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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year Ended December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ TO ____________
Commission File Number 0-24768
MEDIX RESOURCES, INC.
(Name of small business issuer in its charter)
Colorado 84-1123311
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization Identification No.)
420 Lexington Avenue, Suite 1830
New York, New York 10170
(Address of Principal Executive Offices)
Issuer's Telephone Number: (212) 697-2509
Securities Registered Under Section 12(b) of the Exchange Act:
Common Stock - $.001 Par Value.
Securities Registered Under Section 12(g) of the Exchange Act:
None
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-X contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 15, 2002 was approximately
$31,707,233 (for purposes of the foregoing calculation only, each of the
registrant's officers and directors is deemed to be an affiliate).
There were 58,386,516 shares of registrant's Common Stock outstanding as of
March 15, 2001.
Documents incorporated by reference:
None
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS
ITEM 2 PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PART I
ITEM 1. BUSINESS
Our Company
Medix Resources, Inc., a Colorado corporation ("Medix" or the "Company"),
is an information technology company with its principal executive office in New
York, New York. The Company also maintains offices in Agoura Hills, California,
Greenwood Village, Colorado and Marietta, 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
("Cymedix"), we have developed the Cymedix(R)suite of software products as a
toolkit to help modernize physician and healthcare communication technology and
facilitate transaction productivity. We continue to enhance and refine our
products to enable the many disparate information systems within the healthcare
industry to communicate with one another and to expand the scope of healthcare
transaction automation.
The Cymedix(R)suite of products facilitates the transmission of critical
clinical, financial and administrative information between healthcare
information systems, and provides healthcare institutions (such as health plans,
insurers, hospitals and practicing physicians) with non-invasive software
products that can be integrated with their existing software applications to
provide Internet-enabled transaction capability between all parties. This
approach is significant because it offers substantial utility to physicians who
are cautious about making major adjustments to their practice disciplines or
reluctant to invest heavily in new, administrative technologies.
The implementation of Cymedix(R)software products targets improved efficacy
of daily interactions between health caregivers and their staffs, ancillary
providers such as laboratories and pharmacy benefit managers (PBMs), insurance
companies, hospitals, Integrated Delivery Networks (IDNs) and Health Maintenance
Organizations (HMOs). Recent State and Federal legislative actions, as well as
industry mandates to promote quality and the privacy of patient information
while controlling costs, have created fertile ground for effective technology
solutions that unite systems and enable digital communication. The market for
robust and practical healthcare solutions will grow rapidly, and that growth
will continue to accelerate as the joined emphases of consumer choice, quality,
administrative service and cost-containment ratchet up the demand for more
efficient and user-friendly methods of delivering quality healthcare.
Moreover, Medix understands the essentially local nature of healthcare and
will deploy Cymedix(R)software products only in regions where we can guarantee
that each installed physician can use our technologies to serve most of his or
her patients. This disciplined market approach, combined with the
Cymedix(R)suite of physician-centric software products, provides a foundation
for rapid adoption, ongoing utilization and stable, recurring revenue streams.
Our regional strategy and focus on authentic physician adoption is what
differentiates us from most eHealth companies, including those who have survived
the rough justice of today's market, as well as the many who have perished.
Medix was incorporated in the State of Colorado in 1988. For the next
decade, the Company operated as a temporary healthcare staffing company, with
offices at various times in Colorado, New York, Texas and California. Medix
disposed of the its remaining healthcare staffing operations in February 2000.
In January 1998, the Company acquired Cymedix Corporation, a California
corporation, which was merged into our wholly owned healthcare technology
subsidiary, Cymedix Lynx Corporation.
As of March 15, 2002, we are in various stages of project development,
testing and market implementation with six clients using components of the
Cymedix(R)software suite to link healthcare participants by using the Internet.
While none of these projects have generated any significant revenues to date, if
funding can be obtained to continue and expand our operations, these projects
should position us as one of the technology leaders in the emerging eHealth
industry. All of these projects involve working with an existing healthcare
insurer, reference laboratory or pharmacy benefit management company to
integrate selected Cymedix(R)products into their networks to enable physicians
to use those products for pharmacy management transactions, laboratory orders
and results reporting or claims processing. See "Forward-Looking Statements and
Associated Risks" under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION below.
Our principal executive office is located at 420 Lexington Avenue, Suite
1830, New York, NY 10170, and its telephone number is (212) 697-2509. Our
principal administrative office is at 7100 East Belleview Ave., Greenwood
Village, CO 80111, and its telephone number is (303) 741-2045.
Recent Developments
We executed an Amended and Restated Common Stock Purchase Warrant with
WellPoint Pharmacy Management a wholly owned subsidiary of WellPoint Health
Networks Inc., dated February 18, 2002, to restructure our obligations to issue
warrants to WellPoint. Under that Warrant, we are obligated to issue up to
7,000,000 shares of our common stock at exercise prices of $0.30 per share for
3,000,000, $0.50 per share for 3,000,000 shares and $1.75 per share for
1,000,000 shares, if various performance related vesting requirements are
satisfied by WellPoint. Currently, WellPoint has satisfied certain of these
requirements giving WellPoint the right to purchase 1,850,000 shares of our
common stock at $0.30 per share. The Warrant grants to WellPoint certain
registration rights to require us to register with the SEC the shares issued to
WellPoint for resale to the public. In the Warrant, WellPoint has agreed to
restrict sales to the public of these shares during the first year after they
have been issued to 200,000 shares per month and 100,000 shares in any five
trading days. The Warrant contains anti-dilution provisions providing that the
number of shares that may be purchased by WellPoint under the Warrant may be
adjusted in certain circumstances. WellPoint's rights to purchase our shares
under the Warrant expire on September 8, 2004.
We entered into a secured convertible loan agreement with WellPoint, 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 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. The Company expects to require conversion at the earliest possible
time, which may be before September 30, 2002 if the required funds are received
at which point the pledge of collateral will be received.
In October 2001, Medix announced the introduction of Cymedix(R)III, the
next generation of its proprietary, point-of-care products. Cymedix(R)III is
based upon a robust and device-neutral architecture that leverages established
workstation, handheld and wireless technologies and supports Medix' long-term
commitment to support emerging exam room and point-of-care technologies.
Cymedix(R)III products, including working applications for Cymedix(R)Pharmacy,
Laboratory and PlanConnect services, will be made available to physicians in
2002. Until recently, the combination of expensive, front-end equipment costs
coupled with time-consuming and often problematic data synchronization
requirements effectively dampened the physician's appetite for any of the
point-of-care technologies being offered. Our new Cymedix(R)III architecture is
both fully scalable and device-neutral, allowing our Pharmacy, Lab and
PlanConnect products to be delivered via workstation and wireless handheld
devices with the technologies available today as well as those of the future.
The addition of wireless capability within our Cymedix(R)III product release
naturally complements the Medix suite of transaction products, and enables
physicians and their office staff to execute the full range of clinical and
support transactions from their office workstation, their home desktop or from
the exam room itself, via a handheld device with real-time synchronization of
secure patient data. We believe that the expanded capabilities of Cymedix(R)III
offer a compelling value return for physicians and will accelerate their
adoption of our technology.
Finally, during 2001, we ceased operations of our Automated Design Concepts
division (ADC), a Web design business. We had acquired ADC in early 2000 from a
former officer and director of the Company for cash and stock valued at
$474,000. In connection with our general cost reduction program, we determined
that the business of the subsidiary was not part of our core business operations
and therefore did not justify our continued financial support. In connection
with the termination of our subsidiary's operations we took a write-off of
goodwill in the amount of $443,000. We also determined that our license of
proprietary software from ZirMed.com had no value to us and had no more than a
nominal market value. In 2001, we wrote-off the unamortized value of the related
intangible asset, which was $668,000.
Our Industry
The U.S. Centers for Medicare and Medicaid Services (formerly the Health
Care Finance Administration) estimates that $1.4 trillion dollars, or 14% of the
U.S. Gross domestic product, is spent annually on healthcare. Healthcare
expenditures are expected to grow to approximately $2.8 trillion by 2011, due to
increasingly expensive and sophisticated clinical technology, an aging
population base and the growing demands of newly-empowered and health conscious
consumers.
Every year, the healthcare industry conducts its business by executing more
than 30 billion transactions, more than 90% of which are untouched by integrated
automation. Core transactions -- such as enrollment and eligibility
verification, referrals and authorizations, lab orders and lab results
reporting, billing and claims and prescription-writing with drug interaction
checks -- are processed through a disjointed matrix of isolated systems,
including paper, fax and phone. Of necessity, every provider, insurer or
supplier has invested in its own proprietary and often antiquated information
system. As a result, duplication is rampant, error probabilities are enormous
and the waste of precious resources is glaringly obvious.
Health economists estimate that 20% or more of the nation's total
healthcare expenditures is spent on backroom administration. Another 10% funds
the fallout of adverse health events that are caused by inaccurate or
unavailable patient information. The cumulative effect is that, more than 4% of
our nation's annual economic output is being consumed by a service and
transactions industry that pleases no one and angers many.
Today's inefficient and "silo" healthcare information systems are created
by the extreme fragmentation and complexity of the industry. Briefly:
o Healthcare remains a quintessentially cottage industry. There are currently
approximately 645,000 practicing physicians, 6,200 hospitals, 16,500
nursing homes, 8,000 home health care agencies, 4,500 independent
laboratories and thousands of managed care organizations and other
ancillary (usually local) health care providers.
o The various constituents of healthcare have sharply different levels of
access to capital. Typically, insurers have had the finances to fund
large-scale systems able to structure and share uniform information.
