Act. To support such exemption, various investment representations were
made to the Company and the certificates representing the shares of common
stock bore a restrictive legend.
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:
o Form 8-K, dated January 13, 2003, reporting in Item 5 a press release
regarding an alliance with PocketScript, LLC and Research in Motion;
o Form 8-K, dated January 21, 2003, reporting in Item 5 a press release
regarding an alliance with PocketScript, LLC and Blue Cross Blue
Shield of Massachusetts;
o Form 8-K, dated February 3, 2003, filing a copy of the Merger Agreement
between the Company and PocketScript, LLC;
o Form 8-K, dated February 6, 2003, reporting in Item 5 a press release
regarding an initiative between the Company and Tufts Health Plans;
o Form 8-K, dated February 10, 2003, reporting in Item 5 a press release
regarding a pilot program between the Company and Group Health
Incorporated;
o Form 8-K, dated March 6, 2003, reporting in Item 5 press releases regarding
the Company's acquisition of assets formerly used by ePhysician,
Inc., and the termination of the Merger Agreement between the Company
and PocketScript, LLC; and
o Form 8-K, dated March 17, 2003, reporting in Item 9 the presentation by the
Company at the Roth Capital Partners Growth Stock Conference.
SIGNATURES
Pursuant to 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, 2003
MEDIX RESOURCES, INC.
(Registrant)
/s/ Mark W. Lerner
Mark W. Lerner
Chief Financial Officer
MEDIX RESOURCES, INC.
CERTIFICATIONS PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Darryl R. Cohen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Medix Resources,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/Darryl R. Cohen
------------------------
Darryl R. Cohen
Chief Executive Officer
I, Mark W. Lerner, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Medix Resources,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 15, 2003
/s/ Mark W. Lerner
------------------------
Mark W. Lerner
Chief Financial Officer
(Principal financial officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99.1 Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section
1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.