form 10q 033101
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, 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 Identification No.)
incorporation or organization)
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 May 10, 2001.
Common Stock, $0.001 par value 48,634,938
Class Number of Shares
MEDIX RESOURCES, INC.
INDEX
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2001 (Unaudited) and
December 31, 2000
Unaudited Consolidated Statements of Operations -- For the Three
Months Ended March 31, 2001 and March 31, 2000
Unaudited Consolidated Statements of Cash Flows -- For the Three Months
Ended March 31, 2001 and March 31, 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
Index to Exhibits
MEDIX RESOURCES, INC
Consolidated Balance Sheets
March 31, December 31,
2001 2000
----------- -----------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 412,000 $ 1,007,000
Accounts receivable, net 41,000 49,000
Prepaid expenses and other 170,000 225,000
----------- -----------
Total current assets 623,000 1,281,000
Software development costs, net 515,000 371,000
Property and equipment, net 451,000 418,000
Intangible assets, net 2,960,000 3,019,000
----------- -----------
Other assets 49,000 -
----------- ----------
Total assets $ 4,598,000 $ 5,089,000
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 68,000 $ 137,000
Convertible note payable, net of discount of $262,000 638,000 -
Accounts payable 213,000 159,000
Accrued expenses 560,000 591,000
----------- -----------
Total current liabilities 1,479,000 887,000
----------- -----------
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;
50 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; 48,406,664 and 46,317,022 issued and
outstanding. 48,000 46,000
Dividends payable with common stock 6,000 5,000
Additional paid-in capital 28,748,000 27,573,000
Accumulated deficit (25,683,000) (23,423,000)
----------- -----------
Total stockholders' equity 3,119,000 4,202,000
----------- -----------
Total liabilities and stockholders' equity $ 4,598,000 $ 5,089,000
=========== ===========
Return to Index
Unaudited Consolidated Statements of Operations
For the Three For the Three
Months Ended Months Ended
March 31, March 31,
2001 2000
----------- -----------
Revenues $ 30,000 $ 64,000
Direct costs of services 5,000 3,000
----------- -----------
Gross margin 25,000 61,000
----------- -----------
Software research and development costs 279,000 229,000
Selling, general and administrative expenses 1,911,000 825,000
----------- -----------
Net loss from operations (2,165,000) (993,000)
Other income - (32,000)
Interest expense 94,000 20,000
----------- -----------
Net loss from continuing operations (2,259,000) (981,000)
Net gain (loss) from discontinued operations - 650,000
----------- -----------
Net loss $(2,259,000) $ (331,000)
=========== ===========
Net loss per common share-continuing operations $ (0.05) $ (0.03)
Net income (loss) per common share-discontinued
operations - 0.02
----------- -----------
Net loss per common share $ (0.05) $ (0.01)
=========== ===========
Weighted average shares outstanding 47,419,671 33,965,334
=========== ===========
Return to Index
Unaudited Consolidated Statements of Cash Flows
For the Three Months Ended
March 31,
---------------------------
2001 2000
----------- -----------
Cash flows from operating activities
Net loss $(2,259,000) $ (331,000)
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 110,000 33,000
Amortization of discount and warrants-convertible
debt 67,000 -
Options and warrants issued in conjunction with
stock issuance, and for litigation settlement,
respectively 262,000 137,000
Net changes in current assets and current liabilities 89,000 (145,000)
----------- -----------
Net cash flows (used in) provided by operating
activities (1,731,000) (1,129,000)
----------- -----------
Cash flows from investing activities
Proceeds from the disposal of staffing business - 500,000
Software development costs incurred (164,000) -
Purchase of property and equipment (64,000) (105,000)
Business acquisition costs, net of cash acquired - (94,000)
----------- -----------
Net cash flows (used in) investing activities (228,000) 301,000
----------- -----------
Cash flows from financing activities
Advances received on convertible note 1,000,000 -
Advances (payments) under financing agreement, net - (484,000)
Payments on capital leases and debt (72,000) -
Proceeds from the issuance of common stock 350,000 -
Net proceeds from exercise of options and warrants 87,000 2,140,000
----------- -----------
Net cash flows provided by (used in) financing
activities 1,365,000 1,656,000
----------- -----------
Net increase (decrease) in cash and cash equivalents (595,000) 828,000
Cash and cash equivalents at beginning of period 1,007,000 1,229,000
----------- -----------
Cash and cash equivalents at end of period $ 412,000 $ 2,057,000
=========== ===========
Non-cash and investing and financing activities for the three months ended
March 31, 2001:
Conversion of preferred stock into common stock (Note 3).
Conversion of $100,000 note payable into 111,111 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 three months ended
March 31, 2000:
Acquisition of the assets and assumption of certain liabilities of a
business from a related party.
Financed insurance policies of $7,000 by issuing a note payable.
Conversion of a $400,000 note payable into 800,000 shares of common stock.
Conversion of preferred stock into common stock.
Return to Index
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, 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 three months ended
March 31,2001 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 2001.