Physicians do not. This imbalance has produced an industry rich in
proprietary administrative systems but poor in patient-focused
point-of-care information systems.
o Government regulation of the industry is splintered across 50 states,
coupled with substantial federal intervention.
o Healthcare is an extremely complex business. Literally, errors can be
life-threatening. Until recently, affordable technologies capable of
replacing wasteful, but comparatively safe administrative practices were
not available.
The Internet provides a platform for catalytic change within the healthcare
industry. Grabbing hold of that opportunity requires the deployment of effective
connectivity tools that enable disparate systems to effectively and affordably
communicate with one another. The Internet's emerging,, ubiquitous accessibility
and growing acceptance make it an increasingly critical tool for
business-to-business and business-to-consumer interaction. Moreover, Internet
use is undergoing a transformation from simple, static information publishing,
messaging, and data gathering to real-time, interactive applications that are
capable of supporting core business transactions and fundamental business
processes.
In many industries, work is in progress to harness the power of the
Internet and to fuse previously disconnected business processes that allow
companies to reengineer workflows, reduce administrative and distribution costs
and leverage core-competency, expert resources. Because of its size, complexity
and dependence on accurate and timely information exchange, the healthcare
industry is well suited to benefit from the connectivity and data integration
solutions that we are developing. In addition, as more and more powerful
technology tools become available at decreasing cost levels, (including
workstations, handheld devices and wireless networks), we believe that
physicians will acquire more advanced technology platforms to optimize patient
care, automate processes and better leverage their clinical experience.
Administrative processes in healthcare consume approximately $300 billion
per year. Insurers typically spend 10-12% of gross premiums in administration,
not including sales acquisition costs. A typical physician practice spends
between 25%-50% of gross billings on administration. Medix's mission is to offer
a set of tools to physicians and to insurers that takes direct aim at the
present tab of administrative cost and reduces the potential of clinical error.
For the eHealth industry, we believe it to be a $20 billion opportunity.
Our Products and Technology
Cymedix(R)is a suite of software products and integration tools that
seamlessly moves clinical and administrative information among health insurers,
physicians, pharmacy benefit management companies and reference labs.
Collectively, they create an indispensable, non-invasive technology platform
that establishes secure connectivity among the many isolated systems of the
healthcare industry. The Cymedix(R)platform enables physicians or their staff to
use software that transparently performs the timesaving activity of gathering
and transmitting vital patient information to healthcare entities. Since
physicians can offload substantial administrative burdens to the
Cymedix(R)software products, we believe they will see the opportunity to employ
the Cymedix(R)product suite (PBM, payor, pharmacy, lab and hospital connections)
to improve the quality of patient care and to grow their business.
We deliver our solutions via the Internet using secure socket layers and
other encryption technologies that protect confidential patient information
while reducing the physician's need to purchase and manage on-site hardware and
software systems. The Cymedix(R)suite of products may be utilized on any device
that supports an Internet browser, allowing our software to run on a wide range
of equipment, from aging personal computers to leading edge exam room
technologies (handheld devices, tablets, etc.). In addition, the advent of low
cost, secure wireless networking solutions makes the last inch of the "last
mile" of physician practice implementation vastly easier today than even a year
ago.
Our Cymedix(R)Universal Interface (CUI) is central to the implementation of
the Cymedix(R)suite of products. Physicians generally reject new technology
solutions that require new investments in time or money over and above their
primary investment in practice management systems. Therefore, we believe it is
imperative to deliver solutions that effectively leverage their practice
management investment at no additional cost. The CUI toolkit automatically
extracts pre-selected data elements from existing systems and remaps the
targeted information for use by the Cymedix(R)software suite. This technology
permits the Cymedix(R)suite to efficiently and effectively integrate with
virtually any practice management system, thereby eliminating the need to hard
code unique, expensive and time-consuming interfaces. Typically, the practice
management system is the only administrative information system in a physician's
practice and is therefore the most trusted source for patient and billing data.
The CUI enables the physician's staff to embrace the Cymedix(R)suite as a
value-added adjunct of their legacy practice management system, all without
having to bear duplicative processes such as the re-keying of critical patient
data.
The Cymedix(R)software suite of products includes:
---------------------------- --------------------------------------
o Pharmacy benefit manager
Cymedix(R)Pharmacy >>>> identification (eligibility
verification and an automatic
link to formulary/benefits
information.)
o Electronic prescribing (retail
and mail order).
o Medication history.
o Treatment and formulary
compliance.
o Drug to drug interaction, drug to
allergy, duplicate therapy and
other clinical checks.
o Messaging and prompts.
o Compliance analysis
o Complete lab order entry.
Cymedix(R)Lab >>>> o Medical necessity verification.
o 24/7 results reporting (partial
and full).
o Specimen tracking.
o Messaging and prompts.
o Cumulative and custom reporting.
o Eligibility verification.
Cymedix(R)PlanConnect >>>> o Referrals and authorizations.
o Custom messaging and prompts.
o Electronic claim validation,
submission and tracking.
The introduction of our proprietary, point-of-care products is proceeding
with our six active customers. Our suite of software products is based upon a
robust and device-neutral architecture that leverages proven workstation,
handheld and wireless technologies. Our Cymedix(R)technology architecture
includes a flexible integration framework that facilitates rapid and reliable
connectivity efforts. All product components, including Cymedix(R) Pharmacy,
Cymedix(R) Laboratory and Cymedix(R)PlanConnect services are in final testing as
we prepare for production-level physician installations in second quarter 2002.
On the sponsor host side, we are in late-stage development and testing for
customized integrations with each of our active contracts. When we sign a
connectivity agreement with a transaction sponsor (PBM, payor, lab, hospital,
etc.), we move into a disciplined integration phase in which we establish the
interface connection to the sponsor, enable transactions, tailor the front-end
to the sponsor's requirements, and incorporate any sponsor-specific rules within
our applications. Generally, this integration phase should take between 90-120
days, depending upon the pace, regimen and internal resource allocation set by
our customers. However, as we have learned with earlier pilots, these time
frames are variable and may be extended indefinitely for reasons beyond our
control. After the integration phase is completed, we move to the deployment and
production phase when transaction fee revenues will be generated.
We have targeted our initial, production-level physician installations to
begin in second quarter 2002 and we currently expect transaction fee revenues to
commence before the end of the second quarter 2002. While we had expected to
begin receiving such revenues in the first quarter of 2002, the scope and timing
of several sponsor host integrations required that we push the physician launch
date to the next quarter. As a result, we have yet to receive any transaction
fee revenue.
The marketing and development of our Cymedix(R)suite of software products
is our sole business at this time, and a substantial portion of our net
operating loss is due to such efforts. We are funding such expenses as well as
our administrative expenses through the sale of our securities.
Our Sponsor Customer Relationships
As an eHealth connectivity company, Medix must build relationships with two
sets of customers: physician end-users and sponsor host institutions, including
health plans, pharmacy benefit managers, reference laboratories and other,
ancillary types of managed care networks. These sponsor organizations, typically
large enterprises, pay our per-click transaction fees as described in the
section titled "Our Strategy and Business Model" below. Our relationships with
WellPoint Pharmacy Management, Merck-Medco and Express Scripts, Inc. all
recorded key sponsor customer events in 2001
WellPoint Pharmacy Management
In 2001, Medix announced that we had completed our pilot program with
WellPoint Pharmacy Management (WPM) and a joint deployment of Web-based
transactions services to WPM health plan customers and their participating
physicians will begin during 2002. WPM has long committed to providing value to
customers, patients and physician partners through the elimination of
administrative waste, clinical error, fraud and abuse. They enjoy a well-earned
reputation for extraordinary growth and clinical programs of excellence.
Together, Medix and WPM have forged deep, long-term ties bound by a common
objective to provide physicians with the tools and means to elevate the clinical
experience through shared information and decision support. Our robust pilot
program with WPM, combined with the gathering momentum in the emerging eHealth
industry, has allowed Medix to strengthen our sales pipeline over a compressed
timeframe. In addition, our multi dimensional relationship involves the
following:
Product Distribution - Through the execution of an amendment to the Warrant
Agreement, WellPoint Pharmacy Management has formally agreed to recommend Medix
Resources, Inc. to their customers and key vendors. WPM enjoys a diversified
customer base that includes health plans, employers and regional PBMs.
Initially, Medix and WPM are focusing joint sales activities on WPM's large Blue
Cross Blue Shield plan customers. Executing customer agreements with WPM's large
customers will provide Medix with significant patient density in several key
markets. Under a formal agreement with specific targets and incentives, WPM will
earn warrants in Medix shares when WPM-sponsored customers agree to implement
the Cymedix(R) technology set.
Product Development - Medix and WPM are executing a shared, formal agenda
to continually research, test and implement new product enhancements. These
collaborative product development efforts offer a substantive benefit to Medix,
as WPM possesses a powerful repository of pharmacy industry knowledge and
distinguished clinical expertise.
Our longstanding and close working relationship with WPM is a significant
asset, especially as they are a first-rate reference with which we can expand
our reach to healthcare's other large constituencies.
Merck-Medco and Express Scripts, Inc.
In October 2001, we announced agreements with two of the nation's leading
pharmacy benefit managers, Merck-Medco and Express Scripts, Inc. These business
relationships allow us to provide physicians with point-of-care access to
clinical information and electronic prescribing. Client integration work is well
underway and we will shortly begin joint deployment of these services to
Merck-Medco and Express Scripts health plan customers and physicians. Different
than the start-up of our WPM relationship, neither Merck-Medco nor Express
Scripts requires a phased product pilot program.
Our agreements with Merck-Medco and Express Scripts are important
milestones for Medix. Merck-Medco is the nation's second largest pharmacy
benefits manager, with a client roster that includes major insurers and
corporations throughout the nation and more importantly within our target
markets. Likewise, Express Scripts, Inc. is an ideal match because of their
demonstrated market leadership. Both Merck-Medco and Express Scripts are leading
sponsors of technology initiatives that place decision-making tools in the hands
of physicians at the point of care. Together, our joint efforts will provide
physicians and their staffs with easy-to-use connectivity solutions that support
all aspects of the prescription process.
Our Strategy and Business Model
General. Our market strategy is organized around several well-defined
components. First, we believe that there is significant value attached to
offering products that complement today's commonly available technologies. This
is a critical aspect of the added value that we bring to our sponsor customers
and physicians. For Medix, it means delivering connectivity and software
solutions that take into consideration our users' current technology and
workflows. For example, many physician practices have not yet invested in a
high-speed (DSL/cable) Internet connection. Therefore we have designed our
products to excel at every level of connectivity, from the less sophisticated
dial-up capability to high speed, persistent connections.
Second, our business model is a per-click transaction fee model paid for by
large institutional sponsors with an interest in enabling their connectivity and
information sharing with physician offices. Physicians' offices operate on a
private network created by Medix and financed by per click transaction fees from
sponsoring institutions. We expect that this approach will offer favorable
returns to sponsoring institutions through aggregate administrative and
underwriting cost savings while enabling physicians' offices to reduce paperwork
and costs within their practice environment with no front-end investment. In the
longer term, as the value proposition becomes more obvious to physicians, they
may elect to pay for an expanded suite of services.
Third, we believe that the functionality provided by the Cymedix(R)product
suite, together with the CUI, gives us a distinct competitive advantage. By
enabling physician practices to continue to use their existing information
systems while accessing our non-invasive technology, we recognize and honor the
physician's investment in their choice of practice management technology. Our
approach recognizes that, as in medicine, our first duty is to do no harm. Thus,
while the Cymedix(R)product suite offers attractive timesaving clinical and
administrative capabilities, our products do not put at risk any of the assumed
"safe" features of today's processes.
Fourth, we act as support partners to our customers and users. Our intent
is to leave the business of medicine to physicians and the business of managed
care to managed care companies. We bring value by constructing safe and secure,
high-speed data highways that enable connectivity and provide hassle-free
productivity tools for all users.
Finally, we believe that our approach and the products that we make take
direct aim at the wasteful administration costs that plague all of healthcare's
stakeholders. Our internal standards mandate that we make a substantive
difference in this area, and we ask our users and customers to judge us
accordingly.
Taken together, these strategy components position Medix to earn
substantial, recurring revenue streams at attractive margins. Moreover, once
critical density is reached, continued growth in our core product line can be
supported without substantial reinvestment in added support or fulfillment
infrastructure, further leveraging our market investment returns for the future.
Our plan to secure long-term recurring revenue streams via the creation of
contractual relationships with large sponsors is well underway. As physicians
grow to appreciate the benefit of our institutionally sponsored product
offerings and to recognize the value of clinical and administrative data
captured during ongoing use of our product suite, we believe we can establish a
market for physician-centric enhancements and add-ons to our products. Medix
plans to offer physicians additional timesaving features that further improve
patient care and practice profitability. Among these features will be
connectivity gateways to non-sponsored transactions, charge capture, patient
relationship management services and document management. We expect that
physicians will pay for these additional services under a subscription model.
Broadly cast, our business model follows the following regimen:
|X| Medix establishes a connection between sponsor organizations and
physicians.
|X| Using the CUI and our product suite, physicians and practice administrators
drive transactions via their practice management systems, handheld or
wireless devices, or through a direct Internet connection to Medix servers.
|X| Sponsor organizations pay for transactions.
|X| Physicians will pay for subscription services to gain access to future
product enhancements that leverage their administrative efficiencies and
clinical effectiveness.
Our Regional Strategy. Healthcare services are insured, delivered and
remunerated differently from one region to another. Medix understands the
essential, local nature of healthcare and will deploy Cymedix(R)software
products only in regions where we can assure that each installed physician can
use our technologies to serve most of his or her patients. This disciplined
market approach, combined with the Cymedix(R)suite of physician-oriented
software products, provides a foundation for rapid adoption, and sustained
physician utilization. Moreover, we believe that contracting with large
communities of physicians and sponsor organizations within highly defined
geographies creates a highly desirable financial and operating scenario for
Medix as well as lasting brand presence that sharply differentiates us from our
competition.
Given adequate long term financing, we intend to initially focus our
resources on deploying the Cymedix(R)software suite in five markets. They are
Atlanta, Northern California, Southern California, the New York Metropolitan
Area, and Chicago. As of March 2002, our Atlanta market development efforts are
underway with a planned Q2, 2002 product launch.
See "Forward-Looking Statements and Associated Risks" under "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" below.
Our Marketing and Sales Approach
The Company intends to pursue a focused but multi-dimensional marketing and
sales strategy over the next several years. Specifically:
o We will concentrate our energies on selected, geographical target markets
that provide ample transaction potential and offer us the opportunity to
penetrate a significant share of physician desktops.
o We will seek to partner first with a leading, anchor client or consortium
of anchor clients in each of the selected markets.
o Following platform development with the anchor client(s), we will
concentrate our sales focus on enlisting the second tier of potential
customers, including corollary agreements with regional-specific suppliers
such as pharmacy benefit managers, labs and large, organized provider
groups. Our goal is to achieve major market density.
o Concurrent with the market breadth effort described above, the Company will
aggressively seek added market depth by up-selling and cross-selling the
full portfolio of product services to existing customers and their
affiliates.
o As our brand and presence gains local strength, we will seek to market
relevant enhancements and add-ons to our products directly to physicians,
using a monthly subscription model.
Sales Process
Most of our customers are large health plans, PBM's and lab companies that
are national in scope, but are operated on a local or regional basis. Therefore,
it is imperative to organize sales efforts at both the national and local levels
to close sales, gain market share and retain existing customers. Consistent with
our regional approach to market sales and implementations, the Medix sales
process draws resources and experience from both corporate and regional teams.
---------------------------------- ---------------------------------
National Sales Process Team Regional Sales Process Teams
|X| CEO |X| Regional Market CEO
|X| EVP & CTO |X| Local Implementation Team
|X| EVP Operations |X| Local Consultants (as
|X| Selected Technology Team needed)
Members |X| Selected Technology Team
Members
---------------------------------- ---------------------------------
Medix views the sales process to gain customer relationships as a two-step
process. This process can happen sequentially or be pursued along parallel
tracks. The national sales process team is responsible for negotiating and
executing contracts as well as charged with the responsibility to expand
customer relationships in terms of product base or market expansion. The
regional sales process team is responsible for local account sales and account
management and the local administration of the sale's execution for our national
customers.
At present, our executive staff devotes a substantive portion of their time
to sales, marketing and account management activities. Longer term, with
appropriate financing in place, we expect to recruit and hire a new head of
Corporate Business Development, as well as to staff our regional organizations
with resident sales professionals to complement current resources.
Outside consultants have been engaged to assist with sales leads
development and target-customer introductions. Outside contractors also have
been retained to develop marketing and sales literature for the Cymedix
software. Materials to promote the various Cymedix applications are being
developed for direct mailing to physicians affiliated with our customers.
Competition
eHealth Services. The market for eHealth services is evolving, highly
fragmented and subject to fast-moving technological change. Although our
competitive position is difficult to characterize, due principally to the youth
of our market niche and the diversity of current and future competitors, we
believe the primary competitive elements in the eHealth connectivity business
are: (i) the scope, quality and performance of the technologies offered; (ii)
rates of physician adoption and sustained utilization; and (iii) the integrity
and market-worthiness of pricing and data models.
We believe our principal competitive advantages are: (i) our robust
technology architecture; (ii) our CUI toolkit; (iii) our clinical product base;
(iiii) our regional and physician-centric focus; and (iiiii) our customer
relationships. There are other connectivity companies, in the United States,
both publicly held and private, that compete directly or indirectly with Medix
Resources, Inc. Moreover, competition can be expected to emerge from established
healthcare information vendors and established or new Internet related vendors.
The most likely competitors are companies with a focus on clinical information
systems and enterprises with an Internet commerce or electronic network focus.
Currently, we view our main competitors as WebMD, ProxyMed, NaviMedix and
AllScripts. These competitors may have greater financial marketing or technology
resources than us. We will seek to raise capital to develop and implement
Cymedix products in a timely manner, however, so long as our operations remain
under funded, as they are now, we will be at a competitive disadvantage.
Software Development Personnel. The success of the development of our
Cymedix software is dependent to a significant degree on our key management and
technical personnel. We believe that our success will also depend upon our
ability to attract, motivate and retain highly skilled, managerial, sales and
marketing, and technical personnel, including software programmers and systems
architects skilled in the computer languages in which our Cymedix products
operate. Competition for such personnel in the software and information services
industries is intense. The loss of key personnel, or the inability to hire or
retain qualified personnel, could have a material adverse effect on our results
of operations, financial condition or business.
Patents, Trademarks and Copyrights
US Patent No 5,995,939 was issued on November 30, 1999 to our wholly-owned
subsidiary, Cymedix Lynx Corporation from the U.S. Patent and Trademark Office
("USPTO"). The patent covers our automated service request and fulfillment
system and will expire October 14, 2017. A divisional U.S. patent application,
including five claims directed to the method by which the system operates
through the Cymedix Universal Interface, has been abandoned
The USPTO issued to Cymedix U.S. Trademark Registration No. 2,269,377 for
the mark CYMEDIX in connection with "computer software for data base and
electronic record management in the healthcare field" on August 10, 1999, U.S.
Trademark Registration No. 2,316,240 for the mark LYNX in connection with
"computer software to provide secure communication on a global communication
information network" on February 8, 2000, and U.S. Trademark Registration No.
2,409,248 for the mark CYMEDIX.COM in connection with "computer software for
database and electronic record management in the healthcare field" on November
28, 2000.
Cymedix has obtained seven copyright registrations for two versions of each
of three modular software components of the Cymedix suite of products, as well
as a technical evaluation document that describes the software products.
No assurance can be given that any of our software products will receive
additional patent or other intellectual property protection. Cymedix has
assigned the above patent and copyrights registrations to Medix.
We seek to protect our software, documentation and other written materials
primarily through a combination of trade secret, trademark and copyright laws,
confidentiality procedures and contractual provisions. In addition, we seek to
avoid disclosure of our trade secrets, by, among other things, requiring those
persons with access to our proprietary information to execute confidentiality
agreements with us and restricting access to our source code.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or obtain and use information that
we regard as proprietary. Policing unauthorized use of our products is
difficult. While we are unable to determine the extent to which piracy of our
products exists, software piracy can be expected to be a persistent problem,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
From time to time, we are involved in intellectual property disputes. We
may notify others that we believe their products infringe upon our intellectual
property rights, and we may be notified by others that they believe that our
products infringe on their intellectual property rights. We expect that
providers of eHealth solutions will increasingly be subject to infringement
claims as the number of products and competitors in our industry grows and
traditional suppliers of health care data and transaction solutions begin to
offer Internet-based products. If our proprietary technology is subjected to
infringement claims, we may have to expend substantial amounts to defend
ourselves, and, if we lose, pay damages or seek a license from third parties,
which could delay sales of our products. If our proprietary technology is
infringed upon, we may have to expend substantial amounts to prosecute the
infringing parties, and we may experience losses if we cannot support our claim
of infringement.
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.
Government Regulation
Federal and state laws and regulations regulate many aspects of our
business. Since sanctions may be imposed for violations of these laws,
compliance is a significant operational requirement. We believe we are in
substantial compliance with all existing legal requirements material to the
operation of our businesses. There are, however, significant uncertainties
involving the application of many of these legal requirements to our business.
We are unable to predict what additional federal or state legislation or
regulatory initiatives may be enacted in the future relating to our business or
the health care industry in general, or what effect any such legislation or
regulations might have on us. We cannot provide any assurance that federal or
state governments will not impose additional restrictions or adopt
interpretations of existing laws that could have a material adverse affect on
our results or operations, financial position and/or cash flow from operations.
HIPAA and Standardized Transactions. Our sponsor customers and physician
users must comply with the Administration Simplification provision of the Health
Insurance Portability and Accountability Act of 1996 (HIPAA), which includes
regulations for privacy, transactions, code sets, security and standard
identifiers. Final regulations and implementation deadlines exist for
transactions, code sets and privacy while only proposed regulations exist for
security and standard identifiers. Accordingly, our products must contain
features and functionality that allow our customers and users to comply with
existing law.
As the effective date of the HIPAA regulations approach, they will have a
major impact on us as well as every other participant in the healthcare
industry. Significant resources will be required to implement these regulations.
Major retooling of medical information technology will be required to install
the required standardized codes and procedures. Transaction standards, code
sets, and identifiers will need to be installed on medical participants'
networks and office computers. Security and privacy regulations will be the most
difficult to implement and maintain because they are broad in scope, less
definitive, and require ongoing vigilance to assure compliance. Estimate costs
of implementation vary widely but will be in the billion of dollars. Failure to
comply could put us or any other healthcare participant out of business.
We believe that our Cymedix(R)software product offerings are designed to
allow for full compliance with known HIPAA regulations. However, until all such
regulations are issued and final, they could be modified, which may require us
to expend additional resources to comply with the revised standards. In
addition, given their novelty, breadth in scope, and uncertainty as to
interpretation, implementation will be uncertain and the possibility of
inadvertently failing to meet these standards is high. Such failure could result
in fines and penalties being assessed against us or cause our business to suffer
in other ways.
Government Regulation of the Internet. Laws and regulations may be adopted
with respect to the Internet or other on-line services covering issues such as
user privacy, pricing, content, copyrights, distribution and characteristics and
quality of products and services. The adoption of any additional laws or
regulations may impede the growth of the Internet or other on-line services,
which could, in turn, decrease the demand for our software applications and
services, increase our cost of doing business, or otherwise have an adverse
effect on our business, financial condition and results of operations. Moreover,
the applicability to the Internet of existing laws in various jurisdictions
governing issues such as property ownership, sales and other taxes, libel and
personal privacy is uncertain and may take years to resolve. Any such new
legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on our business, financial
condition and results of operations.
Confidentiality and Security. While HIPAA regulations, as discussed above,
are expected to generally govern in this area, regulation by various state
agencies may also still apply to confidentiality of patient records and the
circumstances under which such records may be released for inclusion in our
databases. Such regulations govern both the disclosure and the use of
confidential patient medical records. Such regulation could require holders of
such information, including us, to implement costly security measures, or may
materially restrict the ability of health care providers to submit information
from patient records using our applications. We utilize an architecture that
incorporates encrypted messaging, firewalls and other security methods to assure
customers of a compliant and secure computing environment. However, no security
procedure is failsafe, and we will always be subject to a potential breach of
security by wither determined human effort or inadvertent human error. If we
were found liable for any such breach, such finding could have a material
adverse affect on our business, financial condition and results of operations.
False Claims Act. Under the federal False Claims Act, liability may be
imposed on any individual or entity who knowingly submits or participates in
submitting claims for payment to the federal government which are false or
fraudulent, or which contain false or misleading information. Liability may also
be imposed on any individual or entity who knowingly make or use a false record
or statement to avoid an obligation to pay the federal government. Certain state
laws impose similar liability. The federal government or private whistleblowers
may bring claims under the federal False Claims Act. If we are found liable for
a violation of the federal False Claims Act, or any similar state law, due to
our processing of claims for Medicaid and Medicare, it may result in substantial
civil and criminal penalties. In addition, we could be prohibited from
processing Medicaid or Medicare claims for payment.
Government Investigations. There is significant scrutiny by law enforcement
authorities, the U.S. Department of Health and Human Services Office of
Inspector General, the courts and Congress of agreements between healthcare
providers and suppliers or other contractors that have a potential to increase
utilization of government health care resources. In particular, scrutiny has
been placed on the coding of claims for payment, incentive programs that
increase use of a product and contracted billing arrangements. Investigators
have demonstrated a willingness to look beyond the formalities of business
arrangements to determine the underlying purposes of payments between health
care participants. Although, to our knowledge, neither we nor any of our
customers is the subject of any investigation, we cannot tell whether we or our
customers will be the target of governmental investigations in the future.
Federal and State Anti-Kickback Laws. Provisions of the Social Security
Act, which are commonly known as the Federal Anti-Kickback Law, prohibit
knowingly or willfully, directly or indirectly, paying or offering to pay, or
soliciting or receiving, any remuneration in exchange for the referral of
patients to a person participating in, or for the order, purchase or
recommendation of items or services that are subject to reimbursement by,
Medicare, Medicaid and similar other federal or state healthcare programs.
Violations may result in civil and criminal sanctions and penalties. If any of
our health care communications or electronic commerce activities were deemed to
be inconsistent with the Federal Anti-Kickback Law or with state anti-kickback
or illegal remuneration laws, we could face civil and criminal penalties or be
barred from such activities. Further, we could be required to restructure our
existing or planned sponsorship compensation arrangements and electronic
commerce activities in a manner that could harm our business.
If compliance with government regulation of healthcare becomes costly and
difficult for us and our customers, we may not be able to grow our business as
we plan, or we may have to abandon a product or service we are providing or plan
to provide altogether.
Employees
As of March 15, 2002, we had 28 full-time and no part-time employees.
Fifteen of these employees are involved in software programming and support of
the Cymedix network, 7 are involved in the marketing and deployment of product,
and 6 are involved in our administrative and financial operations. None of our
employees is represented by a labor union, and we have never experienced a work
stoppage. We believe our relationship with our employees to be good. However,
our ability to achieve our financial and operational objectives depends in large
part upon our continuing ability to attract, integrate, retain and motivate
highly qualified sales, technical and managerial personnel, and upon the
continued service of our senior management and key sales and technical
personnel. See "Executive Officers Compensation - Employment Agreements."
Competition for such qualified personnel in our industry and the geographical
locations of our offices is intense, particularly in software development and
technical personnel.
ITEM 2. PROPERTIES
Our principal executive office is located at 420 Lexington Avenue, Suite
1830, New York, NY 10170. In addition, we have three other offices located in
Colorado, California and Georgia.
Square Expiration 2002
Footage Date Rent (est.)
----------- ------------ -----------
New York, New York 10,495 1-31-05 $212,526
Greenwood Village 5,236 7-31-03 $ 98,000
Colorado(1)
Agoura Hills, California 3.474 3-31-07 $ 69,305
Marietta, Georgia 2,060 2-28-04 $ 31,930
=========== ===========
Totals: 21,265 $411,761
(1) In connection with the sale of our remaining staffing business in 2000, we
subleased 2,735 square feet of this space to the purchaser, who will pay
$50,000 in rent annually for such space until July 31, 2002. We remain
jointly liable for rental payments on such subleased space until the end of
the sublease and liable for all the space until the end of the lease
indicated above.
In addition to the properties listed in the above table, the Company also
is liable for rental payments on an old lease in East Brunswick, New Jersey,
encompassing 7888 square feet of vacant office space. The monthly rent is
approximately $12,500, with a lease termination date of April 30, 2003.
Management is currently engaged in negotiations with the landlord to terminate
this agreement.
We believe these facilities will be suitable for our needs for the
foreseeable future. We have insured all of our properties at the levels required
to meet our lease obligations. We believe that these levels are reasonable
measures of adequate levels of insurance.
ITEM 3. 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, John Yeros, entitled Barry J. McDonald v. Medix Resources,
Inc f/k/a/ International Nursing Services, Inc. and John Yeros, (Case No.
01CV2119). The plaintiff alleges (1) breach of an employment agreement, a stock
option agreement and the related stock option plan, (2) breach of the duty of
good faith and fair dealing, and (3) violation of the Colorado Wage Claim Act.
Plaintiff seeks unspecified damages to be determined at jury trial, including
interest, punitive damages, plaintiff's attorneys fees, and a 50% penalty under
the Colorado Wage Claim Act. The Company's and its co-defendant have answered
the plaintiff's complaint, denying any liability. The Court has 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 results of operations or financial condition.
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 the duty of 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 unspecified damages to be proven at jury trial, together
with attorneys fees, costs of suit and interest on the judgment, 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.
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 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The following matters were submitted to our shareholders at the 2001 Annual
Meeting of Shareholders held on October 16, 2001:
Proposal #1 Election of Directors
For Withheld
Joan E. Herman 45,231,857 181,986
Patrick W. Jeffries 45,231,857 181,986
John R. Prufeta 45,231,857 181,986
Guy L. Scalzi 45,232,126 181,717
Proposal #2 Ratification and approval of the Board of Director's increase in the
number of shares authorized and reserved for issuance under the
Company's 1999 Stock Option Plan from 10 million shares of the Company's
common stock to 13 million shares.
For Against Abstained Not Voted
11,371,866 1,944,632 251,501 31,845,844
Proposal #3 Ratification of the selection by the Board of Directors of Ehrhardt
Keefe Steiner & Hottman PC as the Company's independent public
accountants, to audit the financial statements of the Company for the
2001 fiscal year.
For Against Abstained
45,117,923 171,218 124,702
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On April 6, 2000, our common stock was listed and began trading on The
American Stock Exchange under the symbol "MXR." Prior to that our common stock
was traded on the OTC Bulletin Board under the symbol "MDIX." The following
table shows high ask and low bid price information for each quarter in the last
two calendar years as reported by Prophet Information Services, Inc., a provider
of online historical stock price data for all major U. S. securities markets.
Such quotations reflect inter-dealer prices, without retail mark-ups, markdowns
or commissions, and may not necessarily represent actual transactions. On March
15, 2001, the last sales price was reported to be $0.55.
Common Stock Price
------------------
High Low
---- ---
2000
- -----
First Quarter $9.50 $1.88
Second Quarter 4.87 1.68
Third Quarter 3.62 1.06
Fourth Quarter 2.37 .75
2001
- ----
First Quarter $1.62 .52
Second Quarter 1.49 .41
Third Quarter 1.36 .50
Fourth Quarter 1.09 .49
There were approximately 400 holders of record (and approximately 9,000
beneficial owners) of our common stock as of March 15, 2002. The number of
record holders includes shareholders who may hold stock for the benefit of
others.
We do not expect to pay any dividends on its common stock in the
foreseeable future. Management currently intends to retain all available funds
for the development of its business and for use as working capital. The payment
of dividends on the common stock is subject to our prior payment of all accrued
and unpaid dividends on any preferred stock outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The following consolidated selected financial data, at the end of the last
five fiscal years, should be read in conjunction with our Consolidated Financial
Statements and related Notes thereto appearing elsewhere in this Report. The
consolidated selected financial data are derived from our consolidated financial
statements which have been audited by Ehrhardt Keefe Steiner & Hottman PC, our
independent auditors, as indicated in their report included herein. The selected
financial data provided below is not necessarily indicative of our future
results of operations or financial performance.
2001 2000(1) 1999 1998(2) 1997
------------- ------------ -------------- --------------- ------------
Operating revenues 29,000 326,000 24,000 17,412,000 24,875,000
Software research 1,075,000 685,000 596,000 780,000 0
and development
costs (3)
(Loss) or profit (10,636,000) (6,344,000) (5,422,000) (515,000) 610,000
from continuing
operations
(Loss) or profit (.21) (.15) (.29) (.15) .06
from continuing
operations per share
Total assets 3,101,000 5,089,000 4,629,000 5,175,000 10,140,000
Working Capital (1,404,000) 394,000 644,000 (2,612,000) (329,000)
Long-term obligations 0 0 400,000 0 0
Stockholders' Equity 1,345,000 4,202,000 2,376,000 (218,000) 4,504,000
(Deficit)
The following is supplementary information related to software development
expenses
2001 2000(1) 1999 1998(2) 1997
----------- ----------- ----------- ------------ -------------
Software
Development Costs:
Software research 1,075,000 685,000 596,000 780,000 0
and development
costs (3)
Capitalized 434,000 495,000 0 0 0
software
development costs
Total Software 1,512,000 1,180,000 596,000 780,000 0
development costs
incurred
(1) In February of 2000, we disposed of our remaining medical staffing business
and became solely a developer of software for our own use in providing
Internet based communications for the medical services industry.
(2) In January of 1998, we acquired the Cymedix software business and began the
process of disposing of our medical staffing business.
(3) Excludes amortization of previously capitalized development software costs
which are included in cost of services in the Company's Statement of
Operations
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
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
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. Created by a team of healthcare
professionals, Cymedix 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 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 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, December 31, 2000 and
December 31, 1999, respectively. At December 31, 2001, we had an accumulated
deficit of ($33,412,000), and negative working capital of ($1,404,000). These
factors and other concerns have caused our accountants to include a "going
concern" exception in their report in connection with their audit of our
financial statements for the year ended December 31, 2001.
We expect to continue to experience losses, in the near term, until such
time as our Cymedix(R)software products can be successfully deployed with
customers and produce revenue. The current operation of our business and our
ability to continue to develop and market our Cymedix software products will
depend upon our ability to obtain additional financing. At present, we are not
receiving any significant revenues from the sale of our Cymedix software
products. We are attempting to meet our current cash flow needs by raising
capital in the private debt and equity markets and through the exercise of
currently outstanding warrants. The development and marketing of the Cymedix
software products require substantial capital investments. There can be no
assurance that additional investments or financings will be available to us as
needed to support the development of Cymedix products. Failure to obtain such
capital on a timely basis could result in lost business opportunities, the sale
of the Cymedix business at a distressed price or the financial failure of our
company.
We have recently entered into a secured financing arrangement. See
"BUSINESS - Recent Developments." 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 software
products, providing software support services, evaluating demand for products,
financing a software business and dealing with government regulation of software
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 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 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 software 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 is $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 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. See "BUSINESS - Governmental Regulation."
In connection with our equity line of credit financing, we have registered
9,500,000 additional shares with the SEC for sale by the providers of the
financing, of which 5,031,371 shares remain available for issuance as of March
15, 2002. The resale of the common stock that may be issued by us under the
equity line of credit will substantially increase the number of our publicly
traded shares ("float"). If existing shareholders perceive that this increased
float is not accompanied by a commensurate increase in value to the Company,
then shareholder value--real or perceived--will be diluted. Such dilution could
cause holders of our shares of common stock to sell, thus depressing the price
of our common stock. Therefore, the very existence of the equity line financing
could depress the market price of our common stock.
The resale of the common stock that will be issued by us under our equity
line of credit financing could depress the market price of our common stock. The
terms of the equity line provide that we will sell shares of our common stock to
the providers of the financing at 91% of the average of the three lowest of the
daily volume-weighted average prices of our common stock during the 22-trading
day period immediately before our request for the advance. Therefore, since all
of the shares that are issued by us in connection with advances under the equity
line financing will have a "built-in" discount of at least 9% upon issuance,
this could produce an impetus for the providers of the equity line to resell
their shares sooner or in greater quantity than they would otherwise. Such
resale could have the effect of depressing our share price. At March 15, 2002
the Company had issued 2,748,552 shares to the equity line providers, all of
which has been sold into the public market. Trading activity related to the
liquidation of these shares shown little correlation to downward movements in
share price.
As of March 15, 2002, we had 58,386,516 shares of common stock outstanding.
As of that date, approximately 24,117,525 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 following paragraphs.
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 external 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 years ended December 31, 2001 and December 31, 2000
Total revenues decreased approximately $297,000 from $326,000 in 2000 to
$29,000 in 2001. The decrease is due to a decrease in Cymedix pilot program fees
billed during 2001 of $189,000, and a decrease in ADC revenue of $108,000 as a
result of discontinuing that business segment.
Direct costs of services increased approximately $33,000 from $180,000 in
2000 to $213,000 in 2000. The increase is due to amortization of capitalized
software development costs related to Cymedix.
Software development costs increased approximately 57% from $685,000 in
2000 to $1,075,000 in 2000, as a result of costs incurred in the ongoing
development of the Cymedix product line.
Selling, general and administrative expenses decreased approximately 3%
from $5,925,000 in 2000 to $5,746,000 in 2001. The decrease is attributable to a
company wide salary reduction program that was undertaken early in 2001.
During 2001, the Company recorded impairment expense of $1,111,000
resulting from the discontinuance of its Automated Design Concepts division
which totaled $443,000, to focus staff resources on the Company's primary
technology, and the cancellation of its Zirmed license totaling $668,000
agreement which was a result of management's assessment that the Company's needs
would be better served by superior technology.
Other income decreased approximately $151,000 from 2000 to 2001. This
increase reflects a decline in interest income that had been earned on excess
cash received and invested during 2000 from the exercise of options and
warrants.
Interest expense increased $61,000 from 2000 to 2001 due to interest that
was paid on a convertible promissory note issued during 2001.
Financing costs of $2,428,000 were incurred in 2001 due to warrants issued
and an in-the money conversion feature in connection with the convertible debt
credit facility of $581,000, a warrant issued in the private equity placement
valued at $113,000, and shares issued in the conversion of debt and related
equity share issuances at below market prices which resulted in costs of
$1,734,000.
Net gain (loss) from discontinued operations decreased approximately
$929,000 from $929,000 in 2000 to $0 in 2001, due to the sale during February
2000 of the remaining assets of the company's staffing operations.
Net loss increased approximately $5,221,000 from $5,415,000 in 2000 to
$10,636,000 in 2001 due to the reasons discussed above.
Comparison of years ended December 31, 2000 and December 31, 1999
Total revenues increased approximately $302,000 from $24,000 in 1999 to
$326,000 in 2000. The increase is due to Cymedix pilot program fees billed
during 2000, and ADC revenue from the date of acquisition (March 8, 2000)
through December 31, 2000.
Direct costs of services increased approximately $178,000 from $2,000 in
1999 to $180,000 in 2000. The increase is due to amortization of capitalized
software development costs related to Cymedix of $124,000, as well as costs
associated with ADC revenue of $16,000, from the period March 8, 2000 through
December 31, 2000.
Software development costs increased approximately 15% from $596,000 in
1999 to $685,000 in 2000, as a result of costs incurred in the ongoing
development of the Cymedix product line. During the third quarter of 2000 the
company began capitalizing and amortizing software development costs.
Selling, general and administrative expenses increased approximately 57%
from $3,777,000 in 1999 to $5,925,000 in 2000. The increase is due primarily to
an increase in executive management and operational salaries and benefits as of
$1,088,000, as well as consulting fees related to employee recruitment and
placement of $272,000, and legal, accounting and advisory services of $248,000.
Net loss from operations increased approximately $2,113,000 from $4,351,000
in 1999 to $6,464,000 in 2000. This increase is primarily due to the increases
in selling, general and administrative expenses described above.
Other income increased approximately $156,000 from 1999 to 2000. This
increase reflects interest income on excess cash received and invested during
the year from the exercise of options and warrants.
Interest expense decreased 79%, or approximately $161,000 from 1999 to 2000
due to interest that was paid and imputed on a convertible promissory note
during 1999.
Net loss from continuing operations increased approximately $1,796,000 from
$4,548,000 in 1999 to $6,344,000 in 2000 due to all of the reasons discussed
above.
Net gain (loss) from discontinued operations increased approximately 411%
or $1,228,000 from $(299,000) in 1999 to $929,000 in 2000, due to the sale
during February 2000 of the remaining assets of the company's staffing
operations.
Net loss increased approximately $568,000 from $4,847,000 in 1999 to
$5,415,000 in 2000 due to the reasons discussed above.
Liquidity and Capital Resources
We had $8,000 in cash as of December 31, 2001 compared to $1,007,000 in
cash as of December 31, 2000 and $1,229,000 as of December 31, 1999. Net working
capital was ($1,404,000) as of December 31, 2001 compared to $394,000 as of
December 31, 2000 and $644,000 as of December 31, 1999. During 2001, net cash
used in operating activities was $5,397,000 compared to $5,173,000 in 2000.
During 2001, we raised $1,500,000 from a convertible note financing, $1,200,000
from private placements of our common stock, $1,510,000 from our equity line of
credit and $369,000 from exercise of options and warrants. During 2000, we
raised $6,091,000 from the exercise of options and warrants. During 1999, we
raised $4,112,000 from private placements of preferred stock, $500,000 from
issuance of a convertible promissory note, and $150,000 from exercise of options
and warrants.
Subsequent to year-end and through March 15, 2002, we received
approximately $3,800 from the exercise of options and warrants, $1,000,000 from
a secured convertible note financing, and $883,000 from our equity line
financing. As of March 15, 2002, we had outstanding warrants exercisable for
5,136,000 shares of common stock, exercisable at $0.50 per share, with a
aggregate exercise price of $2,568,000 which are callable for $.01 per warrant
upon thirty days written notice. However, no assurance can be given that if
called such warrants would be exercised. From time to time, members of senior
management have made short-term loans to us to meet payroll obligations.
However, there is no commitment to continue that practice.
We will continue to have financing costs charged to our statement of
operations in the future for convertible debt we issue with in-the-money
conversion features.
Currently, we are funding our development and deployment activities through
an equity line of credit financing. Draws under this financing are triggered by
a "Put Notice" (advance request) initiated by ourselves each time we wish to
draw funds. The financing investors are committed to accept the advance request
provided certain conditions are met, some of which may be waived by agreement
among the parties. Such advance request obligates us to issue to the investors
shares of our common stock at a discount to market which is fixed in the
contract. The shares are immediately re-saleable in the public markets by the
investors. As of March 15, 2002, we had received $2,584,910 in advances, from
which offering expenses of $191,278 was paid under the financing, and we had
issued to the investors 4,468,629 shares of our common stock relating to the
advances and an additional 542,847 shares to their affiliates as fees for
arranging the equity line facility. The shares issued pursuant to the equity
line advances to date have been priced from $0.46 to $0.77 per share.
We expect to continue to experience loses and negative cash flows from
operations, in the near term, until such time as we are deployed on physicians'
desktops in sufficient numbers to cover our overhead The current operation of
our business and our ability to continue to further develop and deploy our
Cymedix software products will depend upon our ability to obtain additional
financing. At present, we are not receiving any significant revenues from the
sale of our Cymedix software products. We are attempting to meet our current
cash flow needs by raising capital in the private debt and equity markets and
through the exercise of currently outstanding warrants. The development and
marketing of the Cymedix software products require substantial capital
investments. There can be no assurance that additional funding, if needed, will
be available on terms acceptable to us, or at all. Failure to obtain such
capital on a timely basis could result in lost business opportunities, the sale
of the Cymedix business at a distressed price or the financial failure of our
company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not hold or engage in transactions with market risk
sensitive instruments
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Attached hereto and filed as a part of this Form 10-K are our Consolidated
Financial Statements, beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
Our directors and executive officers, as of the March 15, 2002, and their
biographical information are set forth below:
Name Date of Birth Position Director Since
- ------------------------- ---------------- ------------------------- -----------------
John R. Prufeta (1)(4)(5) 7/1/60 President, Chief Executive 1999
Officer and a Director
Louis E. Hyman 1/15/68 Executive Vice President and N.A.
Chief Technology Officer
Patricia A. Minicucci 4/1/49 Executive Vice President for N.A.
Operations
Gary L. Smith 6/2/54 Executive Vice President and N.A.
Chief Financial Officer
Brian R. Ellacott 3/8/57 Senior Vice President and N.A.
Division CEO, Southeast
Region
John T. Lane (1)(2)(3)(4) 4/13/42 Director and Chairman of 1999
The Board
Samuel H. Havens (4)(5) 6/19/43 Director and Chair of the 1999
Nominating Committee
Joan E. Herman (2)(3) 6/2/53 Director and Chair of the 2000
Audit Committee
Patrick W. Jeffries(4) 1/25/53 Director and Chair of the 2001
Finance Committee
Guy L. Scalzi(5) 7/18/46 Director 2001
Dr. David B. Skinner (1) (3) (24/28/35 Director and Chair of the 1999
Compensation Committee
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Finance Committee
(5) Member of Nominating Committee
All of the our executive officers devote full-time to our company's
business and affairs. Biographical information on each current executive officer
and director is set forth below.
Biographical Information
John R. Prufeta. Mr. Prufeta joined the Company as a full time employee and as
its President and Chief Executive Officer on March 1, 2000. Mr. Prufeta also is
the Chairman of the Board of the Company's Cymedix Lynx subsidiary. He had been
appointed to the position of Chief Executive Officer while a consultant to the
Company in October 1999. Prior to that he was the Managing General Partner of
The Creative Group, Creative Health Concepts, and TCG Development, and the
President and Chief Executive Officer of Creative Management Strategies, Inc.
for over 11 years. Those affiliated companies cover a wide spectrum of services
within the healthcare industry. He was elected to the Company's Board of
Directors in April 1999. A 1983 graduate of St. John's University with a B.S. in
management, Mr. Prufeta graduated from the Executive Program, OPM at Harvard
University, Graduate School of Business.