2. INTANGIBLE ASSETS
March 31,
2001
-----------
Goodwill acquired through the Cymedix acquisition $ 1,822,000
Goodwill acquired through the Automated Design
Concepts, Inc. acquisition 454,000
License agreement with ZirMed.com 684,000
-----------
$ 2,960,000
===========
3. EQUITY TRANSACTIONS
During the first quarter 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 $87,000 from the exercise
of stock options and warrants resulting in the issuance of 342,167 shares of
common stock.
The Company has obtained a $2.5 million credit facility through the
issuance of a convertible note payable and common stock purchase warrants. The
credit facility provides that the Company can make draws against this facility
as evidenced by a convertible promissory note, 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 may be made only if the Company's
common stock price remains above $1 for five business days prior to the draw.
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.
During February 2001, $100,000 of the convertible note was converted into
111,111 shares of common stock. During April, a further $100,000 of the note
was redeemed. The redemption was satisfied by the issuance of 213,274 shares
of common stock.
In connection with this credit facility being made, the Company also
agreed to issue 1,250,000 warrants to purchase common stock. The Company
issued 500,000 warrants upon the execution of the agreement, and in accordance
with the warrant agreement will issue warrants to purchase 250,000 shares of
common stock at each time the subsequent draws of $500,000 under the credit
facility as described above are made. The warrants have an exercise price of
$1.75 and terms of two years from the date of issuance. The company also
issued 83,333 warrants to purchase common stock to two finders assisting with
the transaction. The finder warrants have terms of two years and an exercise
price of $1.75.
The Company has imputed values for the 500,000 and 83,333 warrants issued
to the provider of the credit facility and the finders using the Black-Scholes
Option pricing model. The 500,000 warrants issued to the provider of the
credit facility were valued at $249,000 and will be treated as a discount on
the debt to be amortized over its remaining life. The 83,333 warrants issued
to finders were valued at $42,000 and will be 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%.
The Company also made a second draw on the credit facility for $250,000
in February 2001. In connection with this draw, the Company issued warrants to
purchase 25,000 shares to the finders. The warrants have been valued at
$12,000 using the Black-Scholes option-pricing model.
The Company also has a commitment to issue 150,000 warrants to the
finders for future draws on the credit facility.
During March 2001, the Company received $350,000 for the issuance of
636,364 shares of its common stock. 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.
4. STOCK OPTIONS
In March 2001, the Company granted options to purchase 454,000 shares at
an exercise- price of $.67 per share to current and former employees and
consultants of the Company, under the Company's 1999 Stock Option Plan.
5. ACCUMULATED DEFICIT
Of the $25,683,000 cumulative deficit at March 31, 2001, the approximate
amount relating to the Company's technology business from inception is
$12,863,000. In addition, a premium of $2,332,000 was paid upon the
acquisition of Cymedix Lynx in 1998, producing a total investment of
$15,195,000 in the technology business to date.
6. RELATED PARTY TRANSACTIONS
During the three month period ended March 31, 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.
Return to Index
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. Cymedix(R)
provides instantaneous access to patient clinical, financial and administrative
information. Its software also supplies healthcare institutions, such as health
plans, insurers 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 capability between all
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 27, 1999 and
December 28, 1998. At March 31, 2001 we had an accumulated deficit of
($25,683,000). 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, 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 non-essential 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 and
therefore are not generating significant revenue. Working capital is required
to support the ongoing development and marketing of the Cymedix(R)software
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.
Our products are still in the pre-deployment stage and have not yet
proven their effectiveness or their marketability. 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, a trademark 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 and the regulations
that are being promulgated thereunder are causing the healthcare industry to
change its procedures and incur substantial cost in doing so. We cannot predict
with any certainty what impact, if any, proposals for healthcare reforms 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 These Three Months Ended March 31, 2001 and March 31, 2000
Total revenues for the three months ended March 31, 2001, were $30,000
compared with $64,000 for the three months ended March 31, 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 increased approximately $50,000 or 22% from
$229,000 for the three months ended March 31, 2000, to $279,000 for the three
months ended March 31, 2001. This increase represents the Company's continued
efforts in developing medical software products.
Selling, general, and administrative expenses increased approximately
$1,086,000 or 132% from $825,000 for the three months ended March 31, 2000, to
$1,911,000 for the three months ended March 31, 2001. The increase is attributed
to increases in administrative staff, primarily executive management, and staff
associated with software development; Black-Scholes expense of $262,000 incurred
as a result of a warrant issued in connection with a common stock issuance;
increased depreciation expense related to fixed asset purchases; and increased
amortization expense related to convertible debt, software license and business
acquisitions.
Interest expense increased approximately 370% from $20,000 for the three
months ended March 31, 2000 to $94,000 for the three months ended March 31,
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 $32,000 for the three months ended
March 31, 2000 to $0 for the three months ended March 31, 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 $1,278,000
from $981,000 for the three months ended March 31, 2000, to $2,259,000 for the
three months ended March 31, 2001, due to all of the reasons discussed above.
Results from discontinued operations changed from a gain of $650,000 for
the three months ended March 31, 2000, to $0 for the three months ended March
31, 2001. This change reflects the disposal of the staffing business during
February 2000.