Louis E. Hyman. On May 14, 2001, Mr. Hyman became an officer of the Company with
the titles of Executive Vice President and Chief Technology Officer. Prior to
that, since March 9, 2001, he was a consultant to the Company, serving as
interim Chief Technology Officer. From September 1999 until joining Medix, Mr.
Hyman was President and CEO of Ideal Technologies, Inc., a healthcare
integration consulting firm. Mr. Hyman held senior technology management and
executive positions with CareInsite, Inc. (from August 1999 to September 2000 as
Vice President of Information Technology) and LaPook Lear Systems Inc. (from
August 1992 to August 1999 as Vice President and Director of Technology), both
of which were merged into WebMD, Inc. in September 2000. As a result of these
transactions, Mr. Hyman maintained his position as Vice President of Information
Technology with WebMD through November 2000, where he played a key role in
WebMD's integration efforts as well as initiatives to improve the Company's
profitability. He graduated Summa Cum Laude from St. John's University where he
earned a B.S. degree in Computer Science.
Patricia A. Minicucci. In March 2000, Ms. Minicucci joined the Company as
Executive Vice President of Operations. Prior to joining Medix's staff, Ms.
Minicucci served as Executive Vice President and a principal of Creative Health
Concepts. In 1995, she founded and was Chief Executive Officer of Practice
Paradigms, an organization serving primary care physicians. Prior to founding
Practice Paradigms, Minicucci was Senior Vice President-Managed Care with Empire
Blue Cross Blue Shield and, before that, President of the Employee Benefits
Division of Washington National Corporation. Ms. Minicucci began her career in
healthcare at CIGNA Corporation where she held numerous positions, including
President of the South Central Division, CIGNA Healthplan Inc.; Vice President
of the Human Resources Division, Employee Benefits Group; Vice President of the
Human Resources Department, Group Insurance Division; and Regional Vice
President of Field Claim Operations, Group Insurance Division. She holds a B.A.
in History from Russell Sage College.
Gary L. Smith. Mr. Smith joined the Company as Executive Vice President and
Chief Financial Officer in December of 2000. From 1995 to 2000, Mr. Smith was
with Provident Group, a financial advisory firm serving companies operating in
emerging market countries, where he was a principal. Previously, Mr. Smith was
an executive of American Express Bank, the international banking arm of the
financial services conglomerate American Express Corporation (NYSE: AXP), where
he held various senior financial positions, most recently as Senior Director and
Commercial Banking Head, London Branch. He holds a BS degree in Economics from
the Wharton School and an MS in Accounting and Finance from the London School of
Economics.
Brian R. Ellacott. In March 2000, Mr. Ellacott joined the Company as Senior Vice
President of Business Development. In mid-2001, Mr. Ellacott was appointed as
the Division CEO for Southeast Region Markets. Mr. Ellacott served as president
of Cosmetic Surgery Consultants from November 1998 until March 2000, when he
joined Medix Resources, Inc. From 1996 to 1998 he was executive vice president
of Alignis Inc., an alternative healthcare PPO. Before that, he was
President-Bibb Hospitality (Atlanta) for The Bibb Company. Mr. Ellacott began
his career in healthcare at Baxter International/American Hospital Supply where
he held numerous positions, including Director of National Accounts (Chicago);
Director of Marketing (Australia); Director of Marketing (Canada); Systems
Manager (Canada); Regional Manager (British Columbia); and Product Manager
(hospital products). He holds a B.A. in Business Administration, with Honors,
from Wilfrid Laurier University (Waterloo, Canada).
John T. Lane. Prior to his retirement from J.P. Morgan & Company in 1994, Mr.
Lane was head of that firm's U.S. Private Clients Group. He also served as
Chairman of J.P. Morgan, Florida; a Director of Morgan Shareholder Services,
J.P. Morgan of California, and Morgan Futures; and a member of the firm's Credit
Policy committee. Earlier, he held a number of positions in the J. P. Morgan
organization, which he joined in 1968. Since retiring from J.P. Morgan, Lane has
served as a consultant to various organizations. Mr. Lane currently serves or
the Boards of Acme Metals Incorporated and Biospecifics Technologies Corp.,
whose common shares are publicly traded. Mr. Lane holds an MBA degree from the
University of Michigan, and a BA degree from Dartmouth College.
Samuel H. Havens. Prior to his retirement in 1996, Mr. Havens served as
President of Prudential Healthcare for five years. He had begun his career with
The Prudential Insurance Company as a group sales representative in 1965, and
served in various posts in Prudential healthcare operations over three decades.
Since retiring, Mr. Havens has served on the Board and as a consultant to
various healthcare organizations. He is a member of the Board of Advisors of
Temple Law School and the Editorial Board of Managed Care Quarterly. Havens
completed the Executive Program in Business Administration at Columbia
University. He holds a JD degree from Temple Law School, a CLU from the American
College of Life Underwriters, and a BA degree from Hamilton College.
Joan E. Herman. Ms Herman is the Group President of WellPoint's Senior,
Specialty, and State Sponsored Programs division and is responsible for the
Company's Dental, Life & AD&D, Pharmacy, Behavioral Health, Workers'
Compensation Managed Care Services, Senior Services, and Disability businesses.
She is also responsible for WellPoint's State Sponsored Programs, which include
MediCal and Healthy Families. In 1999, a WellPoint affiliate entered into an
agreement with the Company to implement a pilot program for the introduction of
Cymedix(R) software to healthcare providers identified by such affiliate. Ms.
Herman serves on the Company's Board of Directors pursuant to the terms of that
agreement. Prior to joining WellPoint in 1998, Ms. Herman was the Senior Vice
President, Strategic Development and Senior Vice President, Group Insurance for
Phoenix Home Life Mutual Insurance Company. Ms. Herman has served as chairman of
the board of Leadership Greater Hartford and been a member of the board of
directors of the American Academy of Actuaries, the American Leadership Forum,
the Hartford Ballet, the Greater Hartford Arts Council, and the Children's Fund
of Connecticut. She is a member of the American Academy of Actuaries and a
Fellow of the Society of Actuaries. Ms. Herman holds an MA in Mathematics from
Yale University, an MBA from Western New England College, and an A.B. in
mathematics from Barnard College.
Patrick W. Jeffries. In March 2002, Mr. Jeffries became the Executive Vice
President for IT and Central Services of WellPoint Health Networks Inc. Mr.
Jeffries is the founding partner of Health Technology Partners, LLC and a
predecessor company, which was founded in 1997 and provides consulting services
for healthcare and technology companies. From August 1997 to March 1999, Mr.
Jeffries was the CEO and Chairman of the Board of OpTx Corporation, during which
time he lead this disease management company in its transition from a late
development stage company to commercial profitability. From December 1995 to
July 1997, he was Executive Vice President of Salick Health Care, Inc., a
national system of cancer treatment facilities. From 1985 to 1995, Mr. Jeffries
was first an associate and then a partner of McKinsey & Company, Inc., an
international management consulting firm. He holds an MBA from Cornell
University and a BSEE from Washington University.
Guy L. Scalzi. Mr. Scalzi is Vice President of First Consulting Group Management
Services, LLC, a healthcare information technology consultant. Prior to joining
that company in January 2000, he was Senior Vice President and Chief Information
Officer for New York Presbyterian Healthcare System from April 1996 to December
1999. From January 1995 to March 1996, Mr. Scalzi was Director of Planning for
Information Services at New York Hospital-Cornell Medical Center. From June 1993
to December 1994, he was Chief Information Officer, The Hospital for Joint
Diseases, New York University Medical Center. From 1984 to 1993, he was a
founder and senior executive with DataEase International, Inc., an international
PC software development and marketing company. Mr. Scalzi has an MBA from
Manhattan College and a B.S. degree from The State University of New York at
Oswego.
Dr. David B. Skinner. Dr. Skinner is President Emeritus of the New
York-Presbyterian Hospital and the New York-Presbyterian Healthcare System. He
was Vice Chairman/President and CEO of the Society of the New York Hospital and
its Healthcare System and subsequently of the merged institution for 13 years.
He is also a professor of cardiothoracic surgery and surgery at the Weill
Medical College of Cornell University, professor of surgery at Columbia
University College of Physicians and Surgeons, and an attending surgeon at New
York Presbyterian Hospital. He was professor of surgery at Johns Hopkins
University School of Medicine from 1968 to 1972, and professor and chairman of
surgery at the University of Chicago, Pritzker School of Medicine from 1973 to
1987. Dr. Skinner has been awarded numerous honorary degrees, faculty
appointments, corporate directorships, and domestic and international honors,
awards, and prizes. Dr. Skinner holds a BA degree, with high distinction, from
the University of Rochester and an MD degree, cum laude, from Yale University.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors and executive officers, and persons who own more than 10% of a
registered class of a company's equity securities, to file with the U. S.
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of the Company's common stock and other equity securities.
Officers, directors and greater than 10% shareholders are required by Securities
and Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) reports they file. Based solely upon such reports, we believe that
none of such persons failed to comply with the requirements of Section 16(a)
during 2001.
ITEM 11. EXECUTIVE COMPENSATION
Executive Officer Compensation
Summary Compensation Table. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company for the
three years ended December 31, 2001, awarded or paid to, or earned by our Chief
Executive Officer ("CEO") and our four other most highly compensated officers
(the "Named Officers").
Long-Term
Annual Compensation Compensation
-------------------- ------------
Securities
Underlying
Name and Fiscal Options
Principal Position Year Salary Bonus Other(1) (Shares)
- ------------------ -------- ----------- ----------- ------------ ------------
John R. Prufeta 2001 $114,000 0 425,000
President and CEO 2000 $120,000 0 600,000
1999 $171,000(2) 0 925,000
Louis E. Hyman, 2001 156,625(3) 0 250,000
Executive Vice
President and
Chief Technology
Officer
Patricia A. $197,000 0 175,000
Minicucci 2001 $163,846 0 400,000
Executive Vice
President for 2000
Operations
Gary L. Smith, 2001 $197,000 0 175,000
Executive Vice 2000 $2,430 0 250,000
President and
Chief Financial
Officer
Brian R. Ellacott 2001 $165,000 0 175,000
Senior Vice 2000 $125,769 150,000
President
(1) Other annual compensation, except as noted, is made up of automobile
allowances, and disability and health insurance premiums, in amounts less
than 10% of the officer's annual salary plus bonus.
(2) During 1999, Mr. Prufeta served as a consultant to the Company pursuant to
a consulting agreement between the Company and his employer, Creative
Management Strategies, Inc., which company was paid or accrued the amount
shown above and received options to purchase 25,000 shares of Common Stock,
included in the amount shown. He became an employee of the Company in early
2000.
(3) During 2001, Mr. Hyman, through an affiliated entity, served as a
consultant to Medix before he became a full time employee and executive
officer. This amount includes the consulting compensation to his firm. He
also received a grant of options to purchase 20,000 shares for his
consulting services.
Stock Option Awards. In August 1999, our Board of Directors approved and
authorized our 1999 Stock Option Plan (the "1999 Plan"), which is intended to
grant either non-qualified stock options or incentive stock options, as
described below. In 2000, our shareholders approved the 1999 Plan. The purpose
of the 1999 Plan is to enable our company to provide opportunities for certain
officers and key employees to acquire a proprietary interest in our company, to
increase incentives for such persons to contribute to our performance and
further success, and to attract and retain individuals with exceptional
business, managerial and administrative talents, who will contribute to our
progress, growth and profitability.
Options granted under our 1999 Plan include both incentive stock options
("ISOs"), within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and non-qualified stock options ("NQOs"). Under
the terms of the Plan, all officers and employees of our company are eligible
for ISOs. Our company determines in its discretion, which persons will receive
ISOs, the applicable exercise price, vesting provisions and the exercise term
thereof. The terms and conditions of option grants differ from optionee to
optionee and are set forth in the optionees' individual stock option agreement.
Such options generally vest over a period of one or more years and expire after
up to ten years. In order to qualify for certain preferential treatment under
the Code, ISOs must satisfy the statutory requirements thereof. Options that
fail to satisfy those requirements will be deemed NQOs and will not receive
preferential treatment under the Code. Upon exercise, shares will be issued upon
payment of the exercise price in cash, by delivery of shares of Common Stock, by
delivery of options or a combination of any of these methods. At our 2001 Annual
Meeting, our shareholders approved an increase of 3,000,000 shares to 13,000,000
as the amount of total shares of our Common Stock reserved for issuance under
the 1999 Plan.
As of March 15, 2002, we had issued 5,736,560 shares of our Common Stock
upon exercise of options to current or former employees and directors, and have
6,568,667 shares currently covered by outstanding options held by current or
former employees and directors, with exercise prices ranging form $.19 to $4.97.
Such options have been granted under the 1999 Plan and earlier stock option
plans.
Option information for fiscal 2001 relating to the Named Officers is set
forth below:
Options Granted in 2001
Number of
Shares of Percentage
Common of
Stock Total Valuation
Underlying Options under
Options Granted to Black-
Granted Employees Scholes
in in Exercise Expiration Pricing
Name 2001 2001 Price Date Method(1)
- ------------------ ------------- ------------- --------- ----------- ----------
John R. Prufeta 400,00 21.2% $.62 4/17/06 $217,755
25,000 1.3% $.60 3/23/06 $ 13,171
Louis E. Hyman 230,000 12.2% $.61 5/14/06 $123,190
20,000 1.1% $.70 3/03/03 $ 15,580
Patricia A. 150,000 7.9% $.61 5/14/06 $ 80,341
Minicucci 25,000 1.3% $.60 3/23/06 $ 13,171
Gary L. Smith 150,000 7.9% $.61 5/14/06 $ 80,341
25,000 1.3% $.60 3/23/06 $ 13,171
Brian R. Ellacott 150,000 7.9% $.61 5/14/06 $ 80,341
25,000 1.3% $.60 3/23/06 $ 13,171
(1) The Black-Scholes option-pricing model estimates the options fair value
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 fair values calculated above use expected volatility
of 132%, a risk-free rate of 5.5%, no dividend yield and anticipated exercise at
the end of the term.
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End at Year-End(1)
Shares Value ----------------------------- --------------------------
Name Exercised Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------- --------- -------- ------------ ------------- ----------- -------------
John R. Prufeta 0 0 1,450,000(2) 500,000 $258,250 $80,000
Louis E. Hyman 0 0 112,500 137,500 $ 8,325 $12,375
Patricia A. 0 0 575,000 0 $ 16,000 $ 0
Minicucci
Gary L. Smith 0 0 325,000 100,000 $ 16,000 $ 0
Louis E. Hyman 0 0 112,500 137,500 $ 8,325 $12,375
Brian R. Ellacott 0 0 312,500 12,500 $ 16,000 $ 0
- --------------
(1) The dollar values are calculated by determining the difference between
$0.70 per share, the fair market value of the Common Stock at December 31,
2001, and the exercise price of the respective options.
(2) Includes options covering 25,000 of these shares were granted to a company
that is an affiliate of Mr. Prufeta for executive search services.
Medix has no retirement, pension or profit-sharing program for the benefit
of its directors, executive officers or other employees, but the Board of
Directors may recommend one or more such programs for adoption in the future.
Medix does not make any contributions to its 401(k) Plan for its employees.
Employment Agreements.
Mr. Prufeta's Employment Agreement, which has an initial term of one year
and renews in automatic one year increments thereafter, provides that he will be
compensated at the base salary of $275,000 annually, plus a bonus of $400,000,
subject to certain performance criteria. He holds the positions of President and
Chief Executive Officer and reports to the Board of Directors. Pursuant to his
Employment Agreement, Mr. Prufeta has been granted options to purchase 200,000
shares of Common Stock at $.70 per share, which vest upon the occurrence of
certain performance goals. His Employment Agreement provides for termination at
any time by the employee with or without cause or by the Company with cause. The
Employment Agreement is also subject to termination by the Company without
cause, after the initial one-year of the term subject to the right of the
employee to continue to receive salary and pro-rata bonus compensation for 6
months. The Employment Agreement also contains a non-compete provision that
extends for a period of one year after termination or resignation of the
employee, as well as certain confidentiality provisions. The Employment
Agreement contains provisions providing that, upon the occurrence of a
"Triggering Event" (defined to include a change in ownership of 50% of the
outstanding shares of the Company's Common Stock through a merger or otherwise)
during the term of his employment, he will receive a lump sum payment equal to
his then current year's base and bonus pay.
Mr. Hyman's Employment Agreement, which has an initial term of two years,
ending on May 14, 2003, provides that he will be compensated at the salary of
$200,000 annually. He holds the position of Executive Vice President and Chief
Technology Officer, and reports to the President and CEO. Pursuant to his
Employment Agreement, he has been granted options to purchase 230,000 shares of
Common Stock at $.61 per share, which vest over the 2-year term of his
Employment Agreement. His Employment
Agreement provides for termination at any time by the employee with or
without cause or by the Company with cause. The Employment Agreement is also
subject to termination by the Company without cause after the initial one-year
of the term, subject to the right of the employee to continue to receive
compensation for 6 months. The Employment Agreement also contains a non-compete
provision that extends for a period of one year after termination or resignation
of the employee, as well as certain confidentiality provisions. The Employment
Agreement contains provisions providing that, upon the occurrence of a
"Triggering Event" (defined to include a change in ownership of 50% of the
outstanding shares of the Company's Common Stock through a merger or otherwise)
during the term of his employment, he will receive a lump sum payment equal to
his then current year's base and bonus pay.
Ms. Minicucci's Employment Agreement, which had an initial term of two
years, ending on March 1, 2002, provided that she be compensated at the salary
of $200,000 annually. Such term has been extended to May 1, 2002. She holds the
position of Executive Vice President, Operations, and reports to the President
and CEO. Pursuant to her Employment Agreement, she has been granted options to
purchase 400,000 shares of Common Stock at $4.97 per share, which vest over the
2-year term of his Employment Agreement. Her Employment Agreement provides for
termination at any time by the employee with or without cause or by the Company
with cause. The Employment Agreement is also subject to termination by the
Company without cause after the initial one-year term, subject to the right of
the employee to continue to receive compensation for 6 months. The Employment
Agreement also contains a non-compete provision that extends for a period of one
year after termination or resignation of the employee, as well as certain
confidentiality provisions. The Employment Agreement contains provisions
providing that, upon the occurrence of a "Triggering Event" (defined to include
a change in ownership of 50% of the outstanding shares of the Company's Common
Stock through a merger or otherwise