Net loss increased approximately $1,928,000 from $331,000 for the three
months ended March 31, 2000, to $2,259,000 for the three months ended March 31,
2001, due to the reasons discussed above.
Liquidity and Capital Resources
We have $412,000 in cash as of March 31, 2001 with net working capital
deficit of $(856,000) at March 31, 2001. During the three months ended March
31, 2001, net cash used in operating activities was $1,732,000. During the
three months ended March 31, 2001, we raised $437,000 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. Management fully expects to conclude the
necessary financing in the near term.
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 $2.5 million credit facility
through the issuance of a convertible note payable and common stock purchase
warrants. The credit facility provides that the Company can make draws against
this facility as evidenced by a convertible promissory note payable 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 may be made only if the
Company's common stock price remains above $1 for five business days prior to
the draw. The advance 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 company also made a second draw on the credit facility for $250,000
during February 2001. Also during February 2001, $100,000 of the convertible
note was converted into 111,111 shares of common stock. During April, a further
$100,000 of the note was redeemed. The redemption was satisfied by the
issuance of 213,274 shares of common stock.
During March 2001, the company received $350,000 for the issuance of
636,364 shares of its common stock.
Subsequent to March 31, 2001 and through May 10, 2001, we received
approximately $0 from the exercise of options and warrants. As of May 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. Currently, we have not provided any written notice to holders that we
will call these warrants. $2,568,000 could be available from the exercise of
these callable warrants. However, there can be no assurance that any of these
warrants will be exercised.
Return to Index
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 is claiming the right to receive an option to purchase
90,000 shares of Medix common stock at approximately $0.44 per share.
Plaintiff seeks 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. Management does not believe that
plaintiff's claims have any merit and intends to vigorously defend this action.
We are now in the discovery stage of the proceeding with trial scheduled for
September 10, 2001. Management does not expect any resolution of this matter
to have a material adverse effect on our financial condition.
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
seeks 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. Management believes plaintiff's claims to be frivolous and
totally without merit and intends to vigorously defend this action. The
Company's motion to dismiss was heard by the Court on November 1, 2000. The
court ruled in favor of plaintiff on one count, and in favor of the Company on
the other. However, the ruling in favor of the Company gave the plaintiff the
opportunity to replead the second count, which plaintiff has since done. We
have answered the complaint denying the substantive allegations and asserted
defenses and a counterclaim in an as yet unspecified amount. On April 24,
2001, after a settlement conference in the matter, we reached agreement in
principal on the terms of a settlement of this matter. The principal terms
require us to pay Mr. Rajani $20,000 in cash and issue him warrants to purchase
137,500 shares of our common stock at $.50 per share over the next 18 months.
The definitive settlement agreement has not yet been signed and the settlement
remains subject to approval by the court. Management does not expect any
resolution of this matter to have a material adverse effect on our financial
condition.
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. We are now in the discovery
stage of the proceeding with discovery to be completed by the end of June 2001.
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
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 January 1,000,000 Conversion of Private Section 3(a)(9)
Preferred investors
Common Stock January 22,000 $4,126 for Private Section 4(2)
exercised investors
warrants
Common Stock February 111,111 Conversion of Private Section 3(a)(9)
$100,000 investor
principal amount
of note
Common Stock March 636,364 $350,000 Private Section 4(2) &
investor Regulation D
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 9, 2001, reporting in Item
5 a press release announcing the signing of a letter of intent
to organize a pilot program with Kaiser Permanente of Georgia
2) Form 8-K, filed with the Commission on January 16, 2001, reporting in
Item 5 a press release announcing the launching of a stand-alone
Cymedix Universal Interface (CUI) product for physicians.
3) Form 8-K, filed with the Commission on January 17, 2001, reporting in
Item 5 two press releases announcing, respectively, the first
live Medix business telephonic presentation by CEO, John
Prufeta, and announcing the signing of a contingent credit
facility by the Company.
4) Form 8-K, filed with the Commission on January 29, 2001, announcing Medix
to present at UBS Warburg's Global Healthcare Services
Conference.
5) Form 8-K, filed with the Commission on February 1, 2001, announcing the
Medix business conference call report and summary.
6) Form 8-K, filed with the Commission on February 1, 2001, announcing time
change for Medix presentation at UBS Warburg's Global Healthcare
Services Conference.
7) Form 8-K, filed with the Commission on February 20, 2001, announcing the
resignation of Mr. David Pfeil from his position as Medix
Executive Vice President and Chief Technology Officer, his
position as a member of the Medix Board of Directors, and his
positions as President and COO and a director of the Medix
subsidiary, Cymedix Lynx Corporation.
8) Form 8-K, filed with the Commission on March 15, 2001, announcing the
appointment of an interim Chief Technology Officer and results
of March 3rd Board meeting.
9) Form 8-K, filed with the Commission on March 27, 2001, announcing the
divestiture of the Company's non-core website development and
hosting business unit, and a general reduction-in-force.
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 10, 2001
MEDIX RESOURCES, INC.
(Registrant)
/s/ Gary L. Smith
Gary L. Smith
Executive Vice President
(Principal Financial and Chief Financial Officer)
